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"FLASH" of Lightning )
Financial Brokers for Business & Commercial Loans July 2007
In this issue
  • Investment Real Estate - How Do I avoid the Pitfalls?
  • Key Commercial Loan Rates
  • Franchise Financing, Can the SBA Help me?
  • Ask the Broker?
  • Greetings Harlan,

    Welcome to "Flash" of Lightning, our monthly newsletter.

    We've written this brief newsletter to keep you, our friend and client abreast of the latest information regarding all areas of financing. We will share with you relevant articles that pertain to financing either commercial projects or business acquisitions.

    Harlan A. Friedman, President & Broker

    Investment Real Estate - How Do I avoid the Pitfalls?

    Now that we have concluded our discussion about investment types, I now want to shift our focus in the coming newsletters to Financing lessons we have learned over the years.

    These case histories will hopefully shed some light on how lenders think. Most of the following examples are going to be what I termed great lessons learned, however with no economic return for the investor or us the broker.

    Why do I choose to share our failures with you?, because as Thomas Edison stated, he did not fail 10,000 times, he instead found 10,000 ways not to create a light bulb.

    This months scenario we are to share with you is a development scenario that occurred over the last year. The lesson in this scenario is that a deal is not approved until FINAL, FINAL, & FINAL underwriting is concluded. As a broker we do not put up the money to close the loan or build the project. What we do is expedite the entire process as expeditiously as possible. We find the lender, provide all the documentation and then wait for Letters of Interest from our BDO's ( Business Development Officer)

    After approval is given by our BDO, we package the loan and then the waiting begins. We wait for the appraisal to be ordered, we wait for the Phase One to be ordered, we wait for all the construction budgets to be reviewed, we wait for the final analysis of our clients credit, resume, background check, and other information on their application to be scrutinized. (Remember these loans are not sold, they are held by the commercial lender in their portfolio)

    After forty five to ninety days on a large construction project, the data starts to come in. What originally looked like a six million dollar project value is reduced by the appraiser because he feels that the bulk sale value (that value that an investor would pay for the project in a lump price due to a distressed sale. is less than what my client had projected as his finished sale value. What my client did not realize is that Banks, and Investors always look at the worst case not the best case. So my client was forced to put more money into the deal, which they did not have immediate access to.

    So, the long and short of this scenario is to show that even though everything is looking great at the beginning of the analysis something such as an appraisal can Kill a project, and all the time and money is for naught. Be aware of a BDO or anyone that tells you that your project is going to be approved early on in the process. Unless the person with the money tells you that the project is approved its not approved. Proceed with caution until final underwriting has closed the deal. With commercial, anything can and usually does happen that change values, and therefore underwriting requirements.

    Clients have to be prepared for these inevitable changes, They have to be able to show to the lender that they can weather an economic storm. They must be flexible as underwriting may dictate different terms and conditions from those that were expected.

    Having shared the above with you we still have over a 85% success rate that the deal will close once a project goes into underwriting.

    Key Commercial Loan Rates

    Key Commercial Loan Indexes

    Fed Prime Rate 8.250%

    10-Year CMT 5.000%

    30-Year CMT 5.090%

    USD 6 MOS LIBOR 5.386%

    As of July 5, 2007

    Franchise Financing, Can the SBA Help me?

    The desire to run your own business is one that is instilled within mankind. From the elementary students with their lemonade stand to the high school "wiz" kids creating their own technologically based business, its a driving desire that needs to be satisfied.

    Many individuals at one time or another in their lifetime will start a business. Some will opt to start it from scratch, while other want a proven method or a system to implement, to help reduce the chance of failure.

    Franchises are that proven system. Franchise are sold to buyers who are looking for a turn key operation. All a franchisee has to do in essence is to find a successful location, and implement the system of the franchisor. I know I'm simplifying this process but this is an article about financing not purchasing a franchise.

    So for lets now assume that you've done your due diligence and have decided that the franchise opportunity that you've always been seeking is the right one. How do you finance it?

    The first option is always cash. Cash from yourself or close relatives. Cash is king and if you have the cash, a franchise can be yours for the asking. However lets further assume now that you have a portion of the needed cash but not the entire franchise fee. Can you go into your local bank and borrow the balance of the funds. As my Loan Originators are fond of saying "It Depends"

    It Depends on the 5C's +E as has been discussed in numerous articles and will not be repeated here. Call our office for a complete discussion of the 5 C's + E. What will be discussed here is the approval process of the SBA. Assuming that you meet all of the credit worthiness issues can the SBA Finance a Franchise?

    The SBA can and does regularly finance "APPROVED" Franchises. The SBA publishes the Franchise Registry which lists all approved franchises for SBA Financing. Not all franchises are approved for SBA Financing so the first step to determine if you can utilize Bank Financing is to go to the registry and look for your particular franchise. Many of the franchises listed are not listed by their common name. So you may have to find out who the parent company is while checking the list.

    Can I assume that if my franchise is listed that the Bank will automatically approve me for SBA Financing providing I pass the credit worthiness of the underwriting process? I wish I could say yes but that regrettably is not the case. Many of the local banks do not want to fiance individuals purchasing their first franchise even though you are buying a proven system. So locating an aggressive lender becomes the key. That's where we come in.

    Once we verify that your particular franchise is approved by the the SBA we search out a lender and work with you to get your franchise closed.

    Is there anything I can do if my franchise is not approved to get it approved. Wait till next month and we'll share with you the process of getting your franchise approved with the SBA

    Ask the Broker?

    I've been approved for an SBA Loan, but my landlord refuses to sign the Landlord Waiver, my lender tells me that they will not close without this document, what's this all about?

    Robert, San Diego

    Robert what you're asking about is the Landlord Waiver. A landlord has to give up their rights to the Bank to any collateral or trade fixtures that you install within your place of business. Most landlords reserve their right within their lease agreement to protect them if you should default on your lease payments. What the Bank is asking the landlord to do is to subordinate their legal right to them. So in the event of a defaulted loan the lender has some collateral that they can sell to recoup some of their loss. Also the Bank now has control over the premises, not the landlord. The only advise I have for you is that prior to entering into a lease arrangement that you discuss this issue with your landlord if you know you are going to be seeking investor/bank financing.

    No SBA lender will allow a loan to close without this very valuable document being executed.

    Please email your questions to "Ask Your Financial Broker" at

    P.S. If you are interested in joining our company please contact either Harlan or David directly. We will be expanding this year and would like to have you join us. For those financially astute individuals we offer a proven system to build your commercial finance business along with comprehensive training.

    UP-Coming Seminars
    Call the Office at 858-592-0659 for upcoming topics, times and dates.

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    phone: 858-592-0659

    Lightning Commercial Funding, Inc. | 16486 Bernardo Center Drive | Suite 100 | San Diego | CA | 92128