Do and Dont's for working with real funding sources at this level....
Here are a few suggestions on the protocols that are expected in large financial transactions such as those that we normally deal with…
DO’s ~ Please submit a concise Executive Summary that does not require signing an NDA Agreement. Keep it short and sweet. We don’t need to know the entire history of an industry, just things like: what you will supply and why there is demand for it; what experience your team has in the industry; what resources and special talents your team brings; how much you have invested in the project so far; what has been accomplished with that investment; how much need to make it successful; what your plans is to repay the loan or investment; and other top-level important information. Keep your executive summary short, no more than two or three pages. Use images if you like, but don’t let it become a sales brochure.
Do: Allow plenty of time and research your funding options well before you intend to come to market. Funding processes can take as much as eight months to complete depending on project value and type.
Do: follow the funder’s processes and protocols. The quickest way to have your file closed is to demand that things are done your own way.
Do: Respond promptly to requests for information from the funder. Delay and incomplete and/or suspicious information will push your deal to the bottom of the processing pile.
Do: Be careful who you deal with. A sure sign that you’re dealing with a ‘joker broker’ is being asked to agree to pay them 2%, 5% or even more on completion before you even know who the funding source is going to be. Lender and investors do not want their money disappearing into broker chains. You need to deal with a genuine gatekeeper, like Intelligent Funding and its Strategic Partners.
Do: Expect to pay costs in advance. If accepted as a client of our funding sources, you will be expected to help bear the costs of performing due diligence and preparing the required documents. This is an intense and draining process, complete and speedy cooperation is required.
DON’T’s: Don’t send files without proper file names. We need to know what each file contains, clearly presented. Please take advantage of modern computer standards like Windows – which allow file names of up to 256 characters. Cryptic names like Ca_Flow10 can be written out as “Cash flow Projections 2010”.
Don’t give us one of those “I’m not going to pay any fees as I've been ripped off before…” stories. We hear that a lot. We’re truly sorry, but it does not change the fact that, with few exceptions genuine, serious lenders and investors incur banking, legal, collateral and other costs and they are not going to do that without a show of commitment from the client.
Don’t expect the funder or gatekeeper to help you with putting your business plan together, or do other things for you that you should have done yourself, unless you are willing to pay a professional services fee.
Don’t think you’re the only game in town. No matter how big or special your project, you’re one of hundreds that come to market every week. Most fail for many different reasons. The best guarantee of success is to be fully prepared, leaving nothing to chance and to work within the funder's processes.
Don’t demand references on completed transactions – especially before you've even committed to a funding process. In this market, every deal is covered in confidentiality agreements and most funding processes are proprietary. Genuine funders will either meet with you and show you evidence of completed deals (which for confidentiality reasons cannot be attached to e-mails), or depending on the process some other form of 'comfort' will be provided.
Don't always expect to find your funder on Google or any other search engine. Most serious funders in the alternative capital market represent private money, and they want their transactions to remain private and prefer to maintain their own privacy by in-taking their deals through gatekeepers in order not to be inundated with time-wasting propositions.
DUE DILIGENCE FEES:
It is very important that applicants understand that they are expected to cover the cost of the funding source’s investigative work and travel to their company during the due diligence process. Investors do VERY THOROUGH due diligence before deciding whether to invest in a project, and ALL applicants go through due diligence, most at their own expense because too many applicants lie and submit fraudulent applications that become declined. An enormous issue within the banking and investment company industries is the growing, alarming percentage of applicants who commit fraud. Borrower fraud has become the biggest problem in the investment industry, because applicants who are being rejected by banks and investment companies, who have been searching for funding for years, unsuccessfully attempt to receive funding by submitting fraudulent applications for funding.
If a client is not prepared to pay this due diligence fee, then funding sources will not work with them, this is not negotiable. Funding sources do not give millions of dollars to companies without a due diligence process beforehand. This is not only common sense it is good business sense. Go to a bank, apply for a loan, and see if the bank has you fill out forms, answer many questions about yourself and your company and pay fees related to applying for a loan, before you receive any money, then you'll better understand a due diligence process, and how this industry works.
ALL banks charge fees when applying for funding, go to your nearest bank, apply for a loan, the first question is do you have an account with our bank? If yes, the bank wants to verify cash assets because banks and investment companies pay fees to accountants, attorneys, and industry experts related to your project. If you've ever hired any of these people, they charge hundreds of dollars per hour for their time and frequently want to be paid BEFORE they start working. Because of applicants who commit fraud, banks and investment companies will not absorb that cost only to find out later that you are a liar or a fraud, THAT IS WHY banks and investment companies ask all applicants to pay their fees for accountants, attorneys, industry experts, and a due diligence investigation to verify if you are honest or a lying fraud.
Funding sources verify the accuracy of all information submitted during the funding process and if an applicant has lied and submitted a fraudulent application, the project will be declined for funding. No funding source will “guarantee” funding because due diligence is required to verify the accuracy and honesty of the applicant and the applicant’s submitted paperwork, and some applicants lie. Investors are interested in making profitable investments in which the client company and the investor both earn a lot of money. Funding sources will not use their own funds to investigate a project, and operate at a financial loss, neither will banks. Investments are about calculating the amount of perceived risk and managing that risk, and the due diligence process is about a potential investor finding out about the company seeking funding, the members of its management team, and gauging if the company is a potentially profitable investment.
Another reason investment companies perform due diligence is because some investments become uncollectible accounts receivable when the client is no longer able to repay debt. As a result, banks and investment companies are going to perform due diligence to reduce the risk of lending money that is not repaid. It is also why banks and investment companies ask for notarized bank statements, audited financial statements, cash and non-cash collateral, and independent appraisals within the last 30 days for non-cash collateral, all of these are designed to reduce investors' risk so that they do not lend out more money that it is not repaid.
Funding sources’ due diligence fees occur before closing, before funding sources spend money to hire third party due diligence companies, and the applicant is expected to pay these expenses before the funding source begins its due diligence process.
Due Diligence includes but are not limited to the following:
Civil, corporate and criminal background checks on all principals and management team
Investigating the financial background of principals (personal and corporate)
Accounting fees - Assigning an accounting firm to run a parallel pro forma and to verify the accuracy of accounting data submitted
Travel to site and meeting with the principals if desired by the funding source
Hiring industry consultants to help evaluate the potential risk of the investment
Lien and title property searches
Consulting of lawyers for legal matters and preparation of legal contracts
Fees for due diligence vary by each individual project, your industry, your geographic location, and the expected costs of accountants, attorneys, industry consultants, etc. They are not negotiable. When travel is involved, fees will be higher. The decision of whether or not the funding source requires a face-to-face meeting is optional, decided by the funding source as part of their criteria before approving your project to receive funding, and is not negotiable.