Investors And Funding August 2010

Caribpro offers referral services to borrowers and funders looking for a synergy between cash needing an investment and really strong investments looking for finance to complete.

Of course, that is so easy to write but a very complicated, frustrating and often very slow process to get through. And the truth is that 99% of projects fall by the wayside for one reason or another.

From our perspective funding seems to be getting more difficult, there are a lot of good projects out there and only the cream off the top ever gets reviewed. And from the cream only the creme de la creme get picked up and funded.

We have seen the international regulatory bodies such as the FSA and the SEC and their corresponding law enforcement departments, clear out some of the marginal providers and fraudsters, but there are plenty more coming out right behind them. Sadly, that scenario is not going to change. No more than we are ever going to get rid of all the viruses travelling the internet looking for a badly protected hard drive to attack.

Its a very fine line for a genuine funder who wants to assess the commitment of a borrower (is the borrower genuine?) and requires that the borrower pays for an up to date valuation of the project and its assets, and the borrower who says he will not pay a single cent out until he has his funds. Any borrower who utterly refuses to spend that money on his own project, has just closed the door on possibly a real lender with real money.

And therein lies the problem, because as soon as a lender asks for bills to be paid for site visits, due diligences and valuations he gets accused of being a fraud. There is nothing fraudulent in a lender's request for a borrower to pay for his own project valuation which may include the cost of site visits for international valuers. The way around this is to find out which international valuer the lender has appointed, and pay the third party directly. Bona fide lenders have no problem with this.

Few lenders will commit without a site visit themselves of their internal representatives, and this too is a problem for borrowers who have been fleeced for expensive site visits with no substance. We have a project in Honduras currently waiting for a site visit, and the flights and hotel expenses are being paid directly by the borrower and host. This seems reasonable to both parties and there are no extortionate unaccounted for expenses.

At one time lender groups used to charge a 'commitment fee' against borrowers who were shopping around, the fee was in some cases refundable. Nowadays few lending groups charge a commitment fee since it has such a bad odour about it. The few that do tend to be lenders with a long and successful history and plenty of references. for you to check into; OR of course, they are not bona fide and have no money to lend in the first place.

Even after the site visit and the valuation, and everything looks good, at the last minute the lender may well find something in their research that tells them that the risk is too high, and the project is either turned down, or just hangs around in the background with no reason given. In other words the project does'nt quite go on the rejected file, but it is no longer the best return for the investment.

Funders don't like shoppers. Its never a good idea to have your project with a number of funding groups at any one time. The smarter protocol is to take your project to one lender at a time, and gain experience as you do so if it fails to win approval. The lending world is very small and lenders quickly learn if your project is being presented to numerous groups at the same time. Its a good way to have your project rejected.

The most important thing for a lender to see is a Executive Summary, which is aimed at the lender's areas of interest. So many project plans (and their introductory 3 Page Summaries) are not written for lenders, they are written for the marketing department to make sales after the project is funded. Too much time is spent writing 'goals' and 'missions', and about how wonderful the project is in the eye of the believer.

I looked at just such a Executive Summary this morning. The first page was a pretty picture of an ocean, the second page had paragraphs under the headings, Vision, Mission, Core Values, Team Commitment. The third page was about the Customers Right to Expect, and so we went to meaningless graphs and more pretty pictures until we reached page 8 which was entitled Philosophy. At page 9 we hit the bottom with the same pretty picture as page 1. But then it got better after that as we set off again on the same journey with 3 pages of graphs, meaningless pictures and text about how the potential customers will be treated, then on the last two pages we hit the heights with something completely different headed 'Keys to Success' and Company Goals.

All of it perfectly targetted at a marketing team ready to move out and start selling. There was absolutely nothing there for a lender to even wipe his nose on!

An Executive Summary should address the following very briefly and succinctly in no more than three pages. Some of our lenders demand a one page overview, and will not read if it goes to two.

1. How much money do you need? Always ask for more than you need, never pennypinch.

2. Do you own the land/patents/business? If so what is its current market value?

3. If you don't own the land/assets what is the acquisition cost? Is this included in the amount you are asking for?

4. What type of loan are you seeking? Are you seeking equity partners? Or does a standard debt loan work for you? Is this a re-financing?

5. How will your repay the loan in the time that the project is being constructed first/second/third year of operation?

6. What is the length of the loan/partnership you are seeking?

7. What equity do you already have in the project? Most lenders are looking for 20% as a minimum. Riskier projects will require more owner equity.

8. What cash do you have left to put into the project? There are methods of self funding using existing cash in bank, if you have POF (Proof of Funds).

9. What is your clear Exit Strategy? How will your investors be repaid in the event of the project failing?

10. Can you and the management team demonstrate a strong, established and qualified experience in the project industry and in bringing a project such as this to a profitable conclusion? Occasionally good experienced teams will qualify for 90%+ funding.

11. Make sure you state which currency you are working in.

12. Where is your project situated?

13. Have you done your background research into the competition?

14. Do you have a Five Year Financial Projection prepared and ready to send out? Most lenders will want to see this before they look at the full 200 page Business Plan you have prepared.

If you took a project to a lender and he came back to you with a request for fees, without having even covered the above then you were probably in the wrong place.

Borrowing money is about finance, the top line, middle line and the bottom line is about numbers.

It would be interesting to hear some of your stories about the process of obtaining finance for your project, with good advice where possible. Whether it was a failure or a success we would like to publish a few excerpts of experiences that readers have had, and share the process.