Bank Presentation - Posted by Eric

Posted by Eric on March 18, 2006 at 10:22:23:

Wow. Thanks Ed. This is going to take some time for me to fully grasp. Thanks for the excellent help.


Bank Presentation - Posted by Eric

Posted by Eric on March 17, 2006 at 21:35:51:

Bottom line:
How do I properly present myself to a bank?

I want to begin purchasing rentals. My credit is great. I have a partner willing to co-sign that has great assets, income and credit. I want to go to a small local bank since I will be requesting loans that will be non-conforming. I figured that with my partners backing and buying houses at about 80% of their FMV I, hopefully, will be able to strike a deal with these banks to finance nearly all of the purchase price.

I just have no idea how to go about presenting myself. Just walk in and start talking?


PS - Any good ways of finding good banks to deal with. I was just planning on picking a smaller local one out of the phone book and going from there.

Re: Bank Presentation - Posted by Ed Grcia

Posted by Ed Grcia on March 18, 2006 at 09:27:02:


The professional way of presenting you business model to the bank is in a form of a Business Plan

A ?Business Plan? is a useful tool if your intentions are to get a WLOC (Working Line Of Credit).

A WLOC is NOT for every real-estate investor. It?s for the Real Estate Investor who have chosen to do this full time and do this as a business. If you?re going to do a deal from time to time, you don?t need a WLOC.

Eric, this is not an exact business and there are many ways to invest in Real Estate. A good investor knows that and has the ability to recognize a good deal, adapt and modify or structure to accomplish that deal.

When the majority use the term ?FINANCING?, they?re in reference to conventional financing and lenders. I don?t see it that way. I see financing as a vehicle to do Real Estate transactions, and I see it to come in many forms. A lease/option is nothing more than a source or way of financing. A seller carry-back, same thing.

You?ve mentioned that you will pay CASH, fix up the property and then refinance it at a later date. So in essence, you have done nothing more than become your own WLOC. I like using CASH if I have it because you can cut better deals by offering ALL CASH and a FAST CLOSE. The problem is that you only have so much of your own CASH.

That?s where a WLOC comes in. With a WLOC, you can,

(1) You can make CASH offers, allowing you more profit in your deal.
(2) You can CLOSE faster, making that extra deal, and more profit.
(3) You can SEASON your properties, by leaving them on your line for a while.
(4) You can use it to do FLIPS, where conventional financing is too expensive.
(5) It’s CHEAPER money, meaning you pay 1 or 2 over prime and no points
per transaction.
(6) You do REHABS including the fix-up money.
(7) You can make offers with more confidence, which is projected to the seller,
or Real-estate agent.
(8) There is NO LIMIT, as to how many deals you can do, and the list goes on.

Back to the ?Business Plan?.

Eric, a Business Plan tells exactly what do you propose to do? How do you intend to do it? Your plan not only discloses your intentions, but how well you have thought out your venture. Unfortunately, most real-estate investors give scant thought to many aspects of their proposed investing criteria. It often becomes all too apparent in the business plan that the investor has not done their homework, therefore is not someone with whom you could trust their information or depend on.

More importantly, the business plan is essential to you planning. The things you would do in writing a business plan will force you to do many essential tasks that you would likely overlook otherwise. The very act of writing a plan for your proposed business will be most informative to you. Definitely, it instills a much-needed discipline to the often overly enthusiastic behavior of the ?eager beaver investor?.

Most investors are not familiar as to how to write a business plan. As a result, they try to find someone to write it for them. There is much business for the person who can write good business plans. Unfortunately, much of the benefit of a business plan is lost if you have someone else write it for you. Sitting down and pounding out the plan, piece by piece, forces you to do considerable thinking and evaluation of your plans. Without exception, investors who have written their own business plans, report that they were forced to rethink many aspects of their venture when it became apparent to them that there were some serious flaws in their thinking. The parts did not fit together properly.

Eric, as I?m doing this post I just realized that I have a copy of a post made by Steve S. a (CPA) who posted this a few years ago. Steve does an excellent job of showing a real-estate investor how to fill out a business plan and adapt it to real-estate. Here is a copy of that post, I hope it helps you.

Posted by Steve S (CPA) on June 16, 2001 at 16:00:54:

In Reply to: Business Plan/Financing posted by Nathan(oh) on June 16, 2001 at 10:32:02:

Why Prepare a Plan?

The Business Plan is a written summary of what you hope to
accomplish by being in business and how you intend to organize your
resources to meet your goals. It is the road map for operating your business
and measuring progress along the way.

1.The Business Plan identifies the amount of financing or outside
investment required and when it is needed.

2.First impressions are important. A well-organized plan is essential for
a lender or investor to assess your financing proposal and to assess
you as a business manager.

3.By committing your plans to paper, your overall ability to manage the
business will improve. You will be able to concentrate your efforts on
the deviations from plan before conditions become critical. You will
also have time to look ahead and avoid problems before they arise.
4.It encourages realism.

5…It helps you to identify your customers, your market area, your pricing
strategy and the competitive conditions under which you must operate
to succeed. This process often leads to the discovery of a competitive
advantage or new opportunity as well as deficiencies in your plan.

6.Three or four hours spent each month updating your plan will save
you time and money in the long run and may even save your business.
Resolve now to make planning a part of your management style.

Executive Summary
The format should start with an executive summary describing the highlights of
the business plan. Even though your entire business is well described later on,
a crisp, one or two page introduction helps to capture the immediate attention
of the potential investor or

Company name (include address and phone number)
Contact person (presenter’s name and phone number)
Paragraph about company (nature of business and market area)
Securities offered to investors (preferred shares, common shares,
debentures, etc.)
Business loans sought (term loan, operating line of credit)
Highlights of Business Plan (your project, competitive advantage and
"bottom line" in a nutshell–preferably one page maximum)

This summary page is extremely important in capturing the reader’s attention.
Make sure it sells your idea so the reader will retain interest and continue

Table of Contents
A standard table of contents.

Section titles and page numbers (for easy reference)

Business Concept

The business concept identifies your market potential within your
industry and outlines your action plan for the coming year. Make sure
your stated business goals are compatible with your personal goals, your own
management ability and family considerations.

The heart of the Business Concept is your monthly sales forecast for the
coming year. It is your statement of confidence in your marketing strategy and
forms the basis for your cash flow forecast and projected income statement.

The business concept contains an assessment of business risks and a
contingency plan. We urge you to take the offensive and be your own devil’s
advocate. Being honest about your business risks and how you plan to deal
with them is evidence of sound management.

Description of the Industry
This section will contain:

Industry outlook and growth potential (industry trends, new products
and developments. State your sources of information)
Markets and customers (size of total market, new requirements and
market trends)
Competitive companies (market share, strengths and weaknesses,
National and economic trends (population shifts, consumer trends,
relevant economic indicators)

Description of Business Venture
This section will contain:

Product(s) or service (pictures, drawings, characteristics, quality)
Product protection/exclusive rights (patents, copyrights, trade marks,
franchise rights)
Target market (typical customers identified by groups, present buying
patterns and average purchase in dollars, wants and needs)
Competitive advantage of your business concept (your market niche,
uniqueness,estimated market share)
Business location and size (location(s) relative to market, size of
Staff and equipment needed (overall requirement, capacity)
Brief history (principals involved, development work done)

Business Goals
This section will contain:

One year (specific goals, such as gross sales, profit margins, share
of market, opening new store, plant or office, introducing new
product, etc.)
Over the longer term (return on investment, business net worth, sale
of business)

Marketing Plan
This section will contain:

Sales strategy (commissioned sales staff, agents, sales objectives,
target customers, sales tools, sales support)
Distribution (direct to public, wholesale, retail, multiple outlets)
Pricing (costing, mark-ups, margins, break-even)
Promotion (media advertising, promotions, publicity-appropriate to
reach targetmarket)
Guarantees (product guarantees, service warranties)
Tracking methods (method for confirming who your customers are
and how they heard about you)

Sales Forecast
This section will contain:

Assumptions (one never has all the necessary information, so state all
the assumptions made in developing the forecast)
Monthly forecast for coming year (sales volume in units and dollars)
Annual forecast for following 2-4 years (sales volume in dollars)

Note: The sales forecast is the starting point for your projected income
statement and cash flow forecast in Part II

Production Plan (Manufacturing)
This section will contain:

Brief description of production process (don’t be too technical)
Physical plant requirements (building, utility requirements, expansion
capability, layout)
Machinery and equipment (new or used, lease or purchase, capacity)
Raw materials (readily available, quality, sources)
Inventory requirements (seasonal levels, turnover rates, method of
Suppliers (volume discounts, multiple sources)
Personnel required (full-time, part-time, skill level, availability, training
Cost of facilities, equipment and materials (estimates and quotations)
Capital estimates (one time start-up or expansion capital required)

Production Plan (Retail or Service)
This section will contain:

Purchasing plans (volume discounts, multiple sources, quality, price)
Inventory system (seasonal variation, turnover rates, method of
Space requirements (floor and office space, improvement required,
expansion capability)
Staff and equipment required (personnel by skill level, fixtures, office

Corporate Structure
This section will contain:

Legal form (proprietorship, partnership, corporation)
Share distribution (list of principal shareholders)
List of contracts and agreements in force (management contract,
shareholder or partnership agreement, franchiser service agreement,
service contract)
Directors and officers (names and addresses and role in company)
Background of key management personnel (brief resumes of active
owners and key employees)
Contract professionals/consultants (possible outside assistance in
specialized or deficient areas)
Organization chart (identify reporting relationships)
Duties and responsibilities of key personnel (brief job
descriptions–who is responsible for what?)

Risk Assessment
This section will contain:

Competitors’ reaction (will competitors try to squeeze you out?)
What if . . . list of critical external factors (identify effects of strikes,
recession, new technology, weather, new competition, supplier
problems, shifts in consumer demand)
What if . . . Iist of critical internal factors (sales off by 30%, sales
double, key manager quits, workers unionize)
Dealing with risks (contingency plan to handle the most significant

Action Plan
This section will contain:

Steps to accomplish this year’s goals (flow chart by month or by quarter of
specific action to be taken and by whom)

Checkpoints for measuring results (identify significant dates, sales levels,
production levels as decision points)

Financial Plan

The financial plan outlines the level of present financing and identifies
the financing sought. This section should be kept concise with
supporting material supplied only when requested.

The Financial Plan contains pro-forma financial forecasts. In carrying out your
action plan for the coming year, these operating forecasts are your guide to
business survival and profitability. Resolve now to refer to them often and, if
circumstances dictate, re-work them as necessary. Before presenting your
Business Plan to a lender or investor, review your financial statements with
your accountant. This familiarity will increase your credibility and at the same
time provide you with a good understanding of what the financial statements
reveal about the viability of your business.

Financial Statements
This section will contain:

Previous years’ balance sheets and income statements (include past
2-3 years if applicable)

Financial Forecasts
This section will contain:

Opening balance sheet (for a new business only)
Projected income statements (detailed operating forecast for next year
of operation and less detailed forecast for following two years. Use
sales forecast as starting point)
Cash flow forecast (budget of cash inflow and outflow on a monthly
basis for next year of operation)

For further guidance in this area, refer to “Preparing a Cash Flow”.

Financing and Capitalization
This section will contain:

Term loan applied for (amount, term, when required) Purpose of term
loan (attach detailed description of assets to be financed with cost
Owners’ equity (your level of commitment to the program)
Summary of term loan requirements (for a particular project or for
business as a whole)

Leasehold Improvements
Equipment & Machinery


Term loan
Owners Equity:
Founder’s investment
*New investor



*If the purpose of the Business Plan is to attract a new investor, further details
would be given here concerning share participation, role in company, etc.

Operating Loan
This section will contain:

Line of credit applied for (new or increase, security offered)
Maximum operating cash requirement (amount, timing–refer to cash
flow forecast)
Present Financing (If Applicable)
Term loans outstanding (balance owing, repayment terms, purpose,
security held)
Current operating line of credit (amount, security held)

This section will contain:

Name of present lending institution (branch, type of accounts)
Lawyer’s name (include address and phone number)
Accountant’s name (include address and phone number)

This section will contain:

The following documents may be requested by your banker or potential

Personal net worth statement (including personal property values,
investments, cash, bank loans, charge accounts, mortgages, other
liabilities. This will substantiate the value of your personal guarantee if
required for security.)
Letters of intent (potential orders, customer commitments, letters of
List of inventory (type, age, value)
List of leasehold improvements (description, when made)
List of fixed assets (description, age, serial numbers)
Price lists (to support cost estimates)
Description of insurance coverage (insurance policies, amount of
Accounts receivable summary (include aging schedule)
Accounts payable summary (include schedule of payments)
Copies of legal agreements (contracts, lease, franchise agreement,
Appraisals (property, equipment)
Financial statements for associated companies (where appropriate)

Finally. . .

Preparing a business plan will generate a lot of thought and a lot of paper!
Keep in mind, however, that the final document is a summary of your planning
process. You can always refer to your working papers later on to
substantiate a particular point.

Have your key employees and two or three impartial outsiders review the
finished plan in detail. There may be something you overlooked or
underemphasized. Also a critical review will be good preparation for your
presentation to potential investors and lenders.

Approaching Lenders

When approaching any financial institution, you are effectively selling
the merits of your business proposal. As in all sales, consider the needs
of the other party:

Ability to service the debt with sufficient surplus to cover
contingencies (carry interest charges, eventually repay in full–cash
flow forecast and projected income statement will show this)
Track record/integrity (personal credit history, management ability as
demonstrated in your Business Plan, company results)
Your level of commitment (your equity in the business or cash
investment in the particular asset being purchased)
Secondary source of repayment (this includes security in the event of
default and other sources of income–discuss this subject with your
lawyer before submitting your proposal)
Lead time (lender needs a reasonable time to assess your
proposal–also, the loan may have to be referred to another level
within the financial institution)
Don’t overdo it (be sensible with the amount of documentation you
provide initially–for example, the Introductory Page, Summary and
Financial Plan sections provide a good basic loan submission if the
amount requested is small)

Attracting Investors

Start first by approaching people you know, i.e. friends, bank, credit
union or trust company manager, lawyer, accountant, doctor. They, in
turn, may know of possible investors. If your business concept exhibits high
growth potential, a second alternative is to approach a venture capital
company. Either way, take a moment to consider the investor’s needs which
may differ from a lender’s needs:

Your level of commitment (to be sure that you are sharing the risk)
Share participation (investors may demand more equity than you are
willing to give)
Rate of return (investors are willing to take a high risk but expect a
high rate of return, i.e. to double their money in 2-3 years)
Involvement in key decisions (possibly as a Director or even an
Officer of the company)
Regular financial reporting (investors usually want to see tight
financial controls in place and prompt financial reporting)

I hope this helps,

Good Luck,

Ed Garcia