points

There are however a few points that you have overlooked. Although it is definitely true that lenders have been lending on property for as long as anyone can remember, their attitude towards loaning money follows the market as it travels up and down in fairly regular cycles which are almost predictable except for the depth of the necessary and automatic corrections. At this time, we are experiencing, as you stated, the near lowest part of the most recent cycle in which values will reach the bottom of the curve (hopefully within the next 6 to 12 months) at which point it becomes the ultimate buyers market and everything is uphill from there. The problem is that this current state of affairs only adds, in the minds of all lenders, more risk to the equation. Therefore, it becomes necessary to add more security to the loan scenario to counterbalance the increased risk. As I stated before, any asset or property value becomes secondary collateral as the lender will consider it only at its lowest predictable or "fire sale" pricing. Something worth $10M today will serve as $2M in collateral and subtract from that the costs and time involved in foreclosing on the property upon borrower default. Its not worth their effort to take it on and add it to the books when they expect your project to fail anyway. This may change but not for a long time and for that matter it may never adjust back to the way it was in the past due to the beating most lenders took during the recent downslide. Live and learn.

Angels, private equity and venture capital aside, it is preferable for borrowers to deal with banks and financial institutions that are licensed and regulated. This also lowers the risk to the borrower by eliminating the need of taking on a contracted "partner" that will in most cases, eventually own part or most of your company. The stakes are high for the borrower when utilizing this type of lender and we all know it. Granted they have their function and are appealing to those who find it necessary to use their services, but if most borrowers had a choice, they would go to a bank or financial institution for obvious reasons.

When I stated that the borrower was required to place 20% down on their project, I did not mean that they would be haphazardly handing over to some unknown entity or throwing it into some bottomless void watching as it floated down into the darkness. All borrowers must exercise rational thought and caution when and if they decide to put up the required depository funds. In my humble opinion, the deposit needs to be secured by something of equal or greater value and must include an ironclad contract which ensures its return within a predetermined time period. Also, if it's my investors funds that I'm using as a deposit for my project, not only do I need the above, but I would need the deposit to generate, at the very least, what it's costing me to use the deposit funds from my investors. If it costs me 10% annually, the deposit would ideally yield the 10% plus another 5% for inflationary adjustment.

Lets review:

1. The borrower needs a licensed and regulated bank or financial institution as a lender in order to retain 100% ownership in their project with no outside interference in the decision making process.
2. The borrower needs to secure their 20% deposit by exchanging it for something of equal or greater value with an annual yield of a minimum of 15% to satisfy their investors cost of funds and an inflationary adjustment.
3. The borrower needs an experienced, reputable, licensed law firm to handle the transaction in a professional and expeditial manner and to work hand in hand with the borrowers law firm to result in a successful conclusion.
4. The borrower needs a 10 year term at 5% annual interest (I thought I would throw that in to make it seem more difficult)