Alan Cowgill’s Blog

Alan Cowgill’s
PRIVATE LENDING MADE EASY NEWSLETTER
Issue #29

http://www.PrivateLendingMadeEasy.com

In This Issue:

1. What’s happening!
2. The All Important Disclosure Statement
3. Important Tip
4. Links

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1. What’s happening!

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When I was getting my real estate education and started to
learn about using private lenders, ALL of my instructors left
out a HUGE piece of the equation. It was the part about being
in compliance with the SEC and their regulations.

I now see it as my charter to make sure folks are aware that
when they borrow money from private individuals, it is not the
wild west. There are rules that come into play. The rules
are there to protect the lender and the rules are good rules.

Look it’s just business.
Step 1 understand the boundaries.
Step 2 Fill out the required paperwork and get on with
business.

Rules such as…
1) A promissory note is a security.
2) If you want to advertise, or pool money you had better
have ‘registered’ with your states SEC.
3) Don’t pay commissions to find private lenders unless it
is to a licensed broker.
4) Don’t use the word ‘guarantee’ in your advertising.
5) Every lender should get your disclosure document.

Huh? What is a disclosure document?

I realized recently that there is a basic item that you need
when borrowing money from private lenders that some of my
you might overlook. It is a DISCLOSURE DOCUMENT and every
one of your lenders should get it.

This is such an important item I thought I would dedicate
this newsletter to covering as much as I can in a couple of
pages, so here we go…

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2. The All Important Disclosure Statement

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Whether you have no private lenders yet or a bunch of them,
you must have a disclosure document.

This is a no option item.

When you are looking to get a new private lender, the first
thing you hand them is a disclosure document.

You see all investments are risky. Therefore you have to tell
your private lenders that in your disclosure document.

If you are ever ask by the SEC to show them yours, you had
better be able to produce it and prove that every lender got
a copy of it.

If you don’t have one, then you need to start immediately on
creating one. Then I’d run it by a SEC attorney to see if
it is good enough. They are roughly 10 pages long for a basic
one.

When you are offering private lenders the opportunity to work
with you, you must be sure to disclose to them the risks and
rewards of the business. You should prepare a disclosure
document.

A disclosure document has legal consequences. If a private
lender is not given sufficient, material information and
suffers a loss, he may have a claim against you and your
business. The information you give private lenders must be
accurate and not misleading. The key test is if you have
given private lenders all “material” (significant)
information about your business at the time the investment
was made. It is therefore important to follow the SEC’s
disclosure regulations in your document.

What are these guidelines? In general, they are:

* The Business of the Company -This information generally
includes a description of your private lending business,
location of the company’s facilities, trends in the
industry, and the company’s marketing strategies.

An example would be..
“Integrity Home Buyers, Inc. is a real estate investment
company. We work with private lenders and put their funds to
use in residential property investments that are secured by
mortgages. These transactions are done in compliance with
relevant laws and regulations and in compliance with
appropriate securities registrations or exemptions in
every state in which we do business…”

* Risk Factors -These factors vary depending upon the
company and the nature of its business. They may include
cash flow difficulties, market competition, inexperience
of management, dependence upon an unproven product,
absence of operating history or profitable operations.

The real estate industry is particularly sensitive to
economic downturns. The value of securities of issuers in the
real estate industry can be affected by changes in real estate
values and rental income, property taxes, interest rates, and
tax and regulatory requirements.

* Use of Proceeds - The use of the funds to be received
from the offering should be set forth with a high degree
of specificity. Categories of expenditures may include
such items as leases, rent, utilities, payroll, and
purchase of equipment, payment of notes, advertising costs,
insurance, supplies, and payments to be made immediately
to officers.

* Key Personnel and Shareholders - Individuals who direct
the company’s operations or who make significant
contributions to the business of the company as employees,
independent contractors, consultants, or otherwise are
identified and important background information such as
education, age, and business experience of these persons
is disclosed. Principal shareholders of the company are
identified with a description of the number and percentage
of shares beneficially owned.

* Financial Statements - Financial information, such as
balance sheets and statements of income and cash flows
that accurately describes the financial condition of the
company, is typically provided. In some circumstances,
these financial statements must either be audited or
reviewed by a Certified Public Accountant.

Other key points…
This is where you should give people access to information
about your business. If you’re new to this business, give
people some projections of what you hope to do with the
business that is reasonable and conservative. It’s good
business to under-promise and over-deliver.

You should distinguish between facts and beliefs in your
disclosure. Restrained language should be used throughout the
text. At the practical level, many investors are accustomed
to reading carefully worded disclosures and they are suspicious
of broad, unqualified claims. An understated, factual
disclosure can deliver a powerful message to private lenders.

Avoid arcane jargon and technical terms. Provide definitions
for terms that might not be easily understood. Don’t make
private lenders learn a new language if they want to
understand your disclosure document.

What is required?

* A sound business plan
* A disclosure document disclosing the full facts of the
investment and business
* A SEC lawyer experienced in disclosures.

The bottom line… by giving your lender a disclosure document,
it shows the lender exactly what is going on with their loan.
You will have a meeting of the minds and everything is on
the table.

You will be a huge step forward by being professional and in
avoiding potential problems in the future.

Besides, it’s required in every state.

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3. Important Tip

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Always give a potential private lender your disclosure
document.

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5. Links

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SEC information…
http://www.privatelendingmadeeasy.com/sec.shtml

Make money while you sleep, join our affiliate program…
http://www.mcssl.com/SYS/netcart/affiliates/AffiliateSignUpForm.aspx?MerchantID=39311

Free Downloads…
http://www.privatelendingmadeeasy.com/free-downloads.shtml

Avoid the SEC filings by staying under your states threshold..
http://www.privatelendingmadeeasy.com/products/private-lending-made-easy-the-basic-system.shtml

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Please forward this newsletter in its entirety to your real
estate friends today. We appreciate your help in making
Private Lending Made Easy grow!

Sincerely,
Alan Cowgill

E. Alan Cowgill is the President of Integrity Home Buyers, Inc.
He is a full-time real estate investor, investing in single
family and small multi-family properties in Springfield, Ohio.
Since 1995 Alan has bought and sold over 200 properties and
uses private lenders to fund his real estate deals.
Our Toll free number 866-831-3540.
http://www.privatelendingmadeeasy.com/products