Alan Cowgill’s Blog

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.

Important Tip

Always give a potential private lender your disclosure

document.

Alan Cowgill is a speaker, author, and real estate entrepreneur. Alan has bought or sold over 200 investment properties. His step-by-step system “Private Lending Made Easy” teaches others to find private lenders. Contact Alan at 937-390-0816 or 866-831-3540. For a FREE audio go to www.PrivateLendingMadeEasy.com