Alan Cowgill’s Blog

When you pool money from private lenders, you’re putting

funds together from two or more different private lenders.

You obvously need to look at doing something different

where your states paperwork is concerned. This means you will

need to file paperwork with your state and provide a

disclosure document to your potential private lenders.

In Ohio, for example, we have what is known as 6(A)1

filing. This filing allow for pooling private lenders’ money

in running your real-estate investment business.

This filing also allows advertising and unlimited

private lenders.

Remember, securities laws and regulations vary from

state to state and the Federal SEC has its own set of laws

and regulations.

Here is a checklist on “how-to” pool money.

Pooling Money Steps

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Pooling money occurs when you combine funds from two

or more different private lenders.

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You should use or form a new business entity. You

should choose a corporation (which could be an

S-corporation) or an LLC. Some states have different

filings available depending upon whether you have a

corporation or an LLC, and LLC’s are sometimes treated

as partnerships. Most states won’t allow you to pool

money when you’re operating as a sole proprietorship

or DBA.

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You cannot use your state’s exemption for real-estate

transactions, similar to Ohio’s 3(H) exemption, when

you pool lenders together. You can not use this

particular exemption because there is no paperwork

involved. In Ohio, you must “upgrade” to the 6(A)1

form which allows pooling. All states have similar

paperwork levels.

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You should use one of your state’s filings that allow

for pooling money. As an example, Ohio has a number of

these filings available, such as a 6(A)1.

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These filings require you to fill out paperwork,

informing the state regulator about your business and

what you’re doing. It usually requires you to disclose

information to your potential private lenders, which is

for your benefit as well as your private lenders’

benefit.

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You’ll pay a fee to your state regulator when you file

your paperwork.

One of the things I’ve taught my students and continue

to stress is that you shouldn’t be pooling money from private

lenders unless you make sure you’re in compliance.

In order to be in compliance with your home state’s

securities laws, you’ll need to find the proper exemption,

filing or registration option and comply with its

requirements.

The above gives a good overview of how to pool money.

The following is some general information on staying in

compliance with your states requirements. I have included

this for those of you that have been asking for additional

SEC compliance information.

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When you use an exemption to bring in private lenders,

you are making an offer and sale of a security. It’s important

to understand that an offer to sell is usually treated the

same as a sale when it comes to securities compliance.

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Two key concepts to understand when you sell

securities is that there are exempt securities and there are

exempt transactions. Whether you’re selling stock, equities,

borrowing money, or debt, these are treated as securities.

An exempt security usually means a security issued by a

governmental agency or authority.

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An exempt transaction refers to the sale of a security

not issued by a government agency that has been given an

exemption under state law (or federal law) because of the

nature of the security and how it’s sold.

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Many of my students are basing their compliance on the

exemptions in their states that are similar to the one in

Ohio found under 3(H):

Ohio Revised Code, Chapter XVII, Title 1707.03(H) The

sale of notes, bonds, or other evidences of indebtedness that

are secured by a mortgage lien upon real estate, leasehold

estate other than oil, gas, or mining leasehold, or tangible

personal property, or which evidence of indebtedness is due

under or based upon a conditional-sale contract, if all such

notes, bonds, or other evidences of indebtedness are sold to

a single purchaser at a single sale, is exempt.

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Remember, these are still securities, and the sale of

these securities can be exempt under securities laws in Ohio.

Compliance with the offer and sale of these securities is

still required.

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Some states may offer you more than one choice, so

you’ll want to evaluate those choices.

I plan on covering “Fractional Mortgages” in an upcoming

newsletter.

Important Tip

I bring this topic up because when you find private lenders

your company will grow and you will add employees.

Entitlement! New employees, after the first six months will

form the attitude of entitlement. The attitude of entitlement

makes them feel you owe them something and that you can’t make

it with out them.

I learned this lesson from my good friend Robyn Thompson.

All employees get it.

There is varying degrees of entitlement depending on the

employee and it won’t cause you a big problem in most cases.

In other employees, you will see it appear in arrogance,

greed and in the worst cases, lack of loyalty. These people

need to be removed from the company.

This one tip can save you a ton of pain over time.

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