Things Your Organization Should Consider Before Approaching A Banker

1
Things Your Organization Should Consider Before
Approaching A Banker

• Presented By
• David T. Pace
• Executive VP Dickerson Associates
• November 28, 2006

2
My Background

• Ordained Pastor Christian Church
• Missionary
• President CEO C.C.E.F. (27-years)
• VP One Capital Advisors (3-years)
• Partner President CCF CCMC
• Executive VP Dickerson Associates

3
Assumptions For Today

• Your Camp, Church, or other Nonprofit has decided
  to borrow money
• You are not a mortgage financing expert
• You are looking for practical guidance.

4
Consumer vs Commercial Loans

• Single purpose
• Application
• Financial
• Credit check
• Sign Promissory Note

• Variety of loan types
• Careful preparation
• Detailed application
• Due diligence
• Loan closing
• Disbursement process

5
Types of Mortgage Loans

• Construction
• Permanent
• Construction to Permanent
• Bridge
• Line of Credit

6
Construction Financing

• Disbursed by Draws
• Ascending balance
• Interest only payments on balance drawn
• Paperwork from Draw 1 required before Draw 2
  will be funded
• Interest rate commonly higher
• Term 12 to 24 months
• Typically requires Takeout approved in advance

7
Permanent Financing

• Funded at loan closing
• Payments of interest principal begin promptly
• Term of 15 to 25 years
• Fixed or variable interest rates
• Balloon or call option

8
Construction to Permanent

• Disbursed by Draws
• Ascending balance
• Interest only payments on balance drawn
• Paperwork from Draw 1 required before Draw 2
  will be funded
• Interest rate commonly higher

• Internal conversion
• Payments of interest principal begin promptly
• Term of 15 to 25 years
• Fixed or variable interest rates
• Balloon or call option

9
Bridge Loan

• Anticipates Bridging from one loan to another
• Short-term, higher interest rate, various payment
  options

10
Line of Credit

• A Revolving credit arrangement
• Usually requires monthly interest payments
• May require a zero balance for a period of time
  each year

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Preparing to Submita Loan Application
12
Corporate Status

• Articles of Incorporation
• Has the organizations name changed?
• Does the organization have authority to borrow
  money and pledge property as collateral?
• Bylaws
• Who has authority to authorize borrowing?
• What is the authorization procedure?
• Who is authorized to sign loan documents?

13
Corporate Status

• Certificate of Good-Standing
• Obtain from Secretary of State
• Assures corporate authority and compliance with
  periodic reporting requirements
• May require re-incorporation
• IRS 501(c)(3) Determination Letter
• Assures that donations to your organization are
  tax-deductible by the donors

14
Financial Statements

• Income Expense Statements
• 3 Years (minimum) Year-to-Date
• Independent CPA Audit, or at least Reviewed
• Meet GAAP (Generally Accepted Accounting
  Principles)
• Balance Sheets
• 3 Years (minimum) Year-to-Date
• Independent CPA Audit, or at least Reviewed
• Meet GAAP (Generally Accepted Accounting
  Principles)

15
Project Specifics

• If You Are Buying Land
• Provide property address, size and legal
  description
• Ask seller for previous Title Insurance Policy,
  Survey, Appraisal, Environmental Audit
• Provide site map, general area map, topographical
  map, aerial photographs

16
Project Specifics

• If You Are Purchasing an Existing Building
• Provide property address, land size, building
  square footage and legal description
• Ask seller for previous Title Insurance Policy,
  Survey, Appraisal, Environmental Audit
• Provide site map, general area map
• Learn history of building use
• Provide current interior and exterior photographs

17
Project Specifics

• If You Are Constructing A Building
• Provide information regarding the Architect and
  General Contractor
• Provide a copy of your construction contract with
  the contractor
• Provide a detailed construction budget and
  proposed draw-schedule
• Show me the Money

18
Loan Application

• Obtain Lenders Application Form
• Complete it carefully, thoroughly, neatly and
  professionally
• Attach all items requested
• Attach Historical information about your
  organization, its leadership and vision
• Submit in an indexed 3-ring binder

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Loan Qualification Guidelines

• Loan to Annual Income
• Not to exceed 3.5 to 1
• Ex 1 million income 3.5 million max loan
• Debt Service to Annual Income
• Not to exceed 35
• Ex 1 million income 350,000 maximum for
  annual principal interest payments

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Loan Qualification Guidelines

• Available Cash Flow for Debt Service
• Must be at least 1 to 1
• Ex If loan payments are 350,000 annually, you
  must demonstrate cash flow to cover that amount
• Loan to Collateral Value
• Not to exceed 75
• Ex If project value is 1 million do not
  borrow more than 750,000. Provide at least 25
  as your cash invested into the project

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Lenders Due Diligence

• Properly completed loan application
• Accepted Loan Commitment Letter
• Financial Statements
• Historical and vision Information
• Project specifics
• Title Insurance Commitment
• Appraisal
• Environmental Audit
• Loan Documentation

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Loan Documentation

• Loan Application and Commitment Letter
• Certificate of Incumbency
• Corporate Resolution Authorizing Borrowing
• Promissory Note
• Deed of Trust
• UCC Security Agreement
• Construction Loan Agreement
• Environmental Indemnity Agreement
• Loan Settlement Statement

23
Humorous Definitions

• Lender
• Someone who will lend you money provided you can
  demonstrate that you dont need it!
• Lender
• Someone who will lend you his umbrella when the
  sun is shining, but wants it returned if it
  starts to rain.

24
Six Phases of A Building/Loan Project

• Enthusiasm
• Disillusionment
• Panic
• Search for the Guilty
• Punishment of the Innocent
• Praise Honors for the Non-participants

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Things Your Organization Should Consider Before
Approaching A Banker

• Presented By
• David T. Pace
• Executive VP Dickerson Associates
• November 28, 2006