Newbie commercial loan post

By putting up this property, this person effectively has co-signed the loan. As a signatory to the loan, he is entitled to know every last detail, and every last crossed-t and dotted-i. And since he had the make or break item in the deal, he should be getting his fair share of the profits.

If anyone should be having any thoughts on this topic, it should be you. You were going put this guy in great risk, and then try to screw him out of any of the upside rewards of the deal. Not only is that a poor way to run a railroad, it is a good way to get yourself strung up in a tree by your gonads.

-john-

I'm sorry if I'm in the wrong group, I can't find any others that may deal with this topic.

2 partners and I have applied and been granted a SBA loan through a local bank. We then needed a larger amount and they asked for more collateral. One of my partners fathers put up a clear rental property as that collateral, but is not one of the borrowers on the loan. Our loan officer proceeded to tell him that "we couldn't have got the loan without him" and " your contribution is the most of any of the 3 partners". I had explicitly informed the loan officer not to divulge anything about the loan to him and he agreed that it was not his job to do that....but he did, and now this gentleman who lent us the house is demanding a cut of our profits for the life of the loan. Is what the loan officer did illegal or just unethical? Does anyone have any thoughts at all on the topic. thanks Scott

By putting up this property, this person effectively has co-signed the loan. As a signatory to the loan, he is entitled to know every last detail, and every last crossed-t and dotted-i. And since he had the make or break item in the deal, he should be getting his fair share of the profits.

If anyone should be having any thoughts on this topic, it should be you. You were going put this guy in great risk, and then try to screw him out of any of the upside rewards of the deal. Not only is that a poor way to run a railroad, it is a good way to get yourself strung up in a tree by your gonads.

-john- "You were going put this guy in great risk". John, I never asked this guy for a cent. His daughter, having no collateral, simply asked her father to put it up for her. I can't help if myself and other partner have the necessary assets to get the job done and she doesn't, but that's not an issue as she is a third partner in our corp and we want her there. This was simply the easiest way to get it done, and he brought the whole idea up. He is also, NOT a co-signer on the loan as his signature appears no where. And, since I asked our loan officer numerous times if he would not disclose the terms of our loan to this gentlemen and he told me that he actually could not without his permission, what does that tell you. This "guy" fully understand the ramifications of putting his house up and I have coerced him in no way. I think he's simply doing this for his daughter, and in my opinion, if he thought is was a bad idea, he's a grown man and shouldn't have done it. So save your condenseding comments. If you wanted to know more about the situation, you could have asked. And as far as your gonads.. you can keep em. Scott

======================================= MODERATOR'S COMMENT: Please desist with the colorful language.

you purchase bonds from a company and they fail to disclose a minute detail about their finances... all hell would break loose.

honest with your customers and you should just close the doors now.

Request to future posters on this thread: Please trim (delete) the original question on this thread. It has an attachment to it that is affecting the moderator's software. Thank you.

-HW "Skip" Weldon Columbia, SC

I appreciate your comments, thanks Scott One final thing I will say, My partners and I would have fully divulged any information this gentleman would have wanted to him gladly. I simply asked our loan officer not to do that and he did. I simply asked is this illegal or ethical. That's all I wanted to know. thanks again Scott

imagine if you purchase bonds from a company and they fail to disclose a minute detail about their finances... all hell would break loose.

honest with your customers and you should just close the doors now.

Request to future posters on this thread: Please trim (delete) the original question on this thread. It has an attachment to it that is affecting the moderator's software. Thank you.

-HW "Skip" Weldon Columbia, SC

Scott, I can't speak to the legalities, I'm not clear on exactly how the father's collateral backs the SBA loan (it seems he must be a party to the loan, signing something...and perhaps, to use some legalese, taking on joint & several liability for the nonrecourse debt?). But here are my thoughts...speaking from experience with a similar biz-startup situation...

1. Forget about the fact that the loan officer spilled the beans -- maybe it shouldn't have happened exactly that way but he should have spilled the beans, IMO. If the father's collateral is what made the loan happen, the father deserves to know that -- it means the other partners lack adequate assets to make good on this loan, meaning there's a bullseye on the house if things head south.
2. Not only that, he deserves to have an inside view of your business for as long as that lien exists, so he knows when and whether to take action to secure his property. The reality is that you will have, say, ,000 in borrowed funds, or whatever the amount is, in your business checking account. That balance might rise steadily or it might all be gone in six months, spent on marketing expenses (which unlike say computer servers have zero "salvage value" in an asset sale). What happens then when you fold the business? Apparently you don't have the assets to back that loan, neither does your other partner. If the business goes bankrupt, you go your separate ways, and the partner's father is out a house...because the father has the only asset worth going after. Point being..if I were him I'd be demanding monthly financial statements and would take whatever action was necessary to nail down the cash if there was a sign of trouble. Yes, even if my daughter was one of the partners. It's a business transaction, business rules apply.
3. Please take my word on this part. Before you spend a dime of the loan proceeds, you all need to sit down and work this out through a partnership agreement of some kind. Get a lawyer to facilitate it and work through all the "what if?" questions...what if a partner leaves, what if he needs to sell the house, what if the daughter dies in a car wreck. Do not spend one minute on the business until you sort this out because once things get going it'll drop to the bottom of the to-do list. If you can't work it out, give back the money until you figure out another way to secure the loan. If you can't, forget about it...move on. This is the part where I'm speaking from experience. It's easy to put off these kinds of discussions forever, and you'll eventually need to address them when either a) the business folds and there's a risk of foreclosure or b) the business succeeds and the father/daughter revisit the question (in court) of how much their share should be. Either way, your bargaining position, all around, is much better now, before the fact, and you're much more likely to come up with fair solution.

-Tad

correction on that...I meant "j&s liability for the recourse debt" which means "if the business folds, each of the people guaranteeing the loan are responsible for the entire debt, even if the creditor decides to go after only one of them." With this kind of debt the partners need to work out how to deal with that situation fairly.

-Tad

What world do you live in? Here in the RealWorld(tm), there's no way the bank could ever take posession of the collateral without having the owners signature somewhere.

Why don't I just pledge your house and your car on my loan? I should be able to do it because in YourWorld(tm) I don't need your signature.

See how silly that sounds? That's because it's absurd, and things don't work that way. The owner of the collateral must sign something, somewhere, that states "In the event of default on this loan, we (the lending institution) can seize this asset". That's just the way it works.

Tad, thank you for giving me one of the 3 reasonable answers to my original post. I agree with all you've said and we met last week with my partners father, who is in fact a relative of mine, and have agreed to actually give him a 10% off the top profit yearly until the loan is paid off. (the other posters may have actually realized this if they would have given me time to explain the situation and if they didn't think the title of my post was "How do I screw an investor". He's a good guy with good business sense and I value having him on board with us. My WHOLE point of the posting was that the loan officer we're dealing with said that since this gentleman's name is not on the loan, only myself and my other partner with the other collateral, that he could not divulge information about the loan to him, and would leave that up to us if we wanted to, which we didn't really want to do because he's not a partner in our corporation. That being said ALL I wanted to know was if the loan officers actions by telling him this info, which I explicitly told him not to tell him, were somewhat unethical? That's really all I'm asking. I'm a medical provider, and if I tell someone about another patient's illness or situation, I can be fired, sued, fined and or imprisoned for breach of confidentiality. I am far from any kind of banker, but if this loan officer tells me he can't tell this guy about the loan without my permission or that I can only tell him, that led me to believe he may have broken some type of banking law or at least banking ethics. That's really all I wanted to know. Thank YOU for your impartial insight. Scott

"Tad Borek" wrote in message news:gutZg.15964$ snipped-for-privacy@newssvr13.news.prodigy.com... SJ wrote:

Scott, I can't speak to the legalities, I'm not clear on exactly how the father's collateral backs the SBA loan (it seems he must be a party to the loan, signing something...and perhaps, to use some legalese, taking on joint & several liability for the nonrecourse debt?). But here are my thoughts...speaking from experience with a similar biz-startup situation...

1. Forget about the fact that the loan officer spilled the beans -- maybe it shouldn't have happened exactly that way but he should have spilled the beans, IMO. If the father's collateral is what made the loan happen, the father deserves to know that -- it means the other partners lack adequate assets to make good on this loan, meaning there's a bullseye on the house if things head south.
2. Not only that, he deserves to have an inside view of your business for as long as that lien exists, so he knows when and whether to take action to secure his property. The reality is that you will have, say, ,000 in borrowed funds, or whatever the amount is, in your business checking account. That balance might rise steadily or it might all be gone in six months, spent on marketing expenses (which unlike say computer servers have zero "salvage value" in an asset sale). What happens then when you fold the business? Apparently you don't have the assets to back that loan, neither does your other partner. If the business goes bankrupt, you go your separate ways, and the partner's father is out a house...because the father has the only asset worth going after. Point being..if I were him I'd be demanding monthly financial statements and would take whatever action was necessary to nail down the cash if there was a sign of trouble. Yes, even if my daughter was one of the partners. It's a business transaction, business rules apply.
3. Please take my word on this part. Before you spend a dime of the loan proceeds, you all need to sit down and work this out through a partnership agreement of some kind. Get a lawyer to facilitate it and work through all the "what if?" questions...what if a partner leaves, what if he needs to sell the house, what if the daughter dies in a car wreck. Do not spend one minute on the business until you sort this out because once things get going it'll drop to the bottom of the to-do list. If you can't work it out, give back the money until you figure out another way to secure the loan. If you can't, forget about it...move on. This is the part where I'm speaking from experience. It's easy to put off these kinds of discussions forever, and you'll eventually need to address them when either a) the business folds and there's a risk of foreclosure or b) the business succeeds and the father/daughter revisit the question (in court) of how much their share should be. Either way, your bargaining position, all around, is much better now, before the fact, and you're much more likely to come up with fair solution.

-Tad

======================================= MODERATOR'S COMMENT: Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.