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Should you consider a commercial construction loan?

Posted By Julie Smith, Horizon Community Bank, Wednesday, February 22, 2017

Your business has grown, and it might be time to move into your own building. You’ve looked at commercial real estate for sale or lease, but just haven’t found what you’re looking for. The location or size is wrong, its age requires costly remodeling, or some other feature excludes every property you’ve seen.

Should you build?

Learning about the process, securing a loan and other basic details might help you decide.

HOW DO I BEGIN THE PROCESS?

There are many ways to educate yourself about commercial construction loans, but the fastest path to a smart answer is a straight line to experts who deal with this every day. Obtaining their help to answer these three questions is where you begin.

1. Can you qualify for funding? Meet with a commercial banker to discuss financing. Traditional partners include a commercial builder, a commercial real estate agent, a real estate attorney and a banker. We suggest beginning with the banker to be sure you qualify for the necessary funding before you spend too much time pursuing construction or shopping for land. It gives you a solid understanding of payments you can afford, how much of cash you’ll need for the down payment, and other important financial details.

According to Propertymetrics.com (and a sentiment we agree with), “construction or development loans are almost always [financed by] local community or regional banks. Historically this was due to bank regulation that restricted trade areas for lending.”

 Using a community bank also gives you access to a commercial banker with strong local relationships and a solid understanding of the local market. This can be incredibly helpful when selecting other construction partners. The banker often knows builders personally or by reputation, and can point you in the right direction with options you might not have considered. 

 The right banker can also help you with customized financing, since you won’t need just one loan. You’ll need to understand the kind of funding your cash flow can support, and obtain a package loan that includes short-term (mini-perm) funding to purchase land and fund building costs, then a long-term mortgage loan to pay it off at a lower interest rate. Other loans might be included in your package, which the banker will help you understand. It’s a complex process. 

2. How long will it take? Put together a realistic timeline from funding through move in. Building from the ground up is a labor-intensive, LONG process. Not every business can afford to wait a year or longer to move in.

Sitting down to think through the process and how long a build takes from start-to-finish is sobering. Is waiting twelve or eighteen months a problem for business operations? Do you have that kind of time?

Talking this over over with your construction partners, along with the actual timeline of similar local projects, may be just the realization needed to make a decision that’s right for you.

3. Is land available in the location you prefer? Arizona is growing quickly, and its major cities are challenged with rapidly disappearing empty lots for sale. It’s harder and harder to find land that isn’t already occupied. Depending on budget, some are even bulldozing older buildings to make room for new construction in premier locations. Commercial builders have insight into available land, as do commercial real estate agents. Once you have discussed financing and are qualified to secure funding, it’s time to start looking at real estate options.

Figuring out if the right piece of property is available or not can swiftly guide your decision to build.

WHAT DOES THE UNDERWRITING PROCESS LOOK LIKE?

Funding for a commercial loan can differ based on the use of the building. If it’s an investment and you’ll be leasing space, terms are different than an owner-occupied loan. A banker considers the property’s ability to generate cash flow, instead of just overall cash flow for the business, and the investor’s experience and ability to manage the property. If the property is to be owner-occupied, a Small Business Administration (SBA) loan may also be considered.

For the sake of this article, let’s assume the loan is for an owner-occupied building. Before a banker begins helping you create a pro-forma document detailing the construction project, budget, market conditions, builder/contractor information, financials and credit history, they will discuss the purpose and goals of the project with you, and do a preliminary screening of your creditworthiness. From the preliminary information provided, the bank will decide if the proposed transaction meets its criteria for a qualified transaction. If the initial decision is to move forward, a term sheet is provided outlining details of the proposed loan.

Then the real work begins. The business owner will be asked to provide common financials, such as personal tax returns, profit and loss statements for the business, construction cost estimates and full project plans, and more. The banker will work with you to complete the process, which is extremely detailed.

Once loan underwriting is complete, the loan shifts into the closing process. It’s complex, with a vast amount of paperwork and processes required to protect the banker and borrower. Because the construction loan is funded in stages based on project completion, the borrower won’t receive a check and be on their way.  Both the borrower and the developer will work closely with someone at the bank to follow bank policies and procedures in accordance with the loan terms.

TWO THINGS TO REMEMBER

Because of the time involved and how closely the relationships must work together, choosing the right combination of banker and builder is essential. You’re virtually married to them to them for years, in constant communication almost every single day. Their experience, skills and connections make all the difference

It’s also important to understand the time commitment commercial construction requires before you commit to the project. It’s not just about how many months it takes to complete, but how much of your time the project will require.

Business owners are busy and construction projects have a million and one details demanding attention. Sitting down to think through the process and how long a build takes from start-to-finish is sobering. It’s virtually a full-time job on its own. Do you have that kind of time? Can you afford the intangible “cost” of diverting attention from your business to the construction process? These are worth consideration.

If this isn’t something a borrower can manage, perhaps it’s better to purchase and retrofit an existing building, rather than building.

Commercial construction is an intimidating venture for beginners. If you have questions about funding, qualifications or the process, Horizon Community Bank is here for you with a free, no-obligation consultation. Contact us today, we’re pleased to help. You can also reach out to us on our Facebook page

Tags:  business  business loan  commercial real estate  financing  small business 

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International Fraud Scheme

Posted By George (Clint) Frederick CPA PLLC, George Frederick CPA PLLC, Thursday, November 12, 2015

 Note:  Had the fraud been successful my accounts would have been compromised.  Even though this 'appears' to be a valid offer from a legitimate billion dollar company that is publicly traded.

INTERNATIONAL FRAUD SCHEME

10/17/2015
Good Morning,

Central Glass Co., Ltd would like to employ your services on temporary basis on commission. Please write back for more details.

Juan Cui

Supervisor & Coordinator

Central Glass Co., Ltd

 

I responded with interest in the position thinking it might be fraud; they had my personal email from some source so a response seemed OK.

10/20/2015 - Another email is received with the following after some pleasant introductions:

JOB DESCRIPTION:

With the high demand of our products in your North America, we are currently working on establishing representative offices and sales centers in that region. Until the centers are established, we need a reliable company / individual (irrespective of the business type) that will stand as an intermediary between our customers in your country/region and Central Glass Co., Ltd.

In recent times we have had some good, bad and ugly experiences with our customers in North America, and we have been working out possible strategies to overcome these challenges. Some of these challenges includes (Detail listing followed).
COMPENSATION:

We shall be paying you the sum of $5,000 USD as monthly salary for your services, and you will be entitled to 5% commission of every payment received on behalf of Central Glass Co. Ltd. from our clients/customers. (Note this would be considered a part time position)

Kindest regards,

Takeo Komata; Executive Manager; Central Glass Co., Ltd.

Email: takeokomota@cgc-jp.net

http://www.cgc-jp.com/ 

 

NOTE:  The difference in spelling – Takeo Komata whereas email shows Takeo Komota.

Central Glass Company is listed on the Tokyo exchange.  It has a value of over $1 billion.  A list of the executives show Takeo Kamata is an executive of the company.  I attempted to call Japan to talk personally with Mr. Komata; but not speaking Japanese I couldn’t make it past the switchboard.

I sent a response of continued interest in the position.  I’m curious where this will lead.

On 10/22/2015 I received another email:
To speed up and commence with this process, we shall now proceed to signing of the Memorandum of Understanding. To do this, we require some information from you to prepare the Memorandum of Understanding. Information needed are as follow: (Note:  Requested information consisted of information that is public knowledge and nothing that I felt would jeopardize my accounts.) The email continued:

Upon receipt of the above, we shall send you a copy of the Memorandum of Understanding for signing. As soon as the signing of the MOU is done by both parties, we shall then forward your information to our customers and as well furnish you with their information.

 

On 10/26/2015 I sent an email directly to Takeo Komata as shown on the Central Glass Web Site requesting confirmation of the legitimacy of the offer.  I received no response.

On 10/29/2015 I received another email:
Attached hereto is a signed Memorandum of Understanding by our company. You are required to review, sign and return to us as soon as possible. Upon receipt of the M.O.U., we shall provide you with more information on our customers and supporting document (s). (Note:  The MOU was signed by the Chief Executive Officer of Central Glass Company along with his Executive Vice President.

I replied to the email containing the MOU, indicating that I would need to form a separate company, obtain a separate bank account, and pointing out the fact the company internal controls over accounts was very weak.  I did not sign the MOU.

On 10/30/2015 I contacted the local office of the Federal Bureau of Investigation (FBI).  I also sent by USPS (snail mail) letters to the officers that purportedly signed the MOU.

On 11/3/2015 I received a reply from the FBI: Please report this to our Internet Crime website at www.IC3.gov.  Thank you.

On 11/05/2005 the following email was received:
Thank you for your mail.

My apology for responding late. There was a fire outbreak in one of our ware houses. Properties worth millions of dollars was lost. This is a very big blow for our company at the moment.

The content of your email was clearly understood. We do not have an account in US for now but we are planning to set up one once we begin our liaison office in January. We are in agreement with your suggestion on the MOU. Please proceed to modify and return to us so that we can draft out another MOU and sign.

I did not respond to the last email.  On 11/11/2015 I received the following:


Thank you for your letter of 2nd of November. 
With regard to the offer and the MOU, we did not send you such offer and documents and the corporate email address written on the MOU and the person `Juan Cui' have no relation to our company. Also we recognized the signatures on the MOU as forged ones. It has come to our attention that there are a lot of spam emails being sent at the moment that indicate the sender as Central Glass Co., Ltd. or our officers and employees. 
Please discard these emails and documents you received. 
We apologize for any confusion these documents may have caused. 

Tags:  business  finance  fraud  tips 

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LifeLock in IP Battle with Former Employee

Posted By Mary Juetten, Traklight, Monday, August 17, 2015

If you've seen HBO's Silicon Valleyyou know the perils that can arise from issues of ownership and work created while otherwise employed. While a creator can easily separate in their mind the work done for each separate entity and see no contradiction or overlap, the law is less forgiving of such indistinction. Hooli's case against Richard and Pied Piper works so well because we've all seen cases in the news where a entrepreneur has created a product or company in their spare time, only to have the ownership of said creations disputed by their current employer. At the very least, we're familiar with David Fincher and Aaron Sorkin's telling of Facebook's sordid origins in The Social Network, embellished as it likely may be. So we shouldn't be surprised to see new cases pop up all the time, even here in the Valley of the Sun.

Tempe-based LifeLock, Inc. has filed a lawsuit against the founder of Lemon, a company it acquired in December 2013, over the ownership of one of his other projects. LifeLock is alleging that Wences Cacares, the founder and former CEO of Lemon, used Lemon computers and resources to develop the source code for one of Cacares' other ventures, Xapo.  (For those unfamiliar with the company, Xapo offers offline, encrypted storage for bitcoins, in facilities with physical security measures that would give Danny Ocean pause.) 

At the time that LifeLock acquired Lemon, LifeLock also launched its LifeLock Wallet app that used Lemon technology to help customers protect their identity online by securely storing digital copies of credit and debit cards for use. What the lawsuit alleges is that Cacares and his team continued work on a bitcoin wallet component to the app that wasn't going to be a part of the LifeLock Wallet, even after being ordered to stop by Lemon's board. LifeLock is claiming that such work continued even after they purchased Lemon, and as such they are entitled to ownership of the company.

Cacares has responded by filing suit against LifeLock, claiming that LifeLock interfered with and mismanaged his team, leaving him unable to continue work on the LifeLock Wallet. Cacares was able to get a letter from LifeLock acknowledging that he owned the bitcoin vault as well as the involvement of two Lemon employees in advisory roles. But LifeLock claims that the role of these employees was misrepresented; rather than advisers, they were involved with Cacares in day-to-day operations as he and others continued development on Xapo with Lemon resources. Cacares further claims that after tendering his resignation, he was instead terminated by LifeLock for cause, resulting in the loss of $1 million in LifeLock shares.

Clearly this is a messy affair, sure to be strung along in the courts for months. And it's impossible to speculate from the outside on what went on within Lemon and LifeLock, especially when we have dueling lawsuits that give us twice the narrative we usually see from a court filing. But the larger paint remains: take care when working on your own business while still employed elsewhere (even if it's your own company). When you sell your business to a large company like LifeLock, then proceed to step out with your new venture, there is a chance that you'll draw suspicion, especially if it's related to a project from your old company. It's not a stretch to say that this Lemon could have used advice from a sage advisor.

Tags:  business  intellectual property  Legal 

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