[VIDEO] Get a business on the side. I'm going to Vegas.

I discuss why you want to always have a business going even if you're employed.  Also, be sure to do business when you travel, I'm going to Vegas.




The Invest Local Book blog is all about small business, local investing, home economics, small business systems and borrowing money for your business. It's full of great content and I look forward to seeing your feedback.

[VIDEO STORY] Sell a partial interest in a note to reduce risk

In this video I explain how I used one of the leverage techniques from Invest Local to reduce my risk in a small loan to a startup company.

Sometimes partial sales can attract capital gains tax issues.  In this case it doesn't.  Watch to understand.

Read Invest Local to learn how you can do these types of deals yourself.

Small Business Lender Reveals biggest reasons why small business loan applications are declined.

I asked my friend Florence Rose to write a short guest piece on why she declines some of the applications she receives.  This brief glimpse of what goes on in the underwriting process of an institutional lender can give us all great ideas if we ever consider making our own investment into a small business.

Why decline a loan application?  

I grew up in a world of Entrepreneurs. It is what I know.  I breathe, eat, sleep and drink entrepreneurship.  All of my post-secondary education is focussed on every element of Small Business Entrepreneurship and Entrepreneurial Finance.  

 Why do I turn down loans?

 My compensations are partly driven by financing successful businesses and contributing to a strong economy.  Throwing money at businesses, that in my experience will fail, does no good for anyone.  No good for the entrepreneur, the financier, or the economy.  I want to contribute to a healthy economy.  I want to finance Entrepreneurs who will be successful.  My instinct is dead on, as is my education which contributes to good decision making.

 Why do I decline loans?

 1.       Poor credit and lack of investment – All research about loans of $250K and under are conclusive; if you don’t manage your personal credit well, you won’t manage your business credit well.  If you don’t pay small bills on time, you won’t pay me on time.  If you haven’t managed your personal wherewithal you will not apply sound judgement to your business.  It is one in the same.  

2.       Managerial Incompetence or Lack of Cross Functional Management Team – Just having functional expertise is NOT enough.  I can be a great plumber but if I don’t have small business management skills, I won’t make it.   Being a functional expert is NOT enough.  Either you are great at administration (the other half of business) or not.  If you are not, you have some options.  First, partner with someone who has the ‘other’ functional expertise in business.  Second, hire a great consultant to address your education gaps.   Third, stay employed at your current job.  Sometimes a great plumber is just a great plumber.  Not always are they great Entrepreneurs.  Be smart enough your strengths and weaknesses.

3.       You run out of cash – Cash is King.  If you don’t have #1 or #2 under your belt, then you will have challenges with your billing, collection, and payment of cash.  Again, don’t drive the Porsche if you don’t plan to fill it with high octane gas. 

4.       No market – You might have a great idea in business, but if there is no-one to sell your product/service to, you can’t generate cash.  Don’t over estimate your market if you are starting a business.  If you are sure you have clients to purchase your product/service too, get them to put it in writing.  These sales can be used as the basis for your cash flow forecast.

5.       Make a solid business plan with SMART objectives – Specific, Measurable, Achievable, Realistic, and Timely.  Know who you are, what you do, how you will do it, and make sure your operating plan is congruent with your strategic plan. 

Florence Rose is a small business credit specialist and can be reached at florence.rose@bdc.ca  Florence helps entrepreneurs in Southeastern New Brunswick, Canada.

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Private lenders step into mortgage void left by banks

I was doing some reading online when I came across this article published in the Toronto Star about private lending in the GTA real estate market.  

What I find noteworthy in the article is that many of the borrowers are now in dire straits and in risk of losing their homes to the lenders.

As a private lender/dealmaker, this is not the place you want to be.  (it's far better to get paid than to end up owning collateral.)

That's why in my book, Invest Local, I outline why real estate deals are dangerous because the lender is relying on the borrower to qualify for new credit in order to get out of the loan.

I find that fully-amortizing loans to be a much better risk for my money since I can control the back end.

 Full article link below:

By: Susan Pigg Business Reporter, Published on Thu Jun 19 2014Private lenders have been moving aggressively to fill a growing void in the wake of Canada’s tighter mortgage lending rules, offering loans to desperate homeowners that, with fees, can range from 12 to more than 30 per cent interest rates, leaving some people at risk of losing their properties.
Mortgage brokers say they are seeing more people — especially self employed or those who bought preconstruction condos or houses before Ottawa further tightened lending guidelines — now scrambling to get mortgages or approvals to refinance their properties.
So many are now being turned down by the A lenders — banks offering 2.99 per cent mortgages — that B lenders such as trust companies, with rates of 4 to 5.5 per cent, have seen a significant spike in business.
So have private lenders — a largely unregulated sector of the mortgage market where money pooled from investors is used to offer one-year, interest-only loans to desperate borrowers traditionally considered high risk.
Veteran mortgage broker Jason Friesen calls the growth of such alternative lenders “a sign of the times.”
“We’re going to see more and more of this. It’s very much a byproduct of people who, for so long, used their houses as a bank machine and now it’s catching up to them. You’re finding a lot of desperate people doing desperate things.”
Friesen has seen a virtual doubling of people who no longer qualify for mortgages from banks.
“Where it used to be one out of ten, it’s now two in ten, and substantially higher for self-employed. They are being hugely impacted by this.”
The costs of having to turn to alternative lenders can be staggering.
A $500,000 mortgage at 2.99 per cent over 25 years costs about $2,360 a month. At the 5.5 per cent charged by B lenders, that rises to $3,000 per month.
But that mortgage payment skyrockets to $6,200 per month — and that’s interest only — from private lenders charging, say, 15 per cent. On top of that is frightening fine print and fees, often overlooked by desperate borrowers, from lawyer to lending and late payment charges that can add tens of thousands in costs.
The pool of borrowers with no choice but to take the private route appears to be growing, as are the email marketing campaigns by private lenders offering to do “difficult deals” or “what the bank does not.”
Brokers can get hefty fees for connecting private lenders with borrowers needing 85 or 90 per cent financing, in excess of the 80 per cent loan to value of the home limits that Ottawa has now imposed on the big banks.
Broker Steve Garaganis calls private lending “a minuscule” segment of the mortgage market. He urges clients to rent, rather than further burden themselves with high-interest loans in what can end up being a futile effort to hang onto their homes.
But he sees more self employed, who used to qualify with the banks, now forced to alternative lenders because “Ottawa has gone way overboard” in tightening the lending rules.
Broker Rod Smith specializes in arranging private mortgages, but only with money from wealthy, savvy investors who are vetted to make sure they can afford the risks. Most are looking for alternatives to the stock market and like the fact the loan is backed by a hard asset, real estate.
Private lending “is a growth sector right now, but that’s because of the contraction of the institutional (bank) sector,” says Smith.
In fact, it’s resulted in a “higher grade of borrower” turning to private lending, especially self employed, he says.
Brokers believe the worse may be yet to come as highly-leveraged homeowners, or self-employed persons lacking adequate proof of income, try to renew mortgages in the next couple of year and find themselves turned away by the banks for the first time.
One Mississauga woman discovered the hard way the high costs of private mortgages after being turned down by both A and B lenders for a second mortgage on her $325,000 townhome. She was looking to consolidate debt after a bout of joblessness.
She was eventually able to borrow $20,000 at 16 per cent. But the woman says fees, for everything from documents to late payments, have been crippling and she’s at risk of losing her home.
“Their fees were so disgusting that I just couldn’t get ahead. I’ve just not been able to re-establish my credit (rating),” said the woman, who spoke on condition her name not be used.
It’s not only desperate borrowers who are at risk.
Toronto realtor Brian Persaud has been trying to sell a condo for a woman who is now $77,000 in debt after she says a broker convinced her there was big money to be made if she used her Home Equity Line of Credit to help needy borrowers.
Her first $35,000 loan went well. The one-year, interest-only loan was repaid on time and the broker paid her a hefty return on her investment, including $1,700 in fees.
Today, however, she’s out $77,000 after a second loan of $50,000, also against her HELOC. Only later, she says, did she discover the money was being used as a second mortgage on a condo.
The owners defaulted and she was left on the hook for the mortgage, as well as mounting maintenance and other fees.
The single mother acknowledges now that she should have hired a lawyer to look at the deal first. She’s fearful of having her name used, in case her bank discovers how she’s been using her HELOC.
“I thought, ‘This is going to make me some extra money. But the broker didn’t do his math. Right now there is nothing (no value in the highly leveraged) condo to cover my money.
“I would never go into this kind of situation again. It’s killing me.”  original article here...

Introduction to Peer-to-Peer lending websites: Podcast Interview

One of the ways that direct lending has evolved is P2P or 'Peer-to-Peer' lending.  In the US and the UK there are website communities such as prosper.com which allow people to directly lend to each other by taking a small position or piece of an overall loan.

These sites, and copycats, have been barred from operating in Canada by banking and securities regulators.

Click 'play' below to hear an interesting interview from the FTM Weekly Podcast in which Tommy Cloud, Certified Financial Planner, explains P2P lending to Jerry Robinson and how he actually helps his clients obtain superior yields using the Prosper.com community.

Very interesting interview. Click here for podcast website.

Layout and final changes

Okay, its been a busy day entertaining the kids but I managed to get a bunch of work done on the book after bedtime.

I completed the remaining sections on the 7 asset classes.
I shortened the 'about the author' section to two pages by deleting a lot of fluff.
I added systemic risk to the risk section
and I put the whole thing in a template that I downloaded from the CreateSpace website so I'm sure it will fit nicely into a book.

I also took some time to write a blurb for the cover:

Invest Local is a peek into the thoughts of local deal-making expert David Barnett.  His experience and education in business brokerage, small business financing and capital markets gives him an insight into what’s wrong with the common financial planning advice available today and how you can make superior investment returns while mitigating risk and helping your local community.

This is not a book about social enterprises or charity.  It is a book which guides you on how to find and obtain superior returns in the community where you live, far, far from the promises of Wall St.

Barnett offers step-by-step guidance on how to earn three-digit returns by doing car leases, secured loans, inventory financing, buying accounts receivables, financing mini and mobile homes, operating leases on machinery and more. 

High yield investing does not have to mean high-risk investing.

I'm getting excited because I think the time to send it to print may be quickly approaching. I'm thinking more and more about promotion and I can't wait to speak to my Clarity expert next week.

Have a great weekend.

dave