Creative Finance

The last few weeks have been busy for Balhiser LLC. First the small biz was denied a $50,000 line of credit from a bank despite an excellent credit credit score, collateral and cash flow. That’s where creative financing come into play. It occurred to me, as president of Balhiser LLC, that the real estate venture was a good investment, and the the bank had made an error by rejecting the application on the basis of “industry: real estate”. I came up with the idea of a risk-sharing loan that would pay the lender a percentage of gross revenue from the income property in proportion to the loan-to-value of the property. The “angel” lender turned out to be a non-bank individual. The terms of the gross revenue agreement include a minimum 6-month term at which point the loan becomes callable and repayable in full or in part.

The lender gets a good deal because they realize proportional gross revenue. Balhiser LLC gets a good deal because it receives financing to close the capitalization gap with a non-bank lender sharing the revenue risk. The classic win-win business deal. So long as the property goes unrented no “interest” is due.

As it turns out, a 12-month lease on the property was signed on January 27th. If all goes according to plan both my small biz and the private lender will do reasonably well. The lender stands to receive just over 8% return.

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