How to succeed in growing your business, while reducing risk
NEW YORK CITY – You’re ready to start or grow a business. You have your ducks in order and your business or business plan is in good shape; now you need to line up the money to launch or expand. Obtaining a bank loan requires collateral, credit checks, engagement/due diligence fees and success across a financial checklist. Investors may be interested, but worried about risk. The goals are simple: reduce risk and increase funds.
There is a lending program designed to achieve those goals of protecting investors while providing loans, offering a solution to companies seeking to start or grow. The project serves as the loan collateral and investors, rather than waiting and hoping, earn 7 percent interest per year on their funds.
TMI & Partners has teamed with FundingNet to fulfill loans for companies that have investors who want to earn predictable, high interest on invested money. TMI finds, vets, and moves projects through this process for the lender, FundingNet, who lends to projects that already have a minimum level of funds.
FundingNet, and its entertainment-focused arm FilmCabbage, until 2017 only provided this program directly to re-lenders, but has now expanded to end-borrowers through intermediaries such as TMI & Partners. The program helps to mitigate risk for investors, while the investors’ money earns interest.
“It’s a way companies can protect their investors’ money and obtain additional funds with due diligence focusing largely on the project, which has to be approved,” said
Courtney Barrett Bryan Sr., Vice President of Funding & Entertainment at TMI & Partners. “Investors are assured the money they put up won’t be put at risk. Once the loan is successfully repaid, that money is returned, and they receive interest throughout.”
Following the Numbers
Since 2005 FundingNet has lent over $18 billion to hundreds of borrowers across a variety of industries, including real estate development, technology, infrastructure, hotel and resort development, entertainment, and a wide array of other business initiatives.
“They developed a full portfolio of opportunities available to individuals and companies,” TMI CEO Alvin Hartley said of the program, which underwent significant changes once the pandemic hit, making it more accessible and secure for companies to leverage investors’ money to obtain loans.
TMI is spreading the word about the program to the public as well as reaching out to minority-owned companies, providing them additional options to obtain funds. “As a minority-owned company ourselves, we have access to these opportunities to offer to minorities, women of color and the general market,” Hartley said.
Between 2005 and 2017 the FundingNet program lent almost exclusively to re-lenders, acting as a wholesale private wealth lender. In 2017 it began offering loans directly to end-users.
“We’ve provided financing in any number of industries,” Cliff Endicott, Vice President of FundingNet and president of FilmCabbage, said. “We don’t necessarily target specific industries. Borrowers that qualify for our programs, ones that can follow our protocols and whose business plan supports the risk we would be subjected to have an exceptionally good chance of being able to obtain a loan. Part of that process is that our banking partner bonds the funds the project has already raised, and that bonding not only offers the client security for their existing funds, it also pays them 7 percent interest annually on their value.”
The amount of money that can be available to a borrower is based on multiples of the
amount they have already raised. Borrowers that have raised more than $1 million or equivalent (the minimum amount) up to $10 million can be offered a loan of 1:1 on their existing funds, but for larger amounts the multiple available on their existing funds can be up to 4:1.
Project as Collateral
Companies must have already raised at least 1M Euro (or USD equivalent) to qualify for this lending program. FundingNet evaluates their application package to determine the likelihood of the project’s eventual ability to repay the loan. The first focus is always on protecting the project’s (or their investors’) funds.
“When they come to the program they may have an investor,” Barrett Bryan said. “With FundingNet, that investor’s money is always secure.”
By using the projects as their collateral, FundingNet doesn’t look for other assets to secure their loan. “Banks always want full collateral through existing assets,” Endicott said. “If you don’t have collateral to offer worth at least the amount you’re looking to borrow, they won’t lend you that money.”
FundingNet evaluates projects and, if it approves a loan, agrees to use the borrower’s project as their collateral. “Since FundingNet’s only required collateral is the project that our funds are being spent into, it’s much easier to qualify for a loan through our program than through traditional lenders. The project is either strong enough to support the loan, or it’s not,” Endicott said. “We don’t require any additional corporate or personal guarantees. We assess what they’re going to do with our money, and we determine whether that’s an acceptable risk.”
By requiring companies to raise at least 1M Euro (or USD equivalent) to qualify for loans, the FundingNet loan program automatically weeds out most projects that wouldn’t make it through the vetting.
“Having a minimum threshold eliminates most people who aren’t serious business or
finance people,” Endicott said. “Raising a minimum amount of funds to qualify for a loan is generally the biggest challenge by far for most companies.”
To attain a loan of $50 million to fund a project, for instance, a company would have to raise $15 million to $20 million, depending on the multiple offered and how the loan is structured. “People looking for alternative lenders often have no money at all,” Endicott added, “so their biggest challenge is raising enough funds to qualify for the loan.”
Wide Range of Projects
Many projects that would be met with a skeptical eye at a bank or retail lender have a better chance here, although they must make it through the risk assessment. A low- budget horror movie, for instance, is unlikely to attain a bank loan, but FundingNet
would always examine the project, budget, business plan, track record (if any) and other available data to determine if they think it will be profitable.
The program is open to any industry except for cannabis (as their bank cannot bond the client’s initial funds for cannabis projects any longer).
“It’s not so much the industry as the funds already raised,” Barrett Bryan said. “Instead of spending that money into the project, where it may or may not generate any return, they can put those existing funds into this program, reduce the risk profile and earn guaranteed interest on it instead.”
While a wide range of projects can qualify, these also include real estate development, a capital-intensive industry. “More housing needs to be built. Interest rates are going up. Banks are tightening their belt in lending to developers,” Hartley said. “Developers can come to us. They have money, but not all the money. Now we can put up 100 percent of the money.”
No Upfront Fees
Traditional loans, like those from most banks and retail lenders, usually involve upfront fees, money that is not refunded even if you are not approved for a loan. “FundingNet doesn’t charge any fees upfront,” Endicott said. “You aren’t expected to pay anything out of pocket until your loan has been approved and is ready to execute.”
TMI is on the front lines, working with clients to understand the program, put together the application package, ensure that financial information is correct, and that the client is aware of and can follow all the required protocols. “Those are the types of things we knock out,” Barrett Bryan said. “It’s time consuming.”
TMI charges some minor fees for preparing packages, but clients can avoid most or all if they take care of it on their own under TMI’s guidance. TMI then only charges a processing and finder’s fee when the application is submitted. The processing fee is
$1,895 for domestic companies and $3,895 for those abroad, minor amounts meant only to cover the time they will spend working with the client.
“It can take months to put a package together,” Barrett Bryan said. “Once the package is put together and we’re ready to submit, that’s when that fee would be due.”
FundingNet fees are charged only if and when a loan is provided and already being funded, as companies obtain funds to launch and expand. Every loan has a loan “custodian” who works with the borrower on a monthly basis to make sure funds are being utilized appropriately and the project remains on track.
“The custodian will monitor the project to make sure our risk is as mitigated as possible,” Endicott said. “If you borrow $50 million, you never get it all at once. The money is tranched out based entirely on the project requirements and our risk
assessment, and though we let the borrower manage their project we have constant oversight over it.”
The loan custodian will connect with the borrower every 30 days to assess the use of funds against the project’s progress. When everything matches expectations, things run smoothly. “But if we can’t reconcile the funds provided with their expenditures, which can hold up the project’s next tranche until things are back on track,” Endicott said.
FundingNet can even work with digital currency, providing another option. “The borrower groups always earn interest on the funds they’ve brought to the program,” Endicott said. “But in addition to cash, our banking partner’s flexibility allows the borrower to use Bitcoin, Ethereum, or other top cyber currencies, if that’s what you’ve raised instead of cash.”
Some investors want insurance on any funds they provide in such situations, which can be very costly. The FundingNet program instead bonds the investors’ money, so that those funds are always earning and remain fully guaranteed.
“The project’s initial funds are bonded, which offers a coupon rate of 7 percent per year as well as offering it complete security,” Endicott said. “One person asked me, ‘Why isn’t everybody doing this?’ I told them they were asking the wrong guy. I think everyone should be.”
Barrett Bryan said TMI and then FundingNet reviews the projects to make sure they fit the minimum risk profile. FundingNet takes more risks on projects than any traditional lender, but they base their assessments on hard data rather than the hopes and dreams of the borrowers. “Everyone has their project,” Barrett Bryan said, noting FundingNet can be a key step in starting or growing a business. “They all think their project will make a million dollars and go through the roof.”
About TMI & Partners
TMI & Partners, Ltd., founded and led by Alvin Hartley, is a business solutions company providing a wide range of services for minority-owned and companies in general. It assists in financing, branding and operations, finding and implementing solutions for small businesses.
About FundingNet/ FilmCabbage
The FundingNet program has been operating since 2005 in the wholesale lending world, and offering the program directly to end borrowers since 2017. Using an approval process that follows simple, yet logical assessment procedures, its lending programs have facilitated loans for many sound businesses that would not be approved through conventional processes. FundingNet is a versatile source of funding for projects in a multitude of verticals such as real estate, infrastructure, film, entertainment and other industries.