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What disclosure information should you give to a private lender?
Home Home Real Estate
By: Alan Cowgill Email Article
Word Count: 941 Digg it | it | Google it | StumbleUpon it


- What is a Disclosure Document?

When you are offering private lenders the opportunity to work with you, you must be sure to disclose to them the risks and rewards of the business. You should prepare a disclosure document.

A Private Placement Memorandum is a critical disclosure document that has legal consequences. If a private lender is not given sufficient, material information and suffers a loss, he may have a claim against you and your business. The information you give private lenders must be accurate and not misleading. The key test is if you have given private lenders all 'material' (significant) information about your business at the time the investment was made. It is therefore important to follow the SEC's disclosure regulations in your Memorandum.

What are these guidelines? In general, they are:

-The Business of the Company -This information generally includes a description of your private lending business, location of the company's facilities, trends in the industry, and the company's marketing strategies.

-Risk Factors -These factors vary depending upon the company and the nature of its business. They may include cash flow difficulties, market competition, inexperience of management, dependence upon an unproven product, absence of operating history or profitable operations, potential conflicts of interest with management or affiliates, or the absence of a trading market for the company's securities.

-Use of Proceeds - The use of the funds to be received from the offering should be set forth with a high degree of specificity. Categories of expenditures may include such items as leases, rent, utilities, payroll, and purchase of equipment, payment of notes, advertising costs, insurance, supplies, and payments to be made immediately to officers, directors, or promoters.

-Key Personnel and Shareholders - Individuals who direct the company's operations or who make significant contributions to the business of the company as employees, independent contractors, consultants, or otherwise are identified and important background information such as education, age, and business experience of these persons is disclosed. Principal shareholders of the company are identified with a description of the number and percentage of shares beneficially owned.

-Financial Statements - Financial information, such as balance sheets and statements of income and cash flows that accurately describes the financial condition of the company, is typically provided. In some circumstances, these financial statements must either be audited or reviewed by a Certified Public Accountant.

You should distinguish between facts and beliefs in your Memorandum. Restrained language should be used throughout the text. At the practical level, most investors are accustomed to reading carefully worded Memoranda and they are suspicious of broad, unqualified claims. An understated, factual Memorandum can deliver a powerful message to private lenders.

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E. Alan Cowgill is the owner of Colby Properties, LLC. and President of Integrity Home Buyers, Inc. Since 1995, Alan has bought and sold hundreds of single family and small multi-family investment properties. His home study system, 'Private Lending Made Easy', shows others how to find private lenders for their very own real estate business.

His website is

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