Keeping Capital Working
Cody D.’s web design and hosting business took off so quickly that within a few months his company occupied over half of a 35,000 sq. ft. building. However, the buildings’ owner went bankrupt, stopped making payments, and the bank took over management of the building. Renovations were needed, the bank refused, and the other tenants began vacating.
The bank offered to sell the note at a large discount. Cody wanted to purchase it, but he hadn’t been in business long enough to qualify for the loan.
His uncle, George M, who had recently retired, offered to cosign on the loan. But even with his stellar credit, George no longer had earned income, and his assets were tied up in an IRA. In addition, the building had no income other than Cody’s. Unless he offered another investor a large equity piece in the building, he wouldn’t be able to purchase the note.
Lendacy had a solution. Because of our relationships with the investment managers with whom we partner, we were able to provide a line of credit that allowed Cody and his uncle to form a new LLC, and then lease the office to Cody’s business. The line of credit charged 2.25% interest and was large enough to not only pay off the discounted note but to make all the necessary renovations the building needed.
During this process, Cody and George saved over $35,000 in fees and interest payments all while allowing George’s retirement capital to continue working for him, earning 5.5% in an insured hedge fund and Cody’s business to flourish.
With the building renovated, new tenants quickly came aboard at the prevailing market rate and both Cody and George began realizing a healthy profit on the building the Lendacy credit line had made possible.