THE METHODS WE EMPLOY TO OBTAIN FUNDING FOR
INDUSTRIAL AND COMMERCIAL PROJECTS
Burgundy Capital has the ability and expertise to obtain funding in 100-million-dollar (U.S.) increments through several methods. This enables borrowers with the ability to tailor funding in a manner that is compatible with their needs.
1) FULL PAYMENT
The total cost of an SLC (or BG or OID herein collectively referred to as “SLC”) is typically 15% of its face value. If a borrower chooses to pay for the full amount of the SLC , they immediately have full rights to utilize the instrument. The SLC will be unencumbered, lien free, and an asset on the borrower’s balance sheet for the life of the instrument. This method involves the largest initial outlay of capital but also provides the borrower with the most flexibility.
2) PARTIAL PAYMENT
A borrower may also opt to make a partial payment of 3% and request that Burgundy Capital arrange for the financing of the remaining 12%. This approach triggers an initial loan from the borrower’s bank collateralized by the issuance and receipt of the SLC. This option dramatically reduces upfront costs. Depending on the credibility of the borrower’s bank, the loan amount will vary on a case-by-case basis. Many of our clients utilize this approach by mortgaging or obtaining a separate collateralized loan to be used as a deposit for the SLC. In the end, the client’s initial cash outlay is significantly reduced and they obtain the capital they need at a cost that is considerably lower than any other traditional financial instrument. Employing this method, the borrower is to obtain an escrow account, in the amount of the 3% deposit, with any law firm of their choice, licensed to practice in the United States. This option provides borrowers with the comfort that funds will only be dispersed when the terms of the escrow agreement have been met.
3) FINANCED
In certain instances, a borrower may be in a credit crunch or have the need for a large amount of capital (i.e., for bidding etc.), in a relatively short period of time rendering a partial payment through a collateralized loan impracticable. In these instances, Burgundy excels at arranging for the entire amount of the SLC to be paid for through the issuance of the instrument itself. For this to occur, Burgundy performs valuation analysis to obtain the required confidence in the viability of a given project. If the project is deemed viable, we will utilize our relationships and expertise to obtain an SLC where all the costs are defrayed to the back end. The interest payments are, as in the Partial Payment option, determined between the borrower and their banking institution. Once approved, there is no up-front cash outlay. For this reason alone, 100% financing is also a compelling service we provide. This option often overlaps with the final method we employ to obtain funding for our clientele discussed below.
4) PROFIT PARTICIPATION
Under this option, we must be satisfied that the requirements parlayed in option 3 above have been met. In lieu of interest costs incurred through a loan from their bank, we may bear the cost of the loan (within acceptable parameters) and entertain a joint venture with the borrower. With an average cost of over 50% in the venture capital industry, we seldom request more than 33% of a given project.
PERFORMANCE BOND
To obtain funding under options 3 and 4, we require a good faith (“performance bond”) in the amount of $150,000 (U.S.). This deposit is not a fee and is fully returnable, with 5% annualized interest, if we are unable to obtain a bona fide offer suitable for the borrower. We must be reassured that clients are acting in good faith and have the genuine ability to utilize the types of transactions we facilitate. The required performance bond enables us to focus our efforts on our clientele and alleviates the floodgates of frivolous inquiries that invariably result if a good faith deposit were not required. Unless otherwise stated, at no time may we be directly compensated from the borrower unless we have fulfilled our obligations under a mutually agreed upon contract.
* Depending on the viability of multiple projects in a particular locality, we may, in certain instances, provide funding for projects that fall below $100 million (U.S.) increments.*
FEE FOR PROOFS
On occasion, certain borrowers prefer to pay a percentage of the performance bond as a “fee for proofs.” In essence, this enables potential borrowers to obtain, for a fee, certain assurances regarding our capability to perform. These proofs may take various forms and may also be tailored to the needs of the borrower. Any fee expended by the borrower reduces, dollar for dollar, the amount of capital required to fulfill the performance bond discussed in the above paragraph. For example, if a borrower requires certain proofs regarding the viability of the collateral we can provide, there may be a charge of $25,000 to obtain such information. Once that information is provided, the borrower must only deposit $125,000 to fulfill the required performance bond.
Unfortunately, there are many unscrupulous sources that purport to be able to obtain financing for large scale projects at unreasonably low interest rates. These unsupported claims merely end up wasting the time and capital of potential borrowers. The purpose of providing a fee for proofs is to provide the borrower with the comfort they require to enter into a more capital-intensive agreement.
