Monday, May 16, 2016

Translating an Offer from The Credit Junction

Now that you’ve applied for a line of credit through The Credit Junction and gone through the underwriting process, the next step is to wait for your loan deal to arrive. (This usually happens within 24 hours of that initial call with the underwriter we mentioned in the last article.)

Once you sign the deal, you’ve essentially given The Credit Junction a green light to conduct further due diligence into your company and management team. You’re also one step closer to getting your new line of credit.

To give you a better sense of what a loan deal looks like with The Credit Junction, we’ve come up with a primer on what you can expect to see in your letter of intent. Take a look.

What’s In Your Loan Offer Letter?

1. The Nuts and Bolts

The first thing you’ll see in your letter are the terms of your loan. These include:

  • Your company name.
  • The credit line amount extended to you, which is the maximum amount you can tap into.
  • The amount of your initial advance. To avoid any confusion, if your line amount is $3 million and your advance is listed as $2 million, you’ll have initial access to the $2 million advance amount.  
  • Your interest rate, typically around 15%.
  • Your approximate interest-only monthly payment, based on your initial advance. Keep in mind that this amount can change if you tap into more of your credit line in the future.
  • Your closing fee. This is usually about 1.5% to 3% of the amount drawn. “This way you’re not paying on any of the amount you’re not using,” says Mac Trivedi, head of financial partnerships at The Credit Junction.
  • Collateral.
  • The length of your loan. This typically ranges from 6 to 24 months, depending on your company’s needs and the specifics of your funding deal. Before offering you a loan, your advisor will work with you on the phone to help you determine how long you’ll need the credit line. “We really want to tailor this to what’s happening in your business today and the future,” says Trivedi.
  • Prepayment penalty. This fee charges you if you pay back the loan prior to the end of its term, and it’s usually 12% of the amount you prepaid during the first 12 months, says Trivedi.
  • Due diligence deposit. This fee is generally about $2,500 for loans up to $1 million and $5,000 for loans between $1 million and $2 million, and higher for loans over $3 million. The deposit gets paid when you sign your initial letter of intent and before The Credit Junction team member visits your site, and you can get a refund if The Credit Junction then decides not to fund your business. Otherwise, the deposit is applied to your closing fees.

2. The Nitty Gritty

In this part of your letter, The Credit Junction breaks down information on how it arrived at the amount of your loan and what it’ll require from you in terms of reporting. Some of the information you can expect to see here includes:

  • The accounts receivable and inventory amounts that The Credit Junction used to determine your borrowing base.
  • Your ongoing requirements, which will likely include weekly accounts receivable and payable reports, as well as monthly internally prepared financial statements and inventory reports. Depending on your particular loan, you might also need to report your yearly financial statements. You can either integrate your accounting system with The Credit Junction’s system or drag and drop your reports into the lender’s online portal, says Trivedi. 

3.  Certain Conditions

This is where The Credit Junction lists out any other conditions that could impact your line of credit. This section, for example, might include:

  • A reminder that your loan is still subject to the completion of the underwriting. Remember: you’ll have received this letter before The Credit Junction visited your business site.
  • An execution of a deposit account control agreement stating that The Credit Junction can take control of your bank account only in the event that you default on your loan.
  • An agreement between The Credit Junction and the landlord of a warehouse where you store collateral inventory. The Credit Junction might be given the right to take possession of the inventory if you default on your loan. This type of provision would only be in place if your inventory is used as collateral for your loan, explains Trivedi.

Although these are not unusual conditions for a large line of credit, it’s a good idea to call your advisor at The Credit Junction if you have any questions about the information in your loan letter.

4. Are We There Yet?

Almost! Here you’ll enter in wire instructions to send your deposit to The Credit Junction. You’ll then sign the agreement.

Your funding is now nearly complete. The Credit Junction will then plan a site visit to your business (like we talked about in part 2 of this series). This will happen the very next day, generally. In the meantime, an underwriter will prepare your closing documents. As soon as the site visit is conducted, your documents will be sent to you for a final signature.

“As soon as you’ve signed the closing documents, we fund your loan—if not same day, the next day,” says Trivedi.

The post Translating an Offer from The Credit Junction appeared first on Fundera Ledger.

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