Bonnie Walker of weLLcome capitaL consulting LLC introduces the global 4X loan.
Let weLLcome capitaL introduce you to the difference between retail and wholesale money.
Since 2005 this loan programme has funded billions of dollars across a wide variety of industries, including cannabis, films, technology, resort development and much more.
Unlike traditional banks, conventional lenders or venture capitalists, this is a privately owned and operated wealth lending programme.
Being a private lender, our funder has the ability to finance loans that wouldn’t even be considered anywhere else. They work with highly respected global business partners like PWC, Brinks and G4S to support the success of their programme.
A programme which has been intentionally designed to remove risk from the borrower by providing a 100% guarantee on the deposit. Forget what you know about typical banking or conventional loans, this is not that. As long as you have a viable project, with 20% of your budget already raised then you can get a credit facility that is four times your deposit and at the wholesale rate of LIBOR + 2.
This programme with its wholesale interest rates, flexible repayment options, interest only structure, coupled with the 100% safekeeping security provided by Brinks or G4S is in a league all its own. Your deposit is held in third party escrow is not collateral and never under the lender’s control. The programme has been purposefully designed to remove all risk from the transaction for the borrower.
- Every loan starts with an initial deposit and the minimum deposit is equivalent to USD
- Possible deposit currencies are USD, GBP, EURO, Dirham, Indian rupees;
- The term varies project to project between 48 and 72 months;
- Default length is 48 months from first disbursement and can be extended;
- Interest only, with quarterly payments and must be kept up to date;
- Interest payments can be budgeted to be made from the credit facility;
- Interest is charged on disbursed funds only and loan funds remaining in the credit facility (undistributed) are not subject to interest charges;
- Wholesale rate at LIBOR +2;
- There is a reduced ‘sovereign rate’ for government borrowers;
- Loan funds are in escrow prior to the borrower’s capital being deposited;
- Once all funds are escrowed, the loan package is submitted for central banking compliance – this process takes 60 days to complete;
- A typical draw schedule sees the entire credit facility released over 8 to 11 months with draws paid in monthly deposits according to the draw schedule. Typically the first draw is the smallest, with each subsequent draw increasing in size until the full loan has been pushed out;
- Deposit is returned to the borrower 30 days after the last tranche in the draw schedule and deposit is returned to the originating account;
- No personal or corporate guarantees. General Security Agreement on project;
- Any business at any stage in any industry
- Credit scores are not relevant;
- Very flexible repayment options, including extending interest only term or converting to a long or short term mortgage held by the lender; and
- No prepayment penalties.
Here’s how it works
The borrower needs a deposit of 20% in cash to trigger the loan. The minimum deposit is equivalent to $1m USD (€900,000) and the lender will provide the additional 80%. It is interest only for 48 months (with extensions possible) at the wholesale interest rate of Libor+2. Interest is paid quarterly. There are no prepayment penalties. This is a non-recourse loan with no personal or corporate guarantees. This programme has been intentionally designed to remove all risk from the borrower’s capital.
It is only after the borrower has a signed term sheet, and has executed the deposit agreement with the fiduciary and is in possession of their Safe Keeping Receipt (SKR) (guarantee from Brinks in North America or G4S rest of world) is the borrower’s deposit positioned in the escrow account that is already holding the full loan amount which is positioned by the lender.
As you can see, the borrower’s deposit is 100% secure and guaranteed. It is never under the lender’s control and it remains unencumbered throughout the draw schedule and it is returned to the originating account once the loan is fully disbursed.
Protecting the deposit
The key element to qualify for a 4X loan, is the borrower having raised 20% of the total budget. It is the existence of the borrower’s project, coupled with the initial funds being pledged as the ‘loan loss reserve,’ that makes the four times multiple of the deposit that the funder lends to the borrower possible.
Those initial funds must remain completely undepleted and unencumbered throughout the funding of the loan, to the completion of the drawdown schedule. That way they can be accurately positioned as the project’s ‘loan loss reserve.’ If those funds (the deposit) were to become encumbered or depleted in any way, it would violate banking requirements for the loan loss reserve and cause the entire loan to collapse.
Therefore, to ensure compliance with central banking regulations, specific methods and oversight is required to guarantee that those funds will be left sitting idle throughout the drawdown of the loan funds.
Michigan based cannabis grower leverages 4X loan
Providing initial deposit in cold hard cash.
CHALLENGE: client struggles with banking problems due to Federal vs. State legislation. Resulted in storing large amounts of cash;
OPPORTUNITY: needed ability to leverage actual cash for loan deposit;
OUTCOME: lender was able to solve the problem and collect multiple millions in actual cash from the borrower for the initial deposit. The company is aggressively expanding operations with the loan.
As cannabis continues to be legalised at the State level across the US, the market opportunity is exploding. However, due to the fact that cannabis is not legalised federally, significant banking and financing challenges exist across the industry amid fears their legal profits could at a future time be reclassified as ‘proceeds of crime.’ As a result, many cannabis operators are hesitant to bank their profits, instead holding onto immense amounts of cash. Leveraging large amounts of cash to access growth capital for your business is not a typical approach to commercial financing.
However, for this cannabis grower it was the perfect answer. Using their profits (being stored in cash) they successfully leveraged the 4X loan. Our funder, being both a private lender and a problem solver figured out a way to get it done. In this unique scenario, the lender dispatched a secured armoured car service to collect millions for a cash deposit for placement as the loan loss reserve. With the cash deposited in escrow, the borrower received a four times credit facility of the deposited amount.
With their $20m+, they are expanding grow operations to several new states. They began receiving tranches in Q4 of 2018 and now with the loan fully disbursed, the client has the loan loss reserve returned to them – which had some significant benefits of its own. Thanks to this unique programme, this Michigan grower is capitalising on their expansion plans and their business is blooming.
What’s your capital strategy?
Searching for the right mix of debt and equity. When a company decides to enter the market to do an open capital raise, they focus on gaining access to the investment they need. However, weLLcome capitaL know that the cost of raising equity reaches far into the future and sometimes presents painful consequences down the road.
In the face of few alternatives, especially for those unbankable businesses like cannabis, leaders turn to investors and try to protect themselves as best they can; negotiating deals and terms they can live with, as they strive to attract investors and minimise their own dilution.
With stock dilution, sometimes referred to as equity dilution, existing shareholders experience a decrease in their ownership percentage of the company as a result of the company issuing new equity. The equity injected increases the total shares outstanding which has a dilutive effect on the ownership percentage of existing shareholders.
Raising debt financing can be a good alternative but expensive in the short term when dealing with hard money lender types, but in the long run it can still yield better results than an equity raise. There is a big problem with raising debt financing however, and that is having the assets to secure a loan big enough to reach the capital threshold necessary to achieve the plan.
The ideal solution would be to find a wholesale debt source offering a non-recourse loan where you don’t need the collateral upfront to secure the loan. With that type of loan, you could structure your raise with the right mix of debt and equity.
How could that non-recourse loan be structured to protect the lender if the borrower doesn’t have collateral? The lender could take a General Security Agreement (GSA) against the asset being developed and as the loan is spent into the project, the project itself increases in value. How the GSA is structured secures the loan, whether the loan is spent into physical assets or developing intellectual property. Obviously using pure IP would be a very unconventional approach and a high-risk loan for the lender. It would mean if the loan defaulted the lender would foreclose on the project and in the case of developing IP, it is definitely more difficult to monetise than a physical asset would be.
Here is a capital strategy scenario: for this example, weLLcome capitaL will assume you have found a wholesale debt lender able to leverage your capital to generate the credit facility you need. The company is raising $35m and the proposed mix is $15m in equity and $20m in wholesale debt financing. What terms would you need on the debt to make this all work?
What if I told you that the wholesale debt terms were interest only for 48 months at the wholesale rate of Libor +2; that it was a non-recourse loan with no early payment penalties and a tranche schedule that would deploy the money over 9 to 12 months?
Let’s summarise: On a $35m capital target, the raise is $15m in equity. The company could then take $5m of that and leverage it with a wholesale debt lender to generate a $20m credit facility. They would still have access to the original $10m in equity and draw down on the $25m in the credit facility over approximately 10 months. It is rare that the business would need access to the full $35m up front, so ten monthly draws would not typically be an issue. In this scenario they raise $35m and give up equity on $15m. This would definitely go a long way to preserving their equity and minimising dilution.
What would they gain using this approach? Well, the specific calculation depends on the cap table and dilution calculation of an actual company, but it is safe to say that raising less than half of the capital they need in equity will pay huge dividends to existing shareholders.
Possibilities for raising the deposit with an investor
The weLLcome capitaL lending programme allows the borrower to source the deposit if the business cannot produce the 20% out of its own working capital. They can borrow the money for the deposit.
They could source it through a hard money loan or a bridge loan, for example, if they owned land. They could also negotiate terms with a potential equity investor to provide the deposit.
Below are examples of how you could possibly structure a deal with an investor or lender to raise the required 20% deposit. Every loan starts with an initial deposit and the minimum deposit is $1m USD or equivalent to $1m USD if you are positioning the deposit using GBP or EUR.
The borrower has an investor put up 20% of the project budget for the initial deposit to be positioned as the loan loss reserve. The lender funds the loan and provides a credit facility which is four times the deposit for 80% of the project budget. The lender’s money is spent into the project first and with the loan fully deployed, the initial deposit is released as the final 20% of the project budget. In this case the investor’s money is spent into the project and would be considered an equity contribution.
How it would look with 20% on a $50M Loan
Project budget: $50,000,000
Initial deposit: $10,000,000
Loan amount: $40,000,000
Deposit spent in project: $10,000,000
The borrower has an investor/lender put up 25% of the project budget for the initial deposit. The investor/lender funds the deposit and the 4X loan provides a credit facility which is four times the deposit amount, for 100% financing of the project.
The 4X loan is spent into the project first and with the loan fully disbursed at the end of the draw schedule, the deposit is released and returned to the investor/lender’s originating account. In this scenario, the investor/lender is guaranteed their capital is returned to them having never left escrow and the borrower realises 100% wholesale financing.
How it would look with 25% on a $50M loan:
Project budget: $50,000,000
Initial deposit: $12,500,000
Loan amount: $50,000,000
Deposit returned: $12,500,000
Repayment to investor or lender:
The borrower is free to negotiate the rate and repayment terms with the investor or lender for providing the money for the deposit. They arrange how it is paid back through the draw schedule. The cost of money charged by the investor for providing the deposit can be included into the project budget and built into the loan principal.
Examples of repayment ideas:
- The interest could be paid in instalments from the monthly draws and the principal paid in full when the deposit is returned;
- The interest and principal could be paid in instalments from the monthly draws;
The interest could be paid in full from the first few monthly draws before any money is spent into the project;
- The principal and interest could be paid in full from the monthly draws before any money is spent into the project; and
- To further entice the investor, the client could offer the investor reduced equity in the project due to the fact that the investment is being repaid.
Get qualified with 4X
If you can confirm you have 20% for your deposit (minimum deposit is $1m USD), then the first step is to download a copy of the loan request form and our NDA. Complete both documents and email to loanrequest@weLLcomecapitaL.com and be sure to attach your business plan and pro-forma, complete with five years of revenue projections for review.
You can be pre-qualified in less than five business days, resulting in a funding commitment from our lender in the form of an LOI.