Syndication Law & The Private Placement Memorandum Attorney Can You Get a Bank Loan?: Leveraging Traditional Financing in Syndication
The discussion is centered around the feasibility of obtaining a traditional bank loan while concurrently raising equity from investors for a syndication or fund, particularly in real estate. The answer is affirmative, but there are key considerations that require careful management.
Firstly, potential investors need to be aware that the bank, as the primary lender, is paid back before equity investors. Thus, this financing information must be transparently disclosed to all involved.
Secondly, lenders typically require a guarantor, irrespective of whether it's a non-recourse loan or a traditional recourse loan. In the event of a non-recourse loan, "Bad Boy carve-outs" are included, stating that in the case of fraud, the lender can still pursue the guarantor.
For traditional recourse loans, which currently constitute the majority of loans, the guarantor is typically the sponsor or another affiliate of the investment vehicle. If the sponsor lacks the financials to qualify as a guarantor, syndicators sometimes pay a fee to an investor who acts as the guarantor.
Lastly, banks commonly stipulate that no single participant in the syndication should own more than a certain percentage (usually 20%) of the fund. If this threshold is exceeded, that participant will need to sign on the loan and their details disclosed to the bank.
Overall, syndicators can use traditional and hard money financing to raise additional capital for asset acquisition in their investment vehicles, provided they manage the process correctly and transparently.
Read more about Reg D Structure - How should you structure your Reg D syndication offering?: https://www.moschettilaw.com/reg-d-syndication-structure/
Read more about Real Estate Fund Structures - Real Estate Syndication Fund Structures: https://www.moschettilaw.com/real-estate-syndication-fund-structures/
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