I was invited, by some colleagues who are also in the REI business, to sit in on a meeting yesterday. It was, hands down, the strangest meeting I have ever attended.
The people hosting the meeting were selling ‘shelf companies’ and promising financing (LOCs for your business). For the purchase of the ‘shelf company’, repair of your personal credit and a D&B score with loads of existing trade lines, the fee is 35k. For the first 400k in LOCs, they charge 17% - any additional credit lines thereafter are at 10%.
The meeting was in a small office complex in a nice part of town. There was no signage for the business, nor were any business cards ever presented (just ran out) and the documents presented were all free of any type of letterhead. Red flag #1
The woman presenting talked about 3 phases:
Q: Is it required that all owning members of the company be part of the application?
A: No, In fact, if we wanted to use ‘Uncle Freddy’ to act as president of the company, because he has stellar credit, she could do that instead.
Q: What about financials? Surely banks are going to need to see substantial income?
A: No problem. We have tight relations with people at these banks and know exactly what the income/expense numbers need to look like and we will provide you with that information. You complete the application accordingly. What's that? You say your business is RE? Not anymore....banks hate RE. You now own a Cleaning Company.
Q: What about tax returns? (she tried to avoid this question on several occasions but I just kept coming).
A: No tax returns at all are needed for the first round of financing. For the second round, you will need 2 years of returns and we have a CPA who will create those returns for you!
By the end of the meeting, she and a partner were explaining that this is how a lot of business gets done. They also mentioned that they have many clients who buy multiple companies, secure financing through each of them, with NO INTENTION of ever making good on the debt.
I left the meeting feeling sick. I also felt like I should call the feds!! Lol Maybe I am naïve. I had always heard about this option but never really understood how it worked.
Besides having a better understanding for the process, I did learn a few things. If this can ben done Illegally, it can certainly be done Legally. Building credit lines seem to be critical. Not just small trade lines with office depot, texaco and fedex but large lines with 10's if not 100's of Ks available. Also, you should apply for multiple LOCs with several banks. Once obtained, use no more than 60% of the available balance, a few times over a 120 day period – pay it back, in full, promptly. Many larger banks have software programs in place, which will double the line automatically, if this type of activity occurs.
Note: I did not post this out in the all access area, simply because I didn’t want to advertise it. I can understand wanting to push growth but this is straight up F-R-A-U-D!! Jail time. I suppose it is somewhat similar to the mortgage lending in years past, just on a much larger scale.
Any thoughts?
The people hosting the meeting were selling ‘shelf companies’ and promising financing (LOCs for your business). For the purchase of the ‘shelf company’, repair of your personal credit and a D&B score with loads of existing trade lines, the fee is 35k. For the first 400k in LOCs, they charge 17% - any additional credit lines thereafter are at 10%.
The meeting was in a small office complex in a nice part of town. There was no signage for the business, nor were any business cards ever presented (just ran out) and the documents presented were all free of any type of letterhead. Red flag #1
The woman presenting talked about 3 phases:
- Phase 1 – close on purchase of shelf company and repair one owner’s credit to 720+ (if necessary)
- Phase 2 – round one of financing – they apply for 7 lines of credit, with 7 different banks – each for 250k (not likely that you will get all 7 or 250k – typically just a portion)
- Phase 3 – round two of financing – application for larger loans – 500k – 1MM+
Q: Is it required that all owning members of the company be part of the application?
A: No, In fact, if we wanted to use ‘Uncle Freddy’ to act as president of the company, because he has stellar credit, she could do that instead.
Q: What about financials? Surely banks are going to need to see substantial income?
A: No problem. We have tight relations with people at these banks and know exactly what the income/expense numbers need to look like and we will provide you with that information. You complete the application accordingly. What's that? You say your business is RE? Not anymore....banks hate RE. You now own a Cleaning Company.
Q: What about tax returns? (she tried to avoid this question on several occasions but I just kept coming).
A: No tax returns at all are needed for the first round of financing. For the second round, you will need 2 years of returns and we have a CPA who will create those returns for you!
By the end of the meeting, she and a partner were explaining that this is how a lot of business gets done. They also mentioned that they have many clients who buy multiple companies, secure financing through each of them, with NO INTENTION of ever making good on the debt.
I left the meeting feeling sick. I also felt like I should call the feds!! Lol Maybe I am naïve. I had always heard about this option but never really understood how it worked.
Besides having a better understanding for the process, I did learn a few things. If this can ben done Illegally, it can certainly be done Legally. Building credit lines seem to be critical. Not just small trade lines with office depot, texaco and fedex but large lines with 10's if not 100's of Ks available. Also, you should apply for multiple LOCs with several banks. Once obtained, use no more than 60% of the available balance, a few times over a 120 day period – pay it back, in full, promptly. Many larger banks have software programs in place, which will double the line automatically, if this type of activity occurs.
Note: I did not post this out in the all access area, simply because I didn’t want to advertise it. I can understand wanting to push growth but this is straight up F-R-A-U-D!! Jail time. I suppose it is somewhat similar to the mortgage lending in years past, just on a much larger scale.
Any thoughts?
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