Steps to a Successful Transaction

The main purpose of the ACF iChapter is education. We recently had an exchange on the Discussion List that was very educational. I would like to present an edited version of this exchange with some additional editorial comments.

This came from a brand new consultant with their first prospect. This consultant made a huge number of mistakes in attempting to get this transaction funded. But that's all right. These mistakes were made in front of the Discussion List where we could help. They were not made in front of a funding source where the reaction might not have been as helpful.

There is no intention of embarrassing this consultant. In fact, I'm very confident that this consultant will be extremely successful in this business. They took all the suggestions with a great attitude and a willingness to learn.

I'm writing this article so this Discussion List exchange won't be lost deep in the archives.

I hope all of you can also learn from this example.

The consultant's first message was as follows.

Attention funding sources:

A client has contacted me regarding a promissory note she's looking to sell. The only information received is that she wants to sell 24 months worth of the note. Ambiguous, I know.

The value of the note and all other information will be gathered later today.

I'm just sending this out to all available funding sources and to see who might be interested in purchasing.

As you can see from the consultant's initial post to the Discussion List they really don't have anywhere near enough information to interest a funding source.

Here is one reply to the consultant's initial post.

In my opinion: this post was way premature. You should wait until you have more info to post a 'funder wanted' message to the list. Wait at least until you know what kind of note!

I think it's a waste of a funder's time to reply when nobody even knows what kind of note.

You have to be very careful when you shop a deal to multiple funders simultaneously. I know that if I get a call from a prospect I now ask if s/he is shopping the deal--usually around the net these days. (It's a lot easier for a prospect to shop a deal today than it was in 1994 when I started out.) If s/he is, I may not bother pursuing the deal.

In addition to the lack of information as to the type of note one of our members pointed out some problems with shopping a transaction to too many funding sources.

The consultant then replies.

I have updated information on the note. Any funding sources out there looking to purchase 24 months (or more) on a $100,000 Mortgage Note? Please contact me ASAP.

So now the consultant has given us just a little more information. It's a mortgage note (or maybe not as we'll see later) and the amount of the note it $100,000. Of course we don't know if it was originally $100,000 or if that's the current balance.

Here is my Discussion List reply to the consultant's posting.

I'm glad to hear that you are making progress on getting information on this note, but you appear to still be a long away from a successful transaction.

This discussion list is here for two main reasons. One is to help the consultants make some money. The more important reason is for education.

Good examples are excellent education tools. Bad examples can be even better. Unfortunately for you, you have presented us with a very bad example of how a consultant should go about putting a transaction together. Please don't take any of the advice and comments you are getting in any negative way. Understand that everyone here is only trying to help you to become better at this business.

I'm sorry to have to say that it looks like you dozed during some important parts of the training class. So let me go over some of the steps that are required to have successful transaction completed. It is also important that these steps be completed in something close to this order. You've jumped ahead to one of the later steps.

1. Find a prospect who would rather have a lump sum of cash instead of the cash flow he has.

You've done this. Good so far.

2. Determine what kind of cash flow the prospect has and whether it is one that can be sold.

You have now done this. Your original post missed this step. You knew you had a note, but you didn't know what kind of a note it was. A business note, a mortgage note or a collectable antique Civil War note signed by the Confederate Army.

3. Gather all the information, or as much as you can, that a funding source will need to give you a quote.

Here is a step that you skipped entirely. If you don't do a good job at this point you will never get a transaction funded. You will rapidly move to the bottom of any funding sources list for future transactions.

A consultant who does a good, complete, job here is loved by funding sources. Their submissions will get very prompt attention.

You don't even have to know much about the cash flow to know what information to get from your prospect. The ACFA has provided you with submission forms that specifically ask for all the information you need in order to submit your transaction to a funding source. The more complete you can make this submission form the better.

4. Select one or two funding sources to submit your submission form to.

Now that you know what kind of a note it is you can narrow your search for a funding source. A business note needs a business note funding source. A mortgage note needs a mortgage note funding source. And a Civil War note needs an antique dealer.

Fortunately the ACFA also provides you with a list of funding sources in its "Who's Who in the Cash Flow Industry" book that you received during your training. Information on what cash flows each funding sources will buy are in that book. Use it.

Learning which funding source is the best one for your client will take time and experience. On your first few submissions you won't know who is fast at responding, who gives you the best quotes and who is fastest and best at closing the transaction. It will also be important to find funding sources that you are comfortable working with and who treat your client well. You want your client to be happy with the funding source so the client will refer business to you in the future.

5. When you receive the quote from your funding sources then present the best one to your client. If the quote includes alternatives, such as a full purchase of a note verses the purchase of just part of the note, then explain the benefits of each of the alternatives so the client will be able to make the choice that works best for them.

Before making the presentation to the client be sure you adjust the funding source's quote for the amount of your commission. You do want to get paid, don't you?

6. If you get an acceptance from the client then contact the funding source to see how they prefer to proceed. Some funding sources will completely take over at this point. Others will want you to continue to work with the client in the gathering of additional information and documentation.

Following these steps will help lead you to the completion of a successful transaction.

Go back and read through your instruction materials and the resources you received with your training. Breathe deeply and relax. You're off to a good start in spite of the mistakes.

You did a good job on step one, but then started running in too many directions at the same time.

Remember that step one, finding the potential client, is by far the most difficult thing you will have to do. If you're good at that, you will be extremely successful.

Keep up the good work and keep us informed of your progress.

Another member of the Discussion List suggested the following additions to my list above.

Right after "3. Gather all the information, or as much as you can, that a funding source will need to give you a quote." the member suggested the following.

Here I would add: analyze the deal.

a) Find out why the prospect wants to sell, and what he needs the money for. In the back of your mind you also have to be thinking of how the prospect's situation fits into the funders' guidelines. Sometimes it may NOT be in the prospect's best interest to do what he originally wanted to do, such as sell all remaining payments. Or maybe the prospect's time frame can't be met, such as when the prospect needs the money 'yesterday' (we get those calls every day!) and his cash flow is a structured settlement where in his state going to court is required and such a deal would take *at least* 90 days to close. Or maybe a veteran can't afford to live without his military pension, so selling 5-10 years of payments is not recommended or acceptable to the funder. Or maybe a small biz looking to factor just a few clients will be required by the factor to sell all their invoices from all their approved clients. Or a biz looking to sell its extremely slow payor invoices will be required to sell some of the fast payor invoices too.

b) It is at this point where you might want to propose alternative scenarios to the client, such as selling a partial or a split or a split partial instead of all remaining payments. The more alternatives you provide, the more likely the prospect will choose one and close the deal.

Many funders will propose additional scenarios you hadn't thought of, or not give you a quote at all on some of your scenarios. For example, some funders don't buy the final year of a structured settlement or lottery stream. Structured settlements and mortgage notes especially can have multiple scenarios. You may need to draw a matrix chart for the prospect: the various scenarios across the top, the different funders' quotes down the side. You fill in the matrix with the quotes you get (less your commission on each quote). You review the chart with the prospect and together you pick the best quote for each scenario column. So you will have narrowed what might have been 4 scenarios x 4 funders = 16 quotes, down to 4 quotes, the best of each column. And the best of each column may be divided among the funders, as their cost of money varies by size or time frame--that is, Funder A may give the best quote for buying all the remaining payments, while Funder C may give the best quote for buying the next 3 years of payments.

c) Educate the prospect on the concept of the 'time value of money'. He has to be comfortable with the quote not equaling the sum of the face value of the payments to be sold! You'd be amazed how many people expect to receive face value, or close to it, for a stream of payments stretching 5-10-15 years into the future. Once he's comfortable with the 'time value of money' concept you will likely have a deal that will close. If he's uncomfortable with taking a 'hit', or such a large 'hit', you won't have a deal.

The consultant replied.

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