Lesson
9 - How to Raise Money Abroad
By Gary Scott
"Loans are easy to attain if
you can turn apples into cash", I thought.
One of the first loans deal I
helped organize was for a farmer who specialized in growing apples. He was a brilliant
man and knew that the best apples in the world were grown in the Columbia River
Valley. He was also a botanist who understood why the apples grew so well there.
As a farmer and businessman,
he also understood that orchards in the Columbia River Valley were expensive.
He had the brilliant idea to look for land that duplicated the conditions of the
Columbia River Valley, but where prices were much lower. He found it in Arizona
high up on some hills. He bought thousands of acres and set up an orchard. The
apples grew well and he discovered they ripened earlier than Columbia River ones.
It did not take him long to realize
that he was hundreds of miles closer to the major California markets so he could
get his apples there cheaper and earlier. This farmer was doing fine but needed
loans of about a million dollars to expand his operation. Such loans though were
too unusual for local banks. Bankers in the Pacific Northwest knew about loans
for apples, but not in Arizona. "Loans for what", they asked.
The loans presentation we developed
was one that became a standard for many other loans I helped put organize. It
contained a simple four page introductory brochure describing the need for and
opportunity from the loans. This was made from one piece of paper, folded once.
Then a separate in-depth prospectus or offering circular that covered all the
facts and figures of the loans was also created. The idea was that the simple
brochure would provide all the key facts about the loans and was designed to excite
the prospective lender enough to get them into the deal, or to excite enough curiosity
to get those who could make loans to look at the offering circular which would
answer any questions the lender might have concerning the loans.
After giving the loans considerable
thought, I decided that what had to be sold first instead of loans was-APPLES!
And so the brochure described apples, not the loans. I recognized that private
lenders who could make loans did not understand how apple growers made money.
They needed this knowledge before they could have confidence in the deal and make
the loans.
Second we again ignored the loans
and sold the man. This farmer was famous as far as apples go and had considerable
experience and a reputation in this industry. We used his background to develop
confidence in the loans.
We started our marketing for
the loans by placing advertisements in Hong Kong newspapers (this was where I
lived at that time) with a headline "Make a fortune from loans and apples
while enjoying the safety of real estate".
We knew that Hong Kong investors
liked real estate and had set up the deal so that the loans were guaranteed by
the real estate of the orchard.
We created a substantial interest
and sent a batch of investors from Hong Kong to meet the apple grower and to see
his orchard and talk about the loans. The deal failed, as far as I know, because
I talked to lots of potential investors for the loans. Many answered the advertisement
and we put them in touch with the farmer, but we never heard from him nor saw
that commission that would have been due if the loans had been raised.
This failure is important for
several reasons. I spent considerable time and money to get these loans but to
little avail, except I gained important knowledge from the effort. I believe the
loans were made. I see the farers apples in the stores to this day. An entire
variety is named after him. The brochure about the loans looked good and clearly
explained why apples would be profitable. The market was right. This was the early
1970's in Hong Kong and there were many wealthy investors there who wanted to
put money into real estate and/or land related deals in the U.S.
There were also plenty of inquiries
about the loans. I was living in Hong Kong at the time and I visited them all
personally.
Here is why I think I was not
informed about the loans and what I would do today if I were doing the same loans
deal.
First, I cannot totally dismiss
the possibility that the loans were made, and that the farmer just didn't tell
me. I originally didn't keep control of such loans I put together until I found
one where I knew for sure the loans had been made and I had not been informed.
From that time forward, I always
set up vehicles for collecting the money and kept control over these loans. But
in this case I was new in the business and thus give the farmer the benefit of
any doubt.
The first lesson then is keep
tight control over every aspect of the loans process, including the account where
the loans will go. Set up an intermediary company between the borrower and the
lender and keep record of each of the loans payments to the borrower and watch
how the money is spent (to make sure it is used as requested).
We were looking for just one
or two loans and a few of the potential investors I interviewed had the kind of
money to make all the loans.
We were not specific enough about
the loans. We sort of said here is a great way to make money, do you want to make
some loans, buy some equity or what? The offer lacked a clearly defined way for
the investor to make loans. We needed to project exactly what the loans should
have been and when they might have been made.
In retrospect, I would have organized
two offers, one equity and the other loans secured by the property. I would set
up a Hong Kong finance company to collect the loans and would have had that company
make the loans to the farmer in Arizona. The use of the Hong Kong company would
have given both the Chinese investors and the farmer tax benefits in those days.
This second lesson gain was to
offer specific deals. In other words ask for loans of specific amounts of money.
Offer a specific interest rate on the loans or percentage of equity and set out
clearly the defined collateral for the loans and explain exactly how and where
the proceeds of the loans will be used.
Third if I were doing this today,
I would look for large enough lenders or investors where I could fly those interested
in the project to Arizona so they could take a look before committing their money.
I would offer to pay for their flight if they provided the loans.
This makes it more likely that
they will invest or make the loans.
The final step I would take today
would be to improve the power of the reputation of the farmer. He really was a
celebrity in the world of agronomics and apples, but in Hong Kong, who knows anything
about apples?
I would first, find an accounting
or law firm in Hong Kong that could vouch for the accountant of the apple farmer
or even have a well known Hong Kong firm or affiliate of a well known Hong Kong
firm audit the farmer's books, even if the audit was very limited. This would
energize the potential for the loans.
Also, I would fly three or four
prominent citizens of Hong Kong (or wherever I was looking for the loans) to the
orchard, show them around and give them some equity or give a special deal to
get them involved so that could have refer others who might help complete the
investment or loans. These centers of influence would be of particular value in
a country where investors are suspicious.
Overcoming suspicion is one of
the key factors in raising money and getting loans. Learning this fact helped
lead me to success in getting loans for other deals. I hope this knowledge helps
you learn how to raise money abroad through investments and loans as well.
May all your business be good.
Gary
You can increase profits,
enhance security and have extra tax and asset protection. Turn your passions into
profit. Start your own international business now! Learn how to raise money abroad.
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