• What is a Disclosure Document?

When you are offering private lenders the opportunity to work with you, you must be sure to disclose to them the risks and rewards of the business. You should prepare a disclosure document.

A Private Placement Memorandum is a critical disclosure document that has legal consequences. If a private lender is not given sufficient, material information and suffers a loss, he may have a claim against you and your business. The information you give private lenders must be accurate and not misleading. The key test is if you have given private lenders all 'material' (significant) information about your business at the time the investment was made. It is therefore important to follow the SEC's disclosure regulations in your Memorandum.

What are these guidelines? In general, they are:

-The Business of the Company -This information generally includes a description of your private lending business, location of the company's facilities, trends in the industry, and the company's marketing strategies.

-Risk Factors -These factors vary depending upon the company and the nature of its business. They may include cash flow difficulties, market competition, inexperience of management, dependence upon an unproven product, absence of operating history or profitable operations, potential conflicts of interest with management or affiliates, or the absence of a trading market for the company's securities.

-Use of Proceeds - The use of the funds to be received from the offering should be set forth with a high degree of specificity. Categories of expenditures may include such items as leases, rent, utilities, payroll, and purchase of equipment, payment of notes, advertising costs, insurance, supplies, and payments to be made immediately to officers, directors, or promoters.

-Key Personnel and Shareholders - Individuals who direct the company's operations or who make significant contributions to the business of the company as employees, independent contractors, consultants, or otherwise are identified and important background information such as education, age, and business experience of these persons is disclosed. Principal shareholders of the company are identified with a description of the number and percentage of shares beneficially owned.

-Financial Statements - Financial information, such as balance sheets and statements of income and cash flows that accurately describes the financial condition of the company, is typically provided. In some circumstances, these financial statements must either be audited or reviewed by a Certified Public Accountant.

You should distinguish between facts and beliefs in your Memorandum. Restrained language should be used throughout the text. At the practical level, most investors are accustomed to reading carefully worded Memoranda and they are suspicious of broad, unqualified claims. An understated, factual Memorandum can deliver a powerful message to private lenders.

A Private Placement Memorandum should avoid arcane jargon and technical terms. Provide definitions for terms that might not be easily understood. Don't make private lenders learn a new language if they want to understand your Memorandum.

What is required for Private Placements?

• sound business plan

• private placement memorandum (PPM) disclosing the full facts of the investment and business

• law firm or lawyer experienced in private placements.

Although it is not possible to write a PPM that would work for every student's business, here are some pieces you can consider using in your PPM.

The Business of the Company- (Name of Business) is a real estate investment company. We work with private lenders and put their funds to use in residential property investments that are secured by mortgages. These transactions are done in compliance with relevant laws and regulations and in compliance with appropriate securities registrations or exemptions in every state in which we do business.

Risk Factors - Market conditions, interest rates, and economic, regulatory, or financial developments could significantly affect the real estate industry, and these securities could react similarly to these or other developments.

The real estate industry is particularly sensitive to economic downturns. The value of securities of issuers in the real estate industry can be affected by changes in real estate values and rental income, property taxes, interest rates, and tax and regulatory requirements.

The management, experience, knowledge and capability of the company also affect the performance of our business and our ability to properly run our business. Past performance is not a guarantee of future success.

Use of Proceeds - The funds raised from private lenders will be used to invest in residential properties in (name of city, region, state or states). We will use these funds to purchase such properties and improve their condition and appearance and then sell these properties. Some properties may be used for a rent to own or lease to own investment. Other, similar forms of real estate investment in residential properties may also be made.

Key Personnel and Shareholders - This is where you should tell people about yourself, your partners, if any, and any other owners of your business. Highlight your experience; let people know if you lack any relevant experience. If you are new to this business, tell people this and tell them what you are doing to gain knowledge and experience, such as taking this course. You must disclose any problems that are on the public record or, if private, would give private lenders reason to be concerned about your business. For instance, bankruptcies or criminal records should be disclosed, as should less problematic issues.

Financial Statements - This is where you should give people access to information about your business. If you're new to this business, give people some projections of what you hope to do with the business that are reasonable and conservative. It's good business to under-promise and over-deliver.