Re: Is this idea feasible?

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Posted by David on March 18, 2004 at 09:39:20:

In Reply to: Re: Is this idea feasible? posted by John Behle on March 15, 2004 at 14:44:44:

I have drafted a business plan exactly along those lines. Since they will be essentially taking an equity type risk instead of a lower risk profile in a CD or cash, I have found that yield hungry larger investors step right up to the table when you offer something in the neighborhood of 10%. Seem high? They're demanding equity like returns to compensate them for their risk as they will stand second in line to the bank should the plan go awry. Is there something magical about 10%? It's two digits....investing is partially about the psychology of the game. Does it work? In size, I think yes. I am making my first foray into the private note market so I'm no pro. But I do understand investments, business management and cash flow projections. (I am an investment professional)If 20% of your capital costs you 10%, and 80% costs you prime plus 1 (currently 5%), you can achieve a blended cost of capital of 6%. What are you expecting in yield from private notes? Work the spread less costs. I've done the exercise, and it seems the greatest risk is being able to deploy the capital quickly enough to allow the cash flow to kick in. Let's hear more on this subject!

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