INVIZEN Final Check: ADC Capital Financing Underwriting Due Diligence Production Requirements

On this page we will talk about underwriting in terms of issues you need to know about, how the INVIZEN Financial Risk Assessment System approaches this process, and then the requirements you need to have fulfilled to complete the underwriting and due diligence review process under the INVIZEN Underwriting model and qualify your funding request for lender and/or investor consideration.

Overview of Commercial Finance Underwriting Issues You Must Understand

The purpose of underwriting is to manage and mitigate the potential for future investment loss on a loan or investment in a business venture.  Unlike consumer finance transactions, business financing presupposes the applicant is a responsible business professional capable of discharging all of their responsibilities owing to safeguarding the capital investment.  Accordingly, it is the responsibility of the applicant to provide the information that demonstrates they are ready and capable to undertake the business venture, as well as demonstrating the business venture will not only be viable, but will also be sufficiently profitable in the future to provide the stated return the applicant is forecasting for the loan or investment.

IT IS OF DIRE IMPORTANCE TO UNDERSTAND THE COMMERCIAL FINANCE INDUSTRY INTERPRETS THESE FACTS TO MEAN THE APPLICANT IS SOLELY RESPONSIBLE FOR PROVIDING THE REQUIRED INFORMATION IN THE REQUIRED FORMAT, WITH THE REQUIRED CONTENT, AND AT THE REQUIRED TIME, AND IF THE APPLICANT DOES NOT, THE LIABILITY AND RESULTING REJECTION IS THE SOLE LIABILITY OF THE APPLICANT.  

From a practical viewpoint, finance professionals routinely deny requests for the return of application fees and related charges because the applicant wasted the firm’s time and resources on the applicant’s behalf and due to the applicant’s shortcomings and not their own.

The INVIZEN Financial Risk Assessment System Due Diligence Process

The INVIZEN Stop Loss System is an intentionally-designed program that seeks to address the core issue of maximizing the opportunity to prevent future losses on loans and investments made in commercial real estate income-producing properties and operating businesses for the benefit of the developer, sponsor, owner/operator, promoter, lender, broker-dealer, registered investment advisor, asset manager and/or other investment entity (including private investors) for the entire term of the proposed investment’s holding period.  Simply put: we seek to create the conditions to allow businesses seeking capital to obtain that capital and to allow those who provide that capital to have the highest practical expectations the capital investment will be safeguarded against future loss.  Future loss is measured in terms of loss severity risk and loss severity risk can mean the risk of a partial loss or total loss of investment.  Investment loss risk (therefore) becomes the focus and that means:

  1. You have to know what risks could contribute to creating these losses (both in and of themselves, and independently); then
  2. You have to know what measures can be done to either eliminate these risks altogether or reduce them to a level where a reasonable person would not consider them to be a reasonable risk that has to be given continual consideration over the investment holding period; then
  3. You have to create a systemic solution to manage and prevent the events that could be reasonably-expected to potentially create future investment losses from becoming a reality.

The INVIZEN Financial Risk Assessment System model of operations is specifically designed to address all three (3) of these important issues on a proactive, real-time basis both before the funding event occurs and then after the funding event occurs for the entire time the money is invested by following a defined process.

The Key Investment Loss Risks Addressed by the INVIZEN Financial Risk Assessment System

The INVIZEN Financial Risk Assessment System model recognizes the following key issues as being central to the decision-making process for deploying capital investment:

  1. Does a market business opportunity exist that may be potentially profitable for the purposes of capital investment that at least as good as essentially similar opportunities already in existence that can be had as an alternative?
  2. If the opportunity exists in the market can the business be capitalized with sufficient time and efficiency to create the necessary conditions so profit-taking could be expected to be a potential outcome?
  3. If the market opportunity exists and the capital investment opportunity exists, can the business operations be reasonably-expected to create future profit-taking opportunities?
  4. If the market opportunity exists, the capital investment opportunity exists and the operating opportunity exists, can actual profit-taking opportunities be reasonably-expected to actually take place and provide the stated return?

If you think about business investment from a fundamental and practical viewpoint, these are the questions the underwriting and due diligence review process has to document utilizing facts instead of personal opinions wherever and whenever possible, as those personal opinions leave the door open for future controversy and loss events for which no one will want to claim responsibility for resolving.  The INVIZEN Financial Risk Assessment System takes these issues and defines them in terms of specific subjective financial investment risk issues that have to be addressed in the underwriting process.  These subjective financial investment risks that serve to create investment loss (total or partial) include:

  1. Execution risk.
  2. Asset obsolescence risk.
  3. Technology risk.
  4. Distribution payment risk.
  5. Yield risk.
  6. Bankruptcy risk.
  7. Foreclosure risk.
  8. Liquidity risk.
  9. Regulatory risk.
  10. Third-party claims risk.
  11. Employee claims risk.

The Requirements for Risk Management

The requirements for managing these risk elements have to meet the following tests:

  • The risk management initiative must be proactive in nature; and
  • The risk management initiative must be ongoing in nature and systemic to operations; and
  • The risk management initiative must have demonstrable tracking potential; and
  • The risk management initiative must be integrated into the overall structure of the business management regimen.

These requirements presuppose the risk management program requirements do not end with the funding event but are ongoing in nature to provide the highest practical level of investment performance assurance for the benefit of all of the parties at-interest.

The INVIZEN System Risk Management & Mitigation Solution

The INVIZEN Stop Loss Asset Care Protection Program is intentionally designed to provide proactive, real-time monitoring, tracking, forecasting and reporting on the status of all materially-significant investment risk elements that contribute to the overall loss severity risk potential of a given business of commercial real estate income-producing property.  The system design solution is the basis of how we review and analyze every transaction.

INVIZEN Underwriting Analysis & Due Diligence Review Documentation Requirements

Whether you utilize our services or not, the underwriting analysis and due diligence production requirements we seek to enforce provide a strong basis for you to create a due diligence presentation that has the potential to satisfy the pickiest of underwriters, lenders and/or investors who are concerned with due diligence matters.  Our submission requirements include the following:

  1. Enterprise Risk Management Plan.
  2. Business Plan of Operations.
  3. Marketing, Media, Advertising & Sales Plan.
  4. Employee Management Plan (if separate from the Business Plan of Operations).
  5. Regulatory Management Plan (if separate from the Business Plan of Operations).
  6. Management Reporting Plan (if separate from the Business Plan of Operations).
  7. Feasibility Study.
  8. ADC Program Documentation (talk to us about what you are doing and we will give you a list of what your business or project requires for the type of funding you are seeking).
  9. Organizational Documentation.
  10. Licensure Documentation.
  11. Governing Contract Documents.
  12. Shareholder Disclosure.
  13. Tax Disclosures.
  14. Financial Disclosures.

We fully realize that every transaction is different and that is why the list does not provide more specificity.  If you have questions regarding your particular project or business please feel free to contact us at 832.663.9634 for more information.