How Lenders Can create and look after Your Required Minimum Net Worth


Many states require your company to maintain a minimum net worth in order to get licensed and to keep your licence. The amounts range from $10, 000 to $1, 000, 000. If you are licensed or want to be licensed in a claim that has minimum net worth requirements, how do you obtain the capital you need?

There are a number of ways. Eat is to transfer money held in your personal bank account into the new entity’s bank account. Initially, this is how every new mortgage company gets started.

Beyond that, you could sell fairness in the company and bring about a new partner. Your partner must buy shares in your corporation or a membership interest in your limited liability company, and the money from the sale of company stock or membership interests becomes the main capital and net worth of the company.

Although it’s not easy, you may be able to find an investor happy to provide funding without giving up any fairness in your business. Typically, this is a family member or a good friend.

As you commence business operations, you can build net worth through stored earnings. Stored earnings are the profits your company makes that are not paid out to the owners of the company. To increase profits, increase your income (more closings or larger fees per closing) and/or reduce your expenses (go through each expense line-by-line and think of methods each can be lowered). If the profits are kept in the company’s bank accounts or used to pay for company assets, they are measured within the company’s net worth.

Once you have experienced business for awhile, you can explore blending with another company whoever assets combined with yours will fulfill the minimum net worth requirements typically required of a mortgage lender. When you are looking to blend with another company, you want to find a company whoever strengths complement your strengths. Together, your company and the company you blend with are greater than your two companies individually.

Eventually your plan should be to generate higher earnings by acquiring lagging companies and loan originators displaced by competitors who could not survive in this business climate and were forced to close. Your company may then continue to increase in size as other competitive advantages become available to you as a larger company with an increase of production and earning. Larger companies usually are stronger than smaller companies. They can offer more products, have offices in many locations to serve more borrowers, are licensed in more than one state, and have better management (which is how you became a more impressive company). Michael Blakey Net Worth and Earnings

The other key to the net worth issue is maintaining high owners’ fairness. Your company should never go below the minimum net worth required because of your the necessary licenses. Hoard cash to get you through the lean times (including now) , nor make distributions to the owners if they will jeopardize your company’s net assets. Although you know anytime your accountant comes in to audit your financials after each year-end so you make sure that your net worth meets the minimum requirements, you might also be susceptible to a random and unexpected examination of your records because of your state licensing agency. You want to make sure that they find that you met every requirement, including net worth, when they conduct their examination.

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