That coveted LOI, for those who are reading this and are not sure what LOI stands for its the nomenclature/abbreviation for Letter of Intent. It's what every financial broker/banker wants to give to their clients as soon as possible. Its the basic term sheet for a deal that has been reviewed by the banks internal team. So whats the problem...Why am I writing in a cynical manner.
The reason is that certain lenders LOI's are not worth the paper that they are printed on while other lenders LOI's are EXTREMELY valuable. So what's a person to do when he gets an LOI? How do I know that the LOI I just received is backed by the good faith of the lending institution that issued it, or is the lender issuing LOI's on every project to satisfy the demand of the Business Development Officer?
The best advice I can give tonight is that if the LOI looks like it was produced in five minutes or less and the only change in the document is the name of the client and the name of the project, I would not hold a great deal of faith in that document. But on the other hand, if the terms are specific, there is a deposit request, additional conditions are proposed that only pertain to your loan request, that LOI is probably much stronger.
So what are you to do if you get a weak LOI? Well you can do exactly as I did today, I told the lender that issued the LOI that I was not impressed and could not recommend my client to even consider such a weak document to rely on. I asked them to re-write the LOI with some "meat" to the document and re-issue it. Guess What???
We got the new LOI this evening and I feel much more comfortable recommending to my client to pursue this lender.
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