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RTO FINANCE CORP

RTO FINANCE CORP
Short Description
There will be a minimum return on investment of 7.00% (annual rate of return) dividend, paid quarterly, to each investor in RTO Finance Corp (RTOF). RTOF provides financing to the RTO (rent-to-own) shed/portable storage building industry. RTOF will provide a consistent structured source of financing specifically to rent-to-own (RTO) contract investors, related to the portable shed/building industry.
  • Deal Description
  • Financials
  • Industry And marketing Analysis
  • Executive Team

Deal Description



RTO Finance Corp (RTOF) was established by Ben Rudd to raise capital from equity markets for use in providing commercial Rent-To-Own (RTO) contract financing to RTO contract investors. The major source of RTO contracts will come from a reciprocal relationship RTOF has established with portable shed builders that is built into the RTOF business model. The goal of RTOF is to produce revenues and net income from commercial business lending activities to RTO investors to be harvested from direct referrals from portable shed builders.  

 

For example, Premier Buildings (www.premierbuildings.us) is a major builder of portable storage buildings/sheds and producer of RTO contracts across 31 states and Canada. In 2017, Premier Buildings produced approximately $140M in shed sales.  Approximately $60M in RTO contracts were sold to their RTO investors.  Premier Buildings sales have been experiencing an annual growth rate of 25-30%. Through its relationship with RTOF, Premier Buildings will exclusively promote RTOF as a source of funding to their RTO contract investors, thereby providing a direct credit conduit to a significant pool of RTO contract investors.

 

Premier Buildings business growth has been constrained due to the limited availability of commercial bank credit for business investors who purchase RTO contracts.  Should RTOF be successful with the sale of securities, the capital raised will be used to extend credit to RTO business investors for the purpose of purchasing RTO contracts. Premier Buildings will benefit from increased sales which will provide growth in lending referrals to RTOF and net income for shareholders.

 

Dependent upon the success of the business model utilizing the relationship with Premier Buildings, RTOF will duplicate the model with other portable shed building companies and provide capital to their respective RTO investors which will allow RTOF to expand its geographic footprint, increase revenues and continue to grow shareholder value.

 

Based on Rudd’s historical lending experience within the portable shed building industry and according to NBSRA (National Barn Storage and Rental Association), the market for portable storage barns, and associated credit needs, remain in growth mode.  A typical RTO contract will vary by state, building size, construction methodology, builder and materials used (wood, metal, polyurethane).  The typical contract for the most popular sized building (8’ x 10’) sells for approximately $4,500.

 

As RTO contract production continues to increase, and assuming continued availability of capital, investor portfolios will continue to expand monthly.  RTOF presently has verbal credit requests from RTO business investors for approximately $35M.  The only foreseen situation in which RTO contract credit growth would stagnate would be when portable storage barn/shed sales stagnate, which hasn’t occurred. RTO contract financing will be selectively managed based on credit demand and capital availability.  Due to monthly increases in credit demand and RTO contract availability, continued security sales and growth in net interest income, hence, self-funding, will be utilized to meet growing capital demand.




Financials

Securities being offered by the Company

5,000,000 shares of common stock, at a fixed price of $4 offered by us in a direct offering. Our offering will terminate upon the earliest of (i) such time as all of the common stock has been sold pursuant to the Offering Statement or (ii) 365 days from the qualified date of this offering circular unless extended by our Board of Directors for an additional 90 days. We may however, at any time and for any reason terminate the offering.

 

Offering price per share

The Company will sell the shares at a fixed price per share of $4 for the duration of this Offering. 

Number of shares of common stock outstanding after the offering of common stock

25,000,000 common shares will be issued and outstanding if we sell all of the shares we are offering herein; which represents the current 20,000,000 shares currently issued and outstanding plus the additional 5,000,000 common shares which are being proposed for sale pursuant to this Offering.

Terms of the Offering

Our Chief Executive Officer and Chief Financial Officer will sell the 5,000,000 shares of common stock on behalf of the Company, upon qualification of this Offering Statement, on a BEST EFFORTS basis.



Industry And marketing Analysis



INDUSTRY OVERVIEW


This offering circular includes market and industry data that we have developed from publicly available information; various industry publications and other published industry sources and our internal data and estimates. Although we believe the publications and reports are reliable, we have not independently verified the data. Our internal data, estimates and forecasts are based upon information obtained from trade and business organizations and other contacts in the market in which we operate and our management’s understanding of industry conditions.


INDUSTRY OVERVIEW


This offering circular includes market and industry data developed from publicly available information from various industry publications, other published industry sources and internal data and estimates. Although the publications and reports are considered to be reliable, the data has not been independently verified.  Internal data, estimates and forecasts are based upon information obtained from trade and business organizations, contacts in the market and management’s understanding of industry conditions.

 

As of the date of the preparation of this offering circular, these and other independent government and trade publications cited herein are publicly available on the Internet without charge. Copies of sources cited herein are available upon written request.

 

The Industry

 

To fully understand the demand for Rent-to-Own within the portable building/shed industry, and why RTO FINANCE CORP. has an opportunity to fill this demand, one must look to the rent-to-own (RTO) contract investors related only to the portable shed industry. 

 Most RTO contract investors are financed by community banks which has proven to be problematic due to in-house and/or regulatory capital restrictions applicable to each individual bank by their board and/or financial regulators. As RTO contract production grows in any given state, community banks are pushed beyond their internal or external credit capacities leaving RTO Investor to find new sources of capital in order to continue operations. Due to the uniqueness of the RTO industry as it relates to portable buildings/sheds, banks/lenders have to be educated on it. This RTO education curve, lending comfort curve and regulatory insight can mean substantial time delays for credit decisions and credit growth.  Should an RTO Investor not be able to fund the purchase of RTO contracts provided by a manufacturer’s sales efforts, that manufacturer will look for another RTO Investor to fund the purchase.  This usually results in the initial RTO Investor losing all future RTO contract purchases from that manufacturer.

 

The portable building/shed industry has experienced surging demand over the five-year period leading into 2017. The residential market makes up the industry's largest revenue source, estimated at 80.0%, with demand dependent on existing, new and traditional as well as mobile residential sales. Improving demand from both residential and commercial construction markets propelled the industry growth during that five-year period with revenue expected to rise at an annualized rate of 3.2% to $7.4 billion. In 2017, growth was especially strong as falling oil prices reduced transportation costs as well as an increase in sales from existing lots and the establishment of new dealer lots. This growth resulted in an industry wide revenue increase of 6.2%.

 

The industry has also benefited from the growth of corporate markets. According to IBISWorld Industry Analyst Dmitry Diment, “With the economy projected to grow substantially during the next five years, downstream demand for mobile storage services is projected to increase,” says Diment. “The industry is also expected to benefit from an uptick in demand from commercial clients as corporate markets and retail sales grow.”

 

Target Markets

 

The target market will consist of blue-collar to middle-class homeowners who have a need for an outdoor storage facility.  The targeted areas will be suburban to transitioning city-rural locations.  Initial operations will focus on the Southeastern United States and will then expand throughout the United States. 

 

FORWARD-LOOKING STATEMENTS

 

 This offering circular contains forward-looking statements that involve risk and uncertainties. We use words such as “anticipate”, “believe”, “plan”, “expect”, “future”, “intend”, and similar expressions to identify such forward-looking statements. Investors should be aware that all forward-looking statements contained within this filing are good faith estimates of management as of the date of this filing. Actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks as described in the “Risk Factors” section and elsewhere in this offering circular.

 

Business Information

 

Introduction

 

RTO FINANCE CORP. is a developmental stage company that plans to provide RTO contract financing for the portable building/shed industry. RTO FINANCE CORP will provide a consistent structured source of financing specifically to rent-to-own (RTO) contract investors related only to the portable building/shed industry. 

 

RTO Contract Industry Overview

 

Portable building/shed is a nationwide industry with only two types of sales: cash or RTO contract financing. When a portable building/shed is sold utilizing RTO financing, the manufacturer sells the RTO contract and respective portable building/shed to established investors. RTO investors are usually state specific, i.e., each investor purchases all of the RTO contracts produced in the specific state by their respective manufacturer and their dealer. As RTO contracts and inventory are purchased by an Investor, each contract is placed with an RTO Contract Servicer, engaged by the Investor, to provide payment collection and account management services.

The sale of a single portable storage building/shed involves an individual who desires to have a storage building/shed, usually near their home, for personal storage purposes.  When purchasing a portable a portable storage building/shed, the consumer either pays all cash for the building or enters into a rent-to-own agreement. RTO financing is a very typical and established method of renting-to-own various products for either a short term, with the intention of early RTO contract termination, or until ownership is achieved at contract completion.  Portable storage building/shed dealers/manufacturers typically gather all RTO contracts produced from the sale of buildings/sheds in a specific state over the course of a month and sell them in bulk to an investor. This affords them to capital to fund the costs of new building construction and sales operations.

Rent-to-Own (RTO) contracts, associated with portable storage buildings/sheds, are typically for periods of 36 or 48 months, with 48 months being the most popular term.

RTO contracts are not discounted, investors must purchase RTO contracts at par value. RTO contracts are not debt to the individual purchasing the portable storage building/shed.  Dealer lots are independently owned sales lots which engage in the consignment sale of portable storage buildings from a specific manufacturer. Dealers are the frontline of portable storage building sales.  

An RTO contract may be terminated at any time without explanation.  Upon RTO contract termination, the respective building is returned to the original lot which sold the portable storage building/shed. The debt obtained by the investor to purchase the RTO contract with building is immediately repaid and the building is available to be sold again, for either cash or RTO contract.  RTO contracts are often terminated with several years of age.  Should the contract be terminated after 21.6 months (for a 36-month contract), or 24-months (for a 48-month contract), the business investor will have received sufficient total revenues to resell the building at a profit.



The Problem

 

Most RTO contract Investors are financed by community banks. This has proven problematic due to in-house and/or regulatory capital restrictions applicable to each individual bank by their board and/or financial regulators. As RTO contract production grows in any given state, community banks are pushed beyond their internal or external credit capacities forcing the RTO Investor to approach new community banks for sources of capital to continue funding RTO contracts.

Each new bank approached by the investor faces several necessary credit related hurdles. The RTO industry is typically a new credit industry for banks and one that requires significant, continually growing credit investment as well as an extensive industry/credit structure familiarity by senior credit officers. While most bankers are thoroughly familiar with consumer/commercial shares, they typically have no experience with rent-to-own contracts and the applicable consumer regulatory statutes.

 

Due to these internal/external credit related issues, each bank goes through a lengthy initial educational time curve followed by a prolonged comfort time curve with significant regulatory oversite, which typically requires 6-10 months prior to credit decision, even for a positive credit extension.  Due to regulatory capital restraints on bank credit commitments, once a credit application is approved, the bank typically dedicates their entire individual industry capacity to the first RTO Investor to establish a credit facility at that bank, thereby blocking other RTO Investors from establishing any RTO related business at that financial institution.

 

The Opportunity

 

Establish a company which can raise significant, continuing funds from a “non-credit regulated” source to provide commercial credit financing to RTO contract investors.

 

The Business Model Overview

 

RTO Finance Corp. was established by Ben Rudd to raise capital from equity markets. Funds will be utilized by RTOF to provide commercial RTO contract financing to RTO contract investors exclusive in the portable shed industry.

Premier Buildings (www.premierbuildings.us) is a major shed builder and producer of RTO contracts operating in 31 states and Canada. In 2017, Premier Buildings produced approximately $60M in RTO contracts to their RTO investors. RTO sales for Premier Buildings increase at an annual rate of 25-30%. Through a strong relationship built over many years of doing business with Mr. Rudd, Premier Buildings will exclusively promote RTOF as a source of funding to their RTO contract investors, thereby providing access to a significant pool of RTO contract investors.  Mr. Rudd, CEO of RTO Finance Corp, has a long standing personal and business relationship with the two principals of Premier Buildings (Mr. Tyson Babb and Mr. Samuel Hancock).

 

The initial goal of RTOF is to produce revenues and a net income stream from business lending activities to RTO investors to be harvested from referrals of PPB.  There is a reciprocal relationship between RTOF and PPB within the RTOF business model. 

 

Premier Buildings business growth is limited due to the lack, or limited, availability of commercial bank credit to business investors who purchase RTO contracts.  Should RTOF be successful with the sale of securities and raise capital which will be used to extend credit to RTO business investors for the purpose of purchasing RTO contracts. PPB will benefit from a growth in sales, and RTOF shareholders will benefit from the growth in lending referrals from PPB, the seasoning of its business model and growth in net income.

Should the RTOF business model be successful, RTOF would hope to duplicate the business model with other portable storage building companies, provide capital to their investors, expand the RTOF geographic footprint, increase revenues and continue to expand shareholder value.

Based on my historical lending experience within the portable storage building industry and according to NBSRA (National Barn Storage and Rental Association), the market for portable storage barns, and credit needs, remain in a growth mode.  The typical RTO contract size varies by state, building size, builder and materials used (wood, metal, polyurethane).  Most contracts for the most popular sized building (8’ x 10’) sells for approximately $4,500.  Most states remain in a growth stage.  As RTO contract production continues to increase, and assuming continued availability of capital, investor portfolios will continue to expand monthly.  RTOF presently has verbal credit requests from RTO business investors for approximately $35M.  The only situation in which RTO contract credit growth would stagnate would be when portable storage barn/shed sales stagnate, which hasn’t happened in any state.

RTO business contract financing will be selectively managed based on credit demand and capital availability.  RTOF has an initial demand for approximately $35M based on known RTO investor credit demand.  Due to monthly increases in credit demand and RTO contract availability, continued security sales and growth in net interest income will meet growing capital demand.

 

Credit Structure

 

Loans/Credits made by RTOF to RTO Investors will be collateralized by all RTO contracts and the respective portable buildings/sheds owned by each RTO Investor utilizing recorded, state specific, UCC-1’s. All RTO contracts will be physically held in-house by the RTO contract servicer. Each portable building/shed has a unique serial number, which allows for specific collateral identification and inventory management.

 

Income Sources

 

Loan Fees – loan/document/processing/underwriting fees will be collected at time of loan closing.

Interest income earned on credit investments - Repayment structures on credits to RTO Investors may be structured in several ways depending on RTO contract term, borrower request and investment capital available to RTOF.

Prepayment Penalties - collected at time of early payoff.

 

RTO Investors Return on Investment

 

RTOF will declare a 7.00% annual cash dividends on common stock, paid quarterly. There will be a minimum return on investment of 7.00% annually to each RTOF investor. Dividends will be paid from revenues, not proceeds from the offering. Dividends will only be paid if there are adequate funds from operations. Payment of future dividends is not assured and will be at the discretion of the board of directors, dependent upon results from operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payment of dividends present in current and future debt agreements, as well as other factors deemed relevant by the board of directors. Covenants imposed by future debt arrangements may place restrictions on the ability to pay dividends. Risk factor disclosure on page 19, “We are intending to pay dividends on common stock”.

 

 

Key Resources Utilized for Credit Delivery and Management

 

 • DocuSign (http://www.docusign.com/)  to obtain rapid credit applications from clients, loan document delivery to approved applicants and e-signature(s) from borrowers prior to loan disbursement.

 • Certificate of Signature will be obtained to provide assurance of digital signature. 

 • Recorded Verbal Verification to document understanding and clarification for future reference.

 • Electronic Funds Transfer (EFT) to provide rapid delivery of loan proceeds directly into customers DDA account.

 • Credit Technologies, Inc. (http://www.credittechnologies.com/)  to provide FICO credit reports and analyses.

 • Veri-Tax (http://www.veri-tax.com/)  to compare loan application data to IRS data.

 • Professional Contract Underwriter to provide thorough, consistent, uniform, high quality underwriting and recommendations for credit approval.

 • Credit Matrix System developed to score and compare applicant underwriting characteristics to minimum credit standards for credit repayment assurance.

 • FICO / DTI / Income / Years in Business / PFS / Tax Returns / Searches / Borrower Interview / Use of Funds / Lien Position / License held / Existing held debt.

 • UCC Search to verify existing lien status.

 • Automatic Clearing House (ACH) payment debits required on all credits to assure timely collection of monthly loan payments.

 • Three Month Non-refundable Payment Reserve to provide payment reserve and payment assurance in the event of a declined ACH debit and a collective loan loss reserve.

• Baker Donelson legal services to provide professional advisory, collection, bankruptcy, foreclosure and asset liquidation services to BLA and member banks.


 Loan Servicing

 

• A professional, bonded note servicer, Blue House Rentals, LLC will be engaged to perform and manage all aspects of RTO loan servicing, i.e. RTO contract acquisition, loan document retention, loan payment collection, payment enforcement, resolution management, etc.

• RTO Investors must maintain their corporate DDA operating account at bank utilized by engaged servicer (Blue House Rentals, LLC).

• Scheduled monthly principal and interest debt payments will be debited from the RTO Investors’ DDA operating account by engaged servicer (Blue House Rentals, LLC).

• Each RTO Investor approved for business with RTOF will be required to maintain an escrow account equal to two fixed monthly principal and interest (P&I) payments with RTOF. RTOF will debit the escrow account for scheduled payments should the RTO Investors DDA operating account have insufficient funds to make a scheduled payment. The RTO Investors minimum escrow account balance will be updated quarterly.

 

Credit Closing and Funding

 

RTOF has engaged Baker-Donaldson Law firm to conduct all legal aspects related to pre-loan approval (UCC search), manage conditions to loan approval (clearing liens, state specific requirements) and manage loan closings (disbursements, collection of recording fees, payoffs and related fees). This document is not to be considered an offer to sell or a solicitation of an offer to buy any securities. The offering by the Company to sell securities will be made only by a Private Placement Memorandum, copies of which may be obtained only in those states determined by management in which the Private Placement Memorandum will be circulated and only where management as may lawfully offer securities in such states.





Executive Team

Ben Rudd- CEO, CFO and Director


Ben Rudd has more than 33+ years in commercial bank management and credit experience and has served in various capacities including President and CEO for over 15 years.  Ben was instrumental in starting a company (BancAccess, Inc.) with 4 community banks to produce commercial loans and share basic bank related services. 

 

As it relates to the portable storage business and rent-to-own (“RTO”) contract investment business, Ben will provide valuable guidance and direction since he is already experienced in both.  His knowledge and credit experience with both began approximately 18 years ago.  In 2013, Ben formed a company that has acquired over 3,000 portable storage building/shed RTO contracts, having an asset value over $20 million.  His company acquires on average, $650,000 in monthly RTO contracts, portable storage buildings/sheds, and that amount continues to increase. Currently, RTO contracts are purchased in Minnesota, Wisconsin, Alabama, and Florida.  With Ben’s guidance and direction, the typical pitfalls of a start-up company and associated learning curve will be avoided since he owns and operates a similar type company.  Ben will also be able to provide contacts and introductions to industry leaders and organizations that will help RTOF grow and prosper.

 

Recently, Ben sold his 51% ownership interest in BancAccess, Inc. to Alternative Credit Solutions, Inc. of Brentwood, Tennessee, which now co-owns BancAccess, Inc. with the four original investing banks from Tennessee: Peoples Bank of Clifton, Hardin County Bank, Centennial Bank and First Freedom Bank.  BancAccess, Inc. provides commercial loan referral, processing, underwriting, asset inspections, credit evaluation and loan participation sales services to these as well as other smaller community banks in Tennessee which find the current credit market and credit production challenging to produce.  BancAccess, Inc. is, at its base, a co-op for commercial banking services.

 

Ben also owns and operates RentalAccess, LLC, which invests in RTO contracts produced by Premier Buildings and presently has assets in excess of $20M. Given the efficient nature of the RTO contract investment industry and that all management related issues (RTO contract purchases, reporting, borrowing, etc.) are managed via electronic communication, RentalAccess, LLC requires minimal management which allows Ben to devote his full-time and attention to RTOF.






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