PART II – OFFERING CIRCULAR

Preliminary Offering Circular

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

SUBJECT TO COMPLETION, DATED FEBRUARY 22, 2021 

IRON BRIDGE MORTGAGE FUND, LLC

9755 SW Barnes Road, Suite 420

Portland, Oregon 97225

(503) 225-0300

Best Efforts Offering of

$32,000,000

SENIOR SECURED DEMAND NOTES

___________________

Iron Bridge Mortgage Fund, LLC (the “Company”), which does business as Iron Bridge Lending, engages in the business of making commercial purpose loans by lending funds to real estate investors to finance the ownership, entitlement, development or rehabilitation of residential and commercial real estate or for real estate-related purposes throughout the United States. The Company is not an investment company as defined under the Investment Company Act of 1940, and investors will not have the protections provided therein.

This Offering Circular relates to the offer and sale on a best efforts basis of up to an aggregate of $32,000,000 of the Company’s Senior Secured Demand Notes (“Senior Notes”). The offering will commence as soon as this Offering Circular has been qualified by the United States Securities and Exchange Commission and will remain open until the Company has sold Senior Notes with an aggregate purchase price of $32,000,000, unless earlier terminated in the Company’s sole discretion. As provided in rules promulgated by the Securities and Exchange Commission, the Company may issue pursuant to a qualified offering up to $50,000,000 of Senior Notes in any 12 month period. The Company is offering the Senior Notes on an ongoing basis and the amount of Senior Notes offered pursuant to this Offering Circular has been reduced to reflect Senior Notes sold within the 12 months prior to this Offering Circular. This Offering Circular, once qualified, will supersede the Company’s previous Offering Circular with respect to the Senior Notes which was originally qualified on February 23, 2018 (“Earlier Offering Statement”). This Offering Circular includes $32,000,000 in unsold securities covered by the Earlier Offering Statement.

Senior Notes will be sold at a price equal to the principal amount of such Senior Note, subject to a minimum investment of $50,000; provided that the Company’s Manager, in its sole discretion, may waive this requirement with respect to any investor. See “Description of Senior Notes” on Page 56 and “Plan of Distribution” on Page 60 this Offering Circular.

Generally (if you are not an “accredited investor” as defined for purposes of Regulation D under the Securities Act), no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(c) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

Investing in the Senior Notes involves risks and there is no guaranty that you will not suffer a loss on your investment. Before investing in a Senior Note, you should carefully read the discussion of material risks of investing in the Senior Notes in “Risk Factors” beginning on Page 6 of this Offering Circular. This Offering Circular supersedes any prior offering circular with respect to the Senior Notes.

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY NOTES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE NOTES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE NOTES OFFERED ARE EXEMPT FROM REGISTRATION.

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The date of this Offering Circular is ______________

The Company is following the disclosure format prescribed by Part II of Form 1-A.

OFFERING CIRCULAR SUMMARY

This summary highlights information contained elsewhere in this Offering Circular. This summary does not contain all of the information you should consider before deciding whether to purchase our Senior Notes. The summary is subject to, and qualified in its entirety by reference to, the detailed provisions of this Offering Circular, and the other agreements associated with this offering. You should carefully read this entire Offering Circular, including the information under the heading “Risk Factors.” References to “we,” “us” or “our” mean Iron Bridge Mortgage Fund, LLC.

RISK FACTORS

Investing in the Senior Notes involves risks and there is no guaranty that you will not suffer a loss on your investment. You should carefully consider the following risk factors together with all of the other information included in this Offering Circular in evaluating an investment in the Company’s Senior Notes. If any of the following risks were to occur, the Company’s business, financial condition, results of operations, cash flows and ability to make cash distributions could be materially adversely affected, and you could experience a loss on your investment. Where applicable, we have provided references to additional information within this Offering Circular to help you determine if these risks are acceptable.

Risks Related to the Offering and the Senior Notes

The Senior Notes are not insured or guaranteed by the FDIC or any third party, so repayment of the Senior Notes depends upon the collateral securing our Portfolio Loans and our ability to manage our business so as to generate adequate cash flows to repay the Senior Notes.

The Senior Notes are not certificates of deposit or similar obligations or guaranteed by any depository institution and are not insured by the FDIC or any governmental or private insurance fund, or any other entity. Therefore, you are dependent upon our ability to manage our business so as to generate adequate cash flows to repay the Senior Notes.

There will not be any market for the Senior Notes, so you should only purchase them if you do not have any need for your money prior to the maturity of the Senior Note.

The Senior Notes are not listed on a national securities exchange or authorized for quotation on the NASDAQ Stock Market or any securities exchange. Accordingly, there will be no trading market for the Senior Notes. Except as described elsewhere in this Offering Circular, you have no right to require early redemption of the Senior Notes prior to the Maturity Date. You should only purchase these Senior Notes if you do not have the need for your money prior to the maturity of the Senior Note.

We may not generate sufficient distributable cash flow to support the interest payments required by the Senior Notes.

We must generate a certain amount of revenue each month in order to make the interest payments we are obligated to make under the Senior Notes. The amount of cash we can pay on our Senior Notes principally depends upon the amount of cash we generate from our Portfolio Loans and rental properties, which will fluctuate from month to month based on, among other things:

In addition, the actual amount of cash flow that we generate will depend on other factors, some of which are beyond our control, including:

From Company inception (April 2009) through the effective date of this Offering Circular, all investors in any investment program sponsored by the Company, its Manager or its principals have received interest payments and the return of investment capital when or before due. However, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate whether the Company’s interest coverage ratios, cash flow from Portfolio Loan payoffs and credit line availability, loan to value ratios and asset coverage ratios are sufficiently adequate to repay your Senior Note. See “Analysis of Interest Coverage” on Page 36, “Portfolio Roll Forward Analysis” on Page 34, “Bank Borrowings” on Page 48 and “As-Is Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional details.

The Senior Notes are and will be subordinated to Bank Borrowings.

The Senior Notes are senior to the Company’s existing Equity Program interests, and subordinate to the Company’s Bank Borrowings or any replacement or addition to such borrowings. See “Financial Statements” beginning on Page F-1 and “Liquidity and Capital Resources” Page 48 for information regarding Senior Notes, Equity Program and Bank Borrowings. The Senior Note Purchase Agreement that governs the terms of the Senior Notes does not have any restrictions on our ability to incur senior, secured Bank Borrowings other than the Maximum Debt Covenant. Consequently, in the event of our bankruptcy, liquidation, dissolution, reorganization or similar proceeding, the holders of Bank Borrowings will be entitled to proceed against the collateral that secures such indebtedness and such collateral will not be initially available for satisfaction of any amounts owed under the Senior Notes, and the Bank Borrowings will be entitled to be paid in full prior to any right of Senior Noteholders to receive payment. The Senior Notes may similarly be subordinated to statutorily protected interests, such as liens in connection with unpaid taxes and construction liens.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate whether the Company’s interest coverage ratios, cash flow from Portfolio Loan payoffs and credit line availability, loan to value ratios and asset coverage ratios are sufficiently adequate to repay your Senior Note. See “Analysis of Interest Coverage” on Page 36, “Portfolio Roll Forward Analysis” on Page 34, “Bank Borrowings” on Page 48, and “As-Is Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional details.

We may be unable to repay the Senior Notes at maturity or upon default.

On the Maturity Date of a Senior Note, or in the event of a default under the Senior Note Purchase Agreement, Senior Notes or Security Agreement, the Company may not have sufficient funds available at such time to make the required repayment of the principal and accrued and unpaid interest on the Senior Notes. We do not contribute funds to a separate account, commonly known as a sinking fund, to repay the Senior Notes upon maturity. Because funds are not set aside periodically for the repayment of the Senior Notes over their respective terms, you must rely on our consolidated cash flows from operations, investing and financing activities. To the extent cash flows from operations and other sources are not sufficient to repay the Senior Notes, the Company may have insufficient funds available to pay amounts owed pursuant to the Senior Notes.

In addition, the loan agreements for our Bank Borrowings contain, and any future credit agreements or other agreements relating to our Bank Borrowings may provide that a designated event constitutes an event of default under that agreement. At maturity, the Manager, in its sole discretion, may extend the Maturity Date of a Senior Note by up to three months. If the Company extends the Maturity Date, payment of the Senior Notes would be delayed until that date. If the Company receives demands for payment from Senior Noteholders collectively holding more than thirty percent (30%) of the unpaid principal amounts of all outstanding Senior Notes, the Company may elect to extend the Maturity Date for all Senior Notes while the Company liquidates and winds up its Portfolio Loans. If any agreement governing the Company’s Bank Borrowings prohibits the Company from repaying the Senior Notes when obligated to do so, the Company could seek the consent of the holders of Bank Borrowings to repay the Senior Notes or attempt to refinance the Bank Borrowings. If the Company does not obtain such consent to repay the Senior Notes, the Company would not be permitted to repay the Senior Notes until the prohibitions imposed by the Bank Borrowings have been lifted. The Company’s failure to repay Senior Notes would constitute an Event of Default, which might constitute a default under the terms of our other indebtedness.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate whether the Company’s interest coverage ratios, cash flow from Portfolio Loan payoffs and credit line availability, loan to value ratios and asset coverage ratios are sufficiently adequate to repay your Senior Note and the Bank Borrowings. See “Analysis of Interest Coverage” on Page 36, “Portfolio Roll Forward Analysis” on Page 34, “Bank Borrowings” on Page 48 and “As-Is Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional details.

A Majority of Interest is necessary to accelerate payments under the Senior Notes.

If an Event of Default occurs, your remedies as an individual Senior Noteholder may be limited. A Majority of Interest may, on behalf of all Senior Noteholders accelerate payment under the Senior Notes to exercise and enforce their rights, as provided under the Security Agreement. Furthermore a Majority of Interest may elect to waive such rights and remedies in their discretion. A Senior Noteholder, acting alone, will have no recourse to accelerate payment under the Senior Notes, unless they individually hold a Majority of Interest. If an Event of Default occurs and a Majority of Interest of Senior Noteholders waives or otherwise declines to enforce your rights and remedies under your Senior Note, you will be without individual recourse with respect to such Event of Default. A Senior Noteholder may contact the Collateral Agent pursuant to the Security Agreement, to coordinate a Majority of Interest, but there is no guarantee that a Majority of Interest will elect to accelerate payment of the Senior Notes.

The Company is permitted to incur more debt, which may intensify the risks associated with current leverage, including the risk that the Company will be unable to service its debt.

The Senior Note Purchase Agreement does not prohibit the Company from incurring any indebtedness or other liabilities except to the extent borrowings exceed the Maximum Debt Covenant. If the Company incurs additional debt, the risks associated with its leverage, including the risk that the Company will be unable to service its debt, will increase.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate whether the Company’s Maximum Debt Covenant, interest coverage ratios, cash flow from Portfolio Loan payoffs and credit line availability, loan to value ratios and asset coverage ratios are sufficiently adequate to repay your Senior Note. See “Leveraging the Portfolio” on Page 35, “Analysis of Interest Coverage” on Page 36, “Portfolio Roll Forward Analysis” on Page 34, “Bank Borrowings” on Page 48 and “As-Is Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional details.

The Manager has discretion to redeem Equity Program interests or prepay the Senior Notes in the Company prior to the maturity of the Senior Notes.

Under the terms of the Company’s Operating Agreement and the Senior Notes, the Manager may prepay the Senior Notes under certain circumstances, or redeem Equity Program interests in the Company, provided that it remains in compliance with the Maximum Debt Covenant, and Company’s Class A Units and Class B Units continue to represent a minimum of 20 percent of total assets,. If the Manager chooses to use Company cash to redeem Equity Program interests in the Company or prepay any Senior Notes, Senior Noteholders face the risk of the Company having less cash flow available to pay the Senior Notes at maturity, and in the case of a redemption of Equity Program interests, a reduction in Equity Program capital protection for Senior Noteholders. If the Company is unable to continue to generate cash flow or asset values diminish following an Equity Program redemption, or Senior Note prepayment, Senior Noteholders face a greater risk of loss of investment.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate whether a minimum of 20 percent Equity Program capital, as defined by the Maximum Debt Covenant, combined with the redemption limitations in the Operating Agreement, provides sufficient investment protection. See “Leveraging the Portfolio” on Page 35 for additional details regarding the minimum Equity Program capital required, and “As-Is” Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional details regarding the loan-to-value and asset coverage ratios for Senior Noteholders.

The Company may change the rate of interest payable on the Senior Notes with a 90 day notice.

Each Senior Note will bear simple interest on the unpaid principal amount of the Senior Note at the rate of interest per annum specified in this Offering Circular or the most recent supplement to this Offering Circular (the “Interest Rate”). The Company may change the interest rate at any time, provided that (i) the interest rate may not be increased or decreased by more than one-half percent (0.5%) at the time of any change, and (ii) the interest rate change is applied to all Senior Notes outstanding. The Company provides written notice to each Senior Noteholder before making any change in the interest rate and the rate change will not become effective until 90 days after the notice. The Company monitors the interest rate environment and market conditions and considers whether changes in the Interest Rate are appropriate on an ongoing basis. Subject to the procedures and limitations described above, the Company may make additional changes to the Interest Rate at any time. If the Interest Rate is decreased, Senior Noteholders may receive less income from the Senior Notes than they would have had if the Interest Rate stayed the same or increased. In the event the Company changes the Interest Rate, Senior Noteholders may demand payment of their Senior Notes prior to the date when the interest rate change becomes effective. As of the date of this Offering Circular, the Interest Rate is five and one-half percent (5.5%), but pursuant to a Rate Change Notice issued by the Company on November 25, 2020, the Interest Rate will be reduced from five and one-half percent (5.5%) to five percent (5.0% effective February 23, 2021.

Senior Noteholders will not have the protection of a trustee, an indenture or the provisions of the Trust Indenture Act of 1939.

Because this offering is being made in reliance on an exemption from registration under the Securities Act, it is not subject to the Trust Indenture Act of 1939. Consequently, purchasers of Senior Notes will not have the protection of an indenture setting forth obligations of the Company for the protection of the Senior Noteholders or a trustee appointed to represent their interests.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to determine if you are adequately secured by the Collateral and Security Agreement. The Senior Notes will be secured by all of the assets of the Company, including but not limited to bank accounts, Portfolio Loans, and personal property of the Company, whether tangible or intangible, either now owned or hereafter acquired (the “Collateral”) pursuant to the Security Agreement for the benefit of the Senior Noteholders between the Company and the law firm Carr Butterfield, LLC, as Collateral Agent (the “Security Agreement”).

You will not have the benefit of an independent review of the terms of the Senior Notes, the Offering Circular or our Company as is customarily performed in an initial underwritten public offering.

The Senior Notes are being offered by the Company on a “best efforts” basis without an underwriter or placement agent. Therefore, you will not have the benefit of an underwriter or placement agent to perform an independent review of the terms of the Senior Notes, the Offering Circular, or our Company.

For this reason, you should read this Offering Circular and consult your investment, tax, and other professional advisors prior to deciding whether to invest in the Senior Notes.

Risks Related to the Business

Any deterioration in the housing industry or economic conditions could result in a decrease in demand and pricing for new and rehabilitated residential properties, which secure our Portfolio Loans, and could have a negative impact on our business and reduce the likelihood we will be able to generate enough cash to repay the Senior Notes.

The Portfolio Borrowers to whom we make loans use the proceeds of our loans to construct or rehabilitate residential properties. A Portfolio Borrower’s ability to repay our loans is based primarily on the amount of money generated by selling the properties they have constructed or rehabilitated, and thus, the Portfolio Borrowers’ ability to repay our loans is based primarily on the amount of money generated by the sale of such properties.

The housing industry is cyclical and residential real estate values are typically affected by the demand for and supply of properties, which can change due to many national and regional factors, such as:

These conditions may occur on a national scale or may affect some of the regions or markets in which we operate more than others.

To mitigate risk, we generally lend at no more than 70 percent of the estimated after-repair values of the residential properties our Portfolio Borrowers are building or rehabilitating, providing an estimated minimum of 30 percent borrower equity in the projects to secure our Portfolio Loans. However, these values are determined shortly prior to loan funding. If the values of properties in markets in which we lend drop fast enough to cause our Portfolio Borrowers losses that are greater than their equity in the property, we may not be paid back the full amount on our loans. If these loan losses occur across our Portfolio Loans at generally the same time, it may impair our ability to pay interest or principal on the Senior Notes.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate whether the Company’s interest coverage ratios, cash flow from Portfolio Loan payoffs and credit line availability, loan to value ratios and asset coverage ratios are sufficiently adequate to repay your Senior Note. See “Analysis of Interest Coverage” on Page 36, “Portfolio Roll Forward Analysis” on Page 34, “Bank Borrowings” on Page 48 and “As-Is Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional details.

Our historical loan portfolio performance may not be indicative of future performance.

The Company began making investment loans as Iron Bridge Mortgage Fund, LLC on April 1, 2009. Although the Manager and its Managing Directors may have achieved favorable returns on previous Portfolio Loans, the performance of past investments cannot be relied upon to predict the Company’s success.

If the proceeds from the issuance of Senior Notes exceed the cash flow needed to fund Portfolio Loans, we may not be able to invest all of the funds in a manner that generates sufficient income to pay the interest on the Senior Notes. In such an event, we may return your investment.

There can be no assurance that loans of a suitable nature will be available in the market. It is possible that the Company will be less invested in Portfolio Loans than we expect, if sufficiently attractive loan opportunities are not identified. Our ability to pay interest on our debt, including the Senior Notes, pay our expenses, and cover loan losses is dependent upon interest and fee income we receive from loans extended to our Portfolio Borrowers. If we are not able to lend to a sufficient number of Portfolio Borrowers at high enough interest rates, we may not have enough interest and fee income to meet our obligations, which could impair our ability to pay interest and principal to you. In such an event, the Company may elect to return investor capital, and/or determine not to accept further capital, over holding investor capital in a low yielding bank account.

Our Portfolio Loan investments are determined by the Manager, with no input from Senior Noteholders.

A Senior Noteholder must rely upon the ability of the Manager to identify, structure, and service Portfolio Loans consistent with the Company’s investment objectives. Accordingly, no person should purchase Senior Notes from the Company unless he or she is willing to entrust all aspects of the management, financing, and development of a Project to the Portfolio Borrower, and the management of the Company, valuation of the Projects securing Portfolio Loans and the terms of the Portfolio Loans to the Manager.

We may be subject to risks resulting from conflicts of interest between the Company and the Manager and its principals and affiliates.

There may be certain conflicts of interest between the Company and the Manager, its principals and their affiliates. These include:

See “Conflicts of Interest” on Page 55 for greater details about these conflicts.

Increased lender competition may decrease our profitability, which would adversely affect our ability to make payments on the Senior Notes.

We may experience increased competition for business from other companies and financial institutions that are willing to extend the same types of loans that we extend at lower interest rates and/or fees. Because we do not offer FDIC insurance, our Senior Notes offer significantly higher rates than bank CDs. As a result, our cost of funds is higher than banks’ cost of funds. This may make it more difficult for us to compete against banks if they become competitive in our niche lending market in large numbers. These competitors also may have substantially greater resources, lower cost of funds, and a better-established market presence. If these companies increase their marketing efforts to our market niche of borrowers, or if additional competitors enter our markets, we may be forced to reduce our interest rates and fees in order to maintain or expand our market share. Any reduction in our interest rates, interest income or fees could have an adverse impact on our profitability and our ability to make payments on the Senior Notes.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate the interest coverage ratios of the Senior Notes and determined if you are comfortable with the interest coverage ratios and associated risk. See “Analysis of Interest Coverage” on Page 36 for additional details.

We are heavily dependent on the Manager and its Managing Directors, the loss of which may have a significant impact on operations.

The Manager will make all management decisions for the Company, including Portfolio Loan selection and servicing. The Company will be relying in large part on the Manager’s loan origination expertise. The Manager may resign at any time without liability to the Company. If the Manager withdraws from the Company, is terminated by the Company’s Equity Program investors for cause or otherwise, or is terminated as Manager by dissolution or bankruptcy, it may be difficult or impossible for the Company to locate a suitable replacement for the Manager. In addition, two of the Manager’s Managing Directors, Gerard Stascausky and Sarah Gragg Stascausky, are considered an integral part of the Company’s investments and operations. If either or both Managing Directors were to leave the Manager, die or become permanently disabled, the Manager’s ability to continue the management of the Company would be materially and adversely affected.

The Company believes that these risks are reduced by the self-liquidating nature of the Portfolio Loans. The Company makes loans with maturities of 12 months or less. If the Company stopped making loans for any reason, its employees or a substituted loan servicer could service the Portfolio Loans through payoff and return investor capital as much as possible.

The Company has indemnification obligations to the Manager and its affiliates.

The Company is required to indemnify the Manager and certain affiliated persons for liabilities incurred in connection with the affairs of the Company. Such liabilities could be material and have an adverse effect on the Company’s profitability or ability to meet payment obligations. Such indemnification obligations of the Company will be payable from the income and assets of the Company.

The value of the collateral securing a Portfolio Loan may be incorrectly determined by the Manager.

The Manager will develop and utilize a consistent method to estimate the value of the collateral for each Portfolio Loan, in the Manager’s sole discretion. The Manager will use methodologies that it deems reasonable based on various valuation practices commonly used in similar businesses in the industry including comparative market analyses, appraisals, comparable sales of other similar assets, historical data and trends from actual sales, disposition or performance of assets, and other such methodologies generally used and accepted in the market. The determination or estimation of the value of any real estate collateral or other asset is highly subjective and subject to change continuously on an ongoing basis. There is no guarantee that any value as determined by the Manager of any real estate collateral or other asset of the Company will be accurate or represent the true current value of any asset.

To mitigate this risk, the Company relies on in-house real estate valuations when making new loans and continually refines its appraisal process and analyzes real estate market trends within different geographies. We believe that this internal valuation analysis enables the Company to make faster and more informed lending decisions, which we believe help mitigate risk while providing borrowers with a higher quality of service. The Company reports to investors on a quarterly basis the results of its valuation methodology testing. These tests compare the actual loan to sale-price for those loans that were paid off during a given quarter against the Company’s estimated valuation for those same properties at the time the loans were made. This analysis helps the Company to monitor and improve its in-house valuation methodology on an ongoing basis.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate whether the Company’s loan-to-value ratios, asset coverage ratios and analysis of comparative loan-to-sale prices are acceptable. See “As-Is Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional details.

There is no assurance that our current financing arrangements will remain in place.

We will depend on Bank Borrowings to efficiently manage our cash flow, Portfolio Loan funding and reach our target leverage ratio. Accordingly, our ability to achieve our most efficient investment and leverage objectives depends on our ability to borrow money in sufficient amounts and on favorable terms. Currently, we have entered into a $40 million line of credit with Western Alliance Bank through March 1, 2022. There can be no assurance that this agreement will remain in place and, even if in place, that the amount and definitive terms under which we would be able to borrow would be adequate. Adverse developments in the residential and commercial mortgage markets could make it more difficult for us to borrow money to finance our investment activities.

We are subject to significant government regulation, which may affect our ability to operate.

The industry in which the Company is an active participant may be highly regulated at both state and federal levels. The Company will attempt to comply with all applicable regulations affecting the markets in which it operates. However, such regulation may become overly burdensome and therefore may have a negative effect on the Company’s ability to perform. The Company expects to comply with all rules, regulations, advisories and guidelines, however it is extremely difficult to keep up with all changes and proposed changes to all federal and state regulations at all times, and the Company may, on occasion, be delayed in such compliance, requiring the Company to pay penalties, costs, fees, and other charges to regain compliance. Any such penalty, cost, fee, or other charge could have a negative adverse effect on the Company.

We may become subject to the Investment Company Act, which could interfere with our intended operations.

The Company intends to operate so as to not be regulated as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”) based upon certain exemptions thereunder. Specifically, the Company expects to be exempted from registration under the Investment Company Act because the Company will be primarily engaged in purchasing or acquiring mortgages and other liens on, and interests in, real estate as determined under exemptions from the Investment Company Act and rules issued thereunder. Accordingly, the Company does not expect to be subject to the restrictive provisions of the Investment Company Act. However, if the Company fails to qualify for exemption from registration as an investment company, its ability to conduct its business as described herein will be compromised. Any such failure to qualify for such exemption would likely have a material adverse effect on the Company.

Our reliance on certain exclusions from the Investment Company Act may impact certain investment decisions.

The Investment Company Act excludes from the definition of an “investment company” issuers of non-redeemable securities that are primarily engaged in purchasing or otherwise acquiring mortgages and other liens on, and interests in, real estate. The Manager has not sought a no-action letter from the SEC to confirm that the Company is eligible for this exemption. However, the Manager will rely on guidance issued by the SEC stating that so long as (1) qualifying percentages of the Company’s assets consist of mortgages and other liens on or interests in real estate; and (2) the remaining percentage of the Company’s assets consist primarily of real estate related assets, the Company will remain exempt from the Investment Company Act registration requirements. These formulaic requirements may negatively impact the Company’s investment flexibility.

Real estate investing is inherently risky.

The Company is subject to the risks that generally relate to investing in real estate because it principally makes debt investments in real estate assets. Real estate historically has experienced significant fluctuations and cycles in performance that may result in reductions in the value of the collateral securing the Company’s real estate-related investments. The performance and value of its investments once funded depends upon many factors beyond the Company’s control. The ultimate performance and value of the Company’s investments are subject to the varying degrees of risk generally incident to the ownership and rehabilitation or construction of the properties in which the Company invests and which collateralize or support its investments.

Risks Related to the Company’s Portfolio Loans

The Collateral securing a Portfolio Loan may not be sufficient to pay back the principal amount in the event of a default by a Portfolio Borrower.

In the event of default by a Portfolio Loan Borrower, our Portfolio Loan investment is primarily dependent on the real estate collateral securing our Portfolio Loan. Our loan collateral consists primarily of a first lien deed of trust or mortgage on the underlying property. In the event of a default by a Portfolio Borrower, we may not be able to recover the property promptly and the proceeds we receive upon sale of the property may be adversely affected by risks generally related to interests in real property, including changes in general or local economic conditions and/or specific industry segments, declines in real estate values, increases in interest rates, real estate tax rates and other operating expenses including changes in governmental rules, regulations and fiscal policies, including environmental legislation, acts of God, and other factors which are beyond our or our Portfolio Borrower’s control. Current market conditions may reduce the proceeds we are able to receive in the event of a foreclosure on our loan collateral. Our remedies with respect to the loan collateral may not provide us with a recovery adequate to recover our Portfolio Loan investment.

We will have limited control over our Portfolio Borrowers, which lack of control may affect the repayment of our Portfolio Loans.

Typically a Portfolio Borrower is structured as an entity or venture for the purpose of acquiring, improving, developing or holding the real property (a “Project”) collateralizing a Portfolio Loan. The Portfolio Borrower and the Project is managed exclusively by the principals of the Portfolio Borrower or its co-investors or affiliates.

Investors will have no opportunity to directly affect the management of the Portfolio Borrower or of the Project. The Company is also likely to have little opportunity to influence the management of the Portfolio Borrower or Project, except to the limited extent of imposing conditions to the draw of funds under a Portfolio Loan. Therefore, the successful operation of the Portfolio Borrower, the choice and terms of any junior lien Project financing, the success of the Project, the repayment of a Portfolio Loan, and the ability of the Portfolio Borrower to repay the Portfolio Loan depends greatly upon the skill, experience and efforts of the Portfolio Borrower or its principals in the acquisition, improvement, development, management and sale of the Project and in the management of the Portfolio Borrower. In the event the Project is not successfully completed, in addition to the inability of the Portfolio Borrower to repay such Portfolio Loan, the value of the Portfolio Loan collateral is likely to be impaired.

There is no operating history for the Projects that secure our Portfolio Loans.

Although a Portfolio Borrower or its principals may be experienced real estate investors that have previously purchased, rehabilitated, constructed and sold residential properties, the Project securing our Portfolio Loan will have no operating or financial history. The prior success of Portfolio Borrower or its principals in connection with previous real estate investments are no assurance that the Portfolio Borrower will enjoy comparable success with respect to the Project collateralizing the Portfolio Loan. If a Portfolio Loan or Project collateral is impaired by the poor performance of a Portfolio Borrower, the Company’s ability to realize on that Project may be impaired.

Our borrower credit requirements may be more lenient than the credit requirements of some conventional lenders.

The Company is an asset based lender and primarily relies on the value of the real estate collateral and its borrowers’ liquidity and operational experience to secure its Portfolio Loans. As a result, the Company will invest in Portfolio Loans with borrowers who will not be required to meet the high credit standards of some conventional mortgage lenders, which may be riskier than investing in loans made to borrowers who are required to meet those higher credit standards. In addition, because the Manager approves Portfolio Loans more quickly than some conventional lenders, there may be a risk that the due diligence the Manager performs as part of its underwriting procedures would not reveal the need for additional precautions. If so, the Portfolio Borrower may be more likely to default on the Portfolio Loan, requiring the Company to foreclose on the real estate collateral.

The Projects securing our Portfolio Loans may not be completed as planned, thereby increasing the risk that we will not be repaid in full.

Our Portfolio Loans are made to fund real property Projects that are often the subject of development plans by the Portfolio Borrower. Costs of planned improvements, development or operations of the Project securing the Portfolio Loan may exceed estimates, which may affect the Portfolio Borrower’s ability to complete the Project according to projections and budgets. Similarly, development plans may not be permissible under then-existing laws, ordinances, regulations and building codes. In either case, such events may affect the Portfolio Borrower’s ability to repay our Portfolio Loan.

We may have delays or additional costs in enforcing our rights as a secured lender.

The Company believes that its lending documents will enable it to enforce commercial arrangements with Portfolio Borrowers and other counterparties. However, the rights of Portfolio Borrowers, counterparties, and other secured lenders may limit the Company’s practical realization of those benefits. For example:

Care is exercised upon creation of the legal documents at the time of origination, or through thorough review of such documents in the event of acquisition, to ensure that as many bases as possible have been covered in the documents. However, in the event of default, it can be very difficult to predict with any certainty how courts will respond.

Our due diligence may not reveal all factors affecting an investment and may not reveal weaknesses in such investments.

There can be no assurance that the Manager’s due diligence processes will uncover all relevant facts that would be material to a lending decision. Before making a Portfolio Loan, the Manager will assess the strength of the underlying properties, borrowers, and any other factors that they believe are material to the performance of the Portfolio Loan. In making the assessment and otherwise conducting customary due diligence, the Manager will rely on the resources available to them and, in some cases, investigations by third parties.

Environmental liabilities may limit our ability to realize repayment of our Portfolio Loans.

The Projects subject to our Portfolio Loans may become subject to liability for costs of cleanup of certain conditions relating to the presence of hazardous or toxic materials on, in or emanating from the Project securing our Portfolio Loan, and any related damages. Liability is often imposed without regard to whether the owner knows of, or was responsible for, the presence of the hazardous or toxic materials. These liabilities may interfere with the economic development of the subject Projects, and may interfere with the repayment of our Portfolio Loans.

The repayment of our Portfolio Loans may be affected by other debt obligations associated with the Project.

The Portfolio Borrower’s financing of a Project may involve additional subordinate loans made by third parties that are unaffiliated with the Company. These subordinate loans can provide Portfolio Borrowers with additional funds to complete a Project and improve the collateral value securing our Portfolio Loan. However as a result of increased leverage utilized by these Portfolio Borrowers, recessions, operating problems and other general business and economic risks may have a more pronounced effect on the profitability or survival of such Portfolio Borrowers than if additional leverage were not employed.

A mechanic’s lien on a Project may impair a Portfolio Loan.

The Project may be subject to a mechanic’s lien, which entitles the holder of such a lien to foreclose on the Project if the holder has not been paid in full for its services, materials or labor. Most state laws provide that any person who supplies services, materials or labor to a real estate Project may impose a lien against the Project securing any amounts owed to such person. Although the Portfolio Borrower may be required by the terms of the Portfolio Loan to utilize procedures to prevent the occurrence of mechanic’s liens (such as requiring mechanic’s lien releases prior to payment and issuing joint-party checks) no assurance can be given that mechanic’s liens will not appear against the Project. If a mechanic’s lien does appear, then it must be negotiated by the Portfolio Borrower in order to obtain its release or the person holding such lien will have the right to bring an action of foreclosure on the Project in order to satisfy the amount due under the lien.

Eminent domain proceedings on a Project may impair a Portfolio Loan.

The Project or a portion of the Project could become subject to an eminent domain or inverse condemnation action. Although the Company and its Portfolio Borrower may be legally entitled to receive compensation for such governmental actions, the compensation may prove insufficient. Such an action could have a material adverse effect on the operations or marketability of the Project, and, as a consequence, adversely affect the ability of the Portfolio Borrower to repay the Portfolio Loan. In addition, the value of the Project as collateral would be impaired and the Project may have insufficient remaining value to repay accrued interest and principal on foreclosure.

We may have concentration risk related to Portfolio Borrowers or geographic distribution of Portfolio Loans.

The Company’s portfolio may become concentrated in a limited number of Portfolio Loans, increasing the vulnerability of the portfolio as compared with a portfolio that is more diversified in the number and location of Portfolio Loans and Portfolio Borrowers. If the Company is unable to diversify its investments by lending to a variety of Portfolio Borrowers and by diversifying the geographic and type of collateral, the Portfolio Loans will be dependent on the success of a limited number of Portfolio Borrowers and the Company’s assets may be concentrated in specific markets or collateral categories. If one or more Portfolio Borrowers or markets suffer adverse consequences, the Company’s financial condition and results of operations will be adversely affected.

For this reason, you and your financial advisors should read this Offering Circular and the Company’s most recent quarterly report to evaluate whether the Company’s geographic and borrower concentration risk is acceptable. See “Geographic Distribution” on Page 23 and “Borrowers” on Page 26 for additional details.

Our remedies as a lender may be limited to the real estate collateral securing our Portfolio Loans.

Portfolio Loans are secured by first lien deeds of trust or mortgages on property and will generally be personal obligations of the principals of the Portfolio Borrower. In the event of a default under a Portfolio Loan, the Company is entitled to foreclose upon the property securing the Portfolio Loan and may seek a deficiency judgment against the principals, individually. A deficiency judgement may be subject to delays and additional expenses if defenses or counterclaims are interposed, making the pursuit of a deficiency judgement uneconomical.

The Company’s investment may not be sufficiently protected in the event of damage to collateral.

Although the Company requires its Portfolio Borrowers to maintain adequate insurance coverage against liability for personal injury and property damage, such insurance may prove insufficient to cover any liabilities or casualty losses incurred by a Portfolio Borrower. Also certain risks may be uninsurable or may become uninsurable, or may become insurable only at prohibitive cost, such as the risk of property damage and general liability from earthquakes, floods, damage from terrorist activities, or certain environmental hazards. In addition, such risks may be insurable only in amounts that are less than the full market value or replacement cost of the relevant collateral. In addition to the unintentional loss of the collateral, the Portfolio Borrower may permit uninsured waste or other damage to the collateral by tenants, licensees or invitees. In the event of the occurrence of such risk or waste, the collateral may be substantially impaired or destroyed, and the potential loss to the Company in the event the applicable Portfolio Loan does not perform could be material.

The Company may become subject to penalties for usury.

The structure of the Company’s Portfolio Loans is expected to comply with state usury laws and the laws of other relevant jurisdictions. However, usury laws and their exemptions are complex and may change. If, despite the Company’s reasonable efforts in reliance on qualified advisors to avoid such result, a Portfolio Loan made by the Company does not comply with applicable state usury laws, the Company may be responsible for payment of penalties and face the potential loss of some or all of its Portfolio Loan investment.

FORWARD-LOOKING STATEMENTS

This Offering Circular includes forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are generally identifiable by the use of words such as “may,” “should,” “expects,” “plans,” “believes,” “estimates,” “predicts,” “potential,” and other similar words or expressions. Such statements include information concerning our plans, expectations, possible or assumed future results of operations, trends, financial results and business plans, and involve risks and uncertainties that are difficult to predict and subject to change based on various important factors, many of which are beyond our control. Such factors include, but are not limited to, those discussed in the “Risk Factors” section of this Offering Circular. These and other important factors could cause actual results to differ materially from those contained in any forward-looking statement. You should not place undue reliance on our forward-looking information and statements. The forward-looking statements included in this Offering Circular are made as of the date of this Offering Circular, and we do not intend, and assume no obligation, to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. All forward-looking statements contained in this Offering Circular are expressly qualified by these cautionary statements. Statements other than statements of historical fact are forward-looking statements.

The historical results described in this Offering Circular with respect to previous mortgage lending are historical only, and were influenced by available opportunities, diverse market conditions and other factors beyond the control of the Company. Any projections made in this Offering Circular are based on historical examples and the Company’s estimates of future conditions. There is no assurance that lending opportunities experienced in the past will occur in the future, that market conditions will be as favorable to the Company as they have been in the past, or that investors will enjoy returns on their investment comparable to those enjoyed by them or by others with respect to their participation in other investments sponsored by the Manager. The actual results experienced by the Company will differ, and such variation could be material. Please see the section “Risk Factors” before deciding to purchase Senior Notes.

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE SENIOR NOTES, THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SENIOR NOTES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL, STATE OR FOREIGN SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

USE OF PROCEEDS

The proceeds to the Company from the sale of Senior Notes will be equal to the aggregate principal amount of Senior Notes we sell. The estimated expenses for the preparation, filing, printing, legal, accounting and other fees and expenses related to the offering of approximately $509,305 have been paid by the Company since the Company began offering the Senior Notes on March 1, 2018. The Company intends to use the proceeds from this offering to fund loans to borrowers and not to fund the Company’s operating expenses and other obligations. The Company has not identified the particular investments it will make. Accordingly, an investor must rely upon the ability of the Manager in making investments consistent with the Company’s investment objectives and policies. Although the Managing Directors have been successful in locating investments in the past, the Company may be unable to find a sufficient number of attractive opportunities to invest its committed capital or meet its investment objectives. The Company does not intend to use proceeds for the purpose of repurchasing or redeeming Equity Program interests in the Company or repaying Senior Notes, but may do so as necessary to appropriately manage cash flows. The Company does not anticipate any material changes to the use of proceeds described above in the event that less than all of the Senior Notes being qualified are sold and the proceeds are subsequently reduced. The Company intends to issue Senior Notes only if it believes sufficient investment opportunities exist in the near term. As provided in rules promulgated by the Securities and Exchange Commission, the Company may issue pursuant to a qualified offering up to $50,000,000 of Senior Notes in any 12 month period. The Company is offering the Senior Notes on an ongoing basis and the amount of Senior Notes offered pursuant to this Offering Circular has been reduced to reflect Senior Notes sold within the 12 months prior to the date of this Offering Circular.

BUSINESS

Overview

The Company was formed in 2009 as an Oregon limited liability company for the purpose of making commercial purpose loans by lending funds to real estate investors to finance the ownership, entitlement, development or rehabilitation of residential and commercial real estate throughout the United States. The Company has no employees and is managed by Iron Bridge Management Group, LLC, an Oregon limited liability company (the “Manager”), which is owned by Gerard Stascausky and operated by Gerard Stascausky and Sarah Gragg Stascausky (the “Managing Directors”). The Company may lease certain employees from the Manager from time to time, and the amount of any employee leasing payments made are deducted from the loan servicing fees payable to the Manager. Gerard Stascausky and Sarah Gragg Stascausky combined bring to the Company over 20 years of investment banking experience, over 18 years of distressed real estate investment experience, and over 22 years of private real estate lending experience. The Manager provides Portfolio Loan origination and servicing services to the Company. See “Management” on Page 51 of this Offering Circular.

The Company’s primary business is to provide commercial purpose loans for the acquisition and rehabilitation of distressed residential and commercial real estate as well as to provide opportunistic financing for real estate development and construction. The Company’s primary sources of investment capital are its private Equity Program interests, Senior Notes and Bank Borrowings. All operating expenses and offering expenses are paid from investment profits distributable to Equity Program investors after interest expense is paid on Senior Notes and Bank Borrowings. The commercial purpose loans extended by the Company are based upon underwriting criteria the Manager has found to be successful in the past. See “Underwriting” on Page 29 of this Offering Circular.

The Company primarily originates and structures its own loans, with such loans being secured by first lien deeds of trust or mortgages. However, the Company may also take title to properties (either directly or through a wholly owned subsidiary) to facilitate prompt acquisitions from trustees at auction, pre-foreclosure acquisitions from defaulting borrowers, or any other real estate acquisition in which the Company believes taking title to the property is in the best interest of the Company. The wholly owned subsidiary may provide the Company a level of liability protection on owned assets, while preserving the Company’s economic interests.

The Company’s investments are exclusively in non-owner occupied real estate loans. The Company does not originate new owner-occupied residential loans of any kind.

Company Vision

We believe that the real estate finance industry is in the early stages of a major transformation that should create significant value for borrowers, investors and real estate finance companies. Technology and new securities laws should drive increased efficiency. For borrowers, this should mean lower interest rates and better service. For investors, this should mean superior risk-adjusted returns that are not available in the public markets. And for the innovative companies that lead this change, it should mean an opportunity to create value while effectively managing risk.

Background and Strategy

Real estate finance markets are highly fragmented, with numerous large, mid-size, and small lenders and investment companies, such as banks, savings and loan associations, credit unions, insurance companies, institutional lenders and private lenders all competing for investment opportunities. Many of these market participants experienced losses in the real estate market, which started to decline in 2006 and reached its bottom in 2012. As a result of credit losses and restrictive government oversight, many of these financial institutions are not participating in this market to the extent they had before the credit crisis. In addition, it appears that the number of banks and other institutional lenders willing to lend for the acquisition and rehabilitation of commercial and residential investment properties has decreased. In particular, we believe that banks and other institutional lenders are generally more reluctant to lend money secured by residential property until the property is constructed or fully renovated and either rented or ready for purchase by an owner-occupant. Developers particularly rely on private lending sources such as the Company to fill the need for financing between the time a property is purchased and the time, after construction or rehabilitation, when it is ready to be rented or sold. We believe the Company fills a significant gap by providing much needed financing of this type for areas with a growing need for such financing, and that profitable investment opportunities will be available to the Company based on the fragmented nature of the rehab lending market and the limited competition from banks and other institutional lenders.

Why Private Lending Offers Asymmetrical Investment Returns

The Company believes that its Portfolio Loan investments can earn a higher rate of return per unit of risk compared to public market investments (e.g., publicly-traded stocks and bonds) because the private lending markets in which it operates are less efficient than public markets. The efficient market theory generally assumes two things: (1) information is ubiquitous and (2) capital moves freely. These two assumptions are important in understanding why we believe that the private lending industry can produce asymmetrical investment returns, which can be defined simply as higher rates of investment return per unit of risk than the efficient market theory would suggest.

The first assumption, “information is ubiquitous,” generally means that all investors know about all investments available and have analyzed all the information available related to those investments. In the public markets this assumption is often true. For example, large investment funds with billions of dollars in investment capital often employ large staffs of analysts, each dedicated to specific industries or companies. The public companies they analyze are generally required by law to disclose material information to the public in a timely manner. When new information is made available, these analysts can quickly assimilate the information and invest accordingly. These conditions make information ubiquitous in the public markets, but these conditions generally do not hold true in the private lending industry for rehab and new construction projects.

The second assumption, “capital moves freely,” generally means that investors are able and motivated to allocate capital among investment opportunities in a way that always maximizes the investment return per unit of risk. Again, in the public markets, this assumption is often true. For example, large investment funds are generally competing to attract investment capital by earning a superior investment return relative to their peers and are therefore motivated to reallocate investment capital in order to maximize investment returns. In addition, the public markets are generally liquid and allow these institutional investors to buy and sell quickly with minimal transactional costs. These conditions allow capital to move freely in the public markets, but these conditions generally do not exist in the private lending industry for rehab and new construction projects.

By comparison, within the private lending industry information generally is not ubiquitous and capital generally does not move freely. For example, private lenders in Colorado or Texas may not necessarily know about lending opportunities in Oregon or Washington. Moreover, even if those private lenders were made aware of these lending opportunities, the private lenders may not be interested or structurally capable of evaluating and funding the loans in the timeframes required. Further, capital generally does not move freely in the private lending industry for rehab and new construction projects. For example, the largest lenders in the real estate industry are banks, which are both government regulated and structurally challenged to move quickly. Government regulations often dissuade banks from pursuing certain types of profitable loans in order to comply with larger risk management overlays. The banks are also often structured in ways that make them relatively slow in analyzing and funding loans. What this means is that the private lending industry for rehab and new construction projects is fragmented and relatively inefficient and does not comply with the efficient market theory’s assumptions of ubiquitous information flow and free movement of capital. This inefficiency provides an opportunity for participants in the private lending industry to earn asymmetrical investment returns, or, in other words, a higher rate of return per unit of risk versus public market investments as indicated in the following graph.

Defensive Attributes of the Company’s Business Model

While there can be no guaranty that investors in the Company will not suffer a loss on their investment, we believe that the Company’s business model has certain defensive attributes that may allow the Company to perform relatively well in adverse economic environments. The following is a list of defensive business model attributes that we believe have allowed the Company to earn an attractive investment return with no loss to investors between 2009 and 2020. However, there can be no assurance that these attributes would provide the same level of protection in the future.

The Company does not rely on increases or decreases in real estate prices. The Company’s investment returns are primarily derived from the interest payments and fees paid by the Company’s Portfolio Borrowers who have generally demonstrated an ability to find profitable projects in various economic environments. We believe this is one of the reasons why the Company’s profitability and investor returns have remained stable through depreciating, flat and appreciating real estate markets since 2009.

The Company generally makes short term loans of 12 months or less that enable both the Company and its Portfolio Borrowers to adapt quickly to changing economic conditions. For example, if real estate prices soften and resale activity slows down, some of our Portfolio Borrowers may break even or lose money on current Projects because their estimated resale prices may prove to have been too optimistic. However, because these are short-term Projects with defined exit strategies, our Portfolio Borrowers are often able to adapt quickly by buying the next Project at a lower price to account for changing market conditions.

Changes in interest rates do not require the Company to reprice its Portfolio Loans, minimizing interest rate risk. The Company has the intent and ability to hold its Portfolio Loans to maturity. Therefore, Portfolio Loans are stated at their outstanding unpaid principal balance with interest thereon being accrued as earned. Changes in interest rates do not require the Company to reprice its Portfolio Loans. However, changes in interest rates can create reinvestment risk related to changes in the rate of return available on new Portfolio Loans made by the Company.

The Company’s Portfolio Borrowers are more price setters than price takers. Because our Portfolio Borrowers’ Projects are short-term, and their profits come primarily from the value added improvements made to the Project, we believe our Portfolio Borrowers are more sensitive to completing and selling their Projects quickly than they are to the current trend in real estate prices. For example, between 2009 and 2012, when real estate prices were in decline, many of the Company’s Portfolio Borrowers were buying properties from foreclosure auctions at very low prices, rehabbing the houses, and then listing the houses for sale at prices that were often lower than competing listings, resulting in quick sales.

The Company’s loan portfolio is primarily secured by residential real estate, which we believe to be a more defensive asset class relative to assets correlated to other sectors of the economy. Real estate is a well-known inflation hedge, but what’s more important is that, in our view, the Federal Reserve and other policymakers are likely to prioritize the health of the residential real estate market over other sectors of the U.S. economy. The simple reason is that consumption is approximately 70% of U.S. gross domestic product and housing is the largest single investment for most consumers. Accordingly, we believe that it is unlikely that policymakers will allow the residential real estate market to suffer for an extended period without taking action. The same cannot be said for other sectors of the economy. For example, the oil and gas industry experienced a major decline in energy prices during 2014 and 2015 that led to significant capital spending reductions and industry layoffs. However, from an economic perspective the benefits of lower energy prices transmitted through increased consumer spending generally appeared to offset the negative effects of oil industry contraction.

The Company’s business model generates strong and stable monthly recurring revenues, which means the Company is well positioned to cover interest payments. For the year ended December 31, 2020, the Company generated revenues of $13.2 million and combined interest expense of $1.4 million related to its Senior Notes and Bank Borrowings. Revenues were 5.3 times the amount needed to cover this combined interest expense. In these calculations, the interest payable on Senior Notes is combined with the interest payable on Bank Borrowings because Bank Borrowings have a senior security interest to Senior Noteholders. We believe that this level of interest coverage provides Senior Noteholders a significant layer of protection that should help safeguard investor capital during an adverse economic event. See “As-Is Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional details.

Investor capital is further protected by the value of the real estate collateral. As of December 31, 2020, the estimated “as-is” value of the real estate collateral was $126.1 million, which secured the combined $46.5 million of Senior Notes ($24.2 million) and Bank Borrowings ($22.3 million). The value of the real estate collateral was approximately 2.7 times the amount necessary to pay off our Senior Notes and Bank Borrowings combined. Similarly, the principal balance of Senior Notes and Bank Borrowings combined represented an “as-is” loan-to-value of 37% on the real estate collateral. In these calculations, the principal balance owed on Senior Notes is combined with the principal balance owed on Bank Borrowings because Bank Borrowings have a senior security interest ahead of Senior Noteholders. We believe that this level of real estate asset coverage and loan-to-value provides another important layer of real estate asset protection that should help safeguard investor capital during an adverse economic event. See “As-Is Loan-to-Value and Asset Coverage Based on Percentage Completion” on Page 36 for additional information regarding loan-to-value analysis and the method of estimating “as-is” value.

Portfolio Loan Characteristics

Project Type. The primary focus of the Company’s lending activities is on single-family residential rehab and new construction projects. As described above, the Company believes that this market is underserved by banks and other institutional lenders. In addition, the relatively short-term nature of these projects (12 months or less) allows the Company and its Portfolio Borrowers to adjust quickly to changing market conditions.

The following table provides information about the distribution of the Company’s loan portfolio by project type segmented further by number of loans and the unpaid principal balance (“UPB”) of those loans.

During the residential real estate downturn from 2009 through 2012, the Company only made residential rehab loans on existing single family properties. From 2013 through 2015, the Company modestly increased the amount of loans it made for single-family and multi-family new construction. This trend reflected the general improvement in the real estate market over that time and a corresponding shift in the business models of our borrowers from fixing distressed properties purchased through foreclosure sales or from bank owned inventory to more value-added projects, such as square footage additions or new construction. During 2015, 2016 and 2017, the Company’s single-family and multi-family new-construction loans, in aggregate, remained consistent at less than 25% of loan portfolio UPB. During 2018, 2019 and 2020, the Company made fewer new construction loans in favor of more residential rehab loans. The Company believes that the real estate securing residential rehab loans is generally more secure compared to the real estate securing new construction loans because, on average, the amount of construction funds required to complete rehab projects is less, the time to complete a rehab projects is shorter, and rehab projects usually come with an existing certificate of occupancy allowing the owner to more easily rent the property in an adverse economic environment.

It is important to point out that the Company does not make loans for land entitlement purposes only. Any land entitlement loans represent phase one of two phase projects that require land entitlement to be completed prior to new construction commencing on either single-family or multi-family residential structures.

Geographical Distribution. The Company continues to experience steady loan demand and stable real estate resale activity. However, the real estate markets it serves can be affected by both regional economics and macro economic cycles. For this reason, the Company believes that increasing its geographic diversification and having the ability to rebalance its loan portfolio between geographies is important to effectively manage risk.

The following table provides the geographic distribution of the Company’s loan portfolio by state segmented further by the number and unpaid principal balance of loans (“UPB”) that were active at the end of the period and those loans that paid off during the period.

During 2016, the Company maintained stable lending activity across its existing geographies and began lending in Florida, Massachusetts, New Jersey, North Carolina, Oklahoma and South Carolina. During 2017, the Company began lending in Georgia, Tennessee and Virginia. During 2018, the Company began lending in Louisiana and increased its portfolio concentration toward non-judicial foreclosure states. During 2019 and 2020, the Company began lending in the Discrict of Columbia, New Mexico and Utah and further increased its portfolio concentration toward non-judicial foreclosure states. The Company believes that lending in non-judicial foreclosure states is less risky, generally, than lending in judicial foreclosure states because the amount of time and expense required to foreclose non-performing loans is less. As of December 31, 2020 and 2019, the percentage of loan portfolio UPB secured by property located in non-judicial states was 99% and 94%, respectively.

The Company believes that the benefits of geographic diversity outweigh the risks associated with managing a wide geographic distribution of borrowers and real estate collateral. Specifically, the Company evaluates and adjusts its loan program offerings to borrowers in those states that offer better investment returns per unit of risk. Some of the variables evaluated by the Company in making the decision to expand or contract in a specific geographic market include the competitive pricing pressure from competing lenders, availability of borrower projects, the margins on those borrower projects and trends in regional economic activity.

Borrowers. The Company’s Portfolio Borrowers are often comprised of one to three member teams that form a company and take title to Projects in their company name. The team members usually have prior experience in real estate development, construction, finance or sales. For example, a common three-person team might include a real estate agent, general contractor and financier, each contributing their expertise to the team. The real estate agent might be tasked with identifying attractive Projects, making suggestions regarding what capital improvements should be made to the Projects and helping to market and sell the Projects. The contractor might be tasked with assessing the cost, complexity and time necessary to make the planned capital improvements to the Project and managing that construction process. The financier might be tasked with managing the lender relationships, equity investor relationships in the Project, if any, and handling all back office accounting.

Between 2009 and 2015, the Company did not pursue a formal marketing or advertising program to grow its base of Portfolio Borrowers. The growth in the number of Portfolio Borrowers came almost exclusively through word of mouth. However, beginning in 2016, the Company implemented a marketing and advertising plan, which has helped the Company identify qualified Portfolio Borrowers and advantageous lending opportunities in each geographic market.

It has been our experience that providing Portfolio Borrowers with exceptional service leads to business referrals, which we believe is the best form of marketing. In addition, because our Portfolio Borrowers are often repeat customers, the value of each Portfolio Borrower relationship is much higher than it would be if the Portfolio Borrowers were not repeat customers.

The following table provides information regarding borrower concentrations as of the dates indicated.

Loan Term. All of the Company’s loans are made with maturity dates of 12 months or less. However, it is the Company’s policy to provide borrowers, whose loans are not in default, with six-month loan extensions, as needed, to allow more time to finish projects. We believe the relatively short-term nature of these projects allows the Company and its Portfolio Borrowers to adjust quickly to changing market conditions.

The following table sets forth the distribution of loans by age at the dates indicated:

The loans over twelve months represent larger new construction projects, stabilized commercial projects, and two phase projects, which were excepted to take additional time to complete.

Loan Turnover. The following table provides information associated with the Company’s Portfolio Loan turnover for the periods shown:

Total loan origination and associated Portfolio Loan turnover increased gradually each year from 2013 through 2017 as the Company worked to balance a steady increase in capital formation with quality loan origination. During 2018, the number of loans originated decreased as the Company shifted its origination toward states with larger loan sizes. During 2019 and 2020, the number of loans originated increased as the Company grew its loan portfolio to balance with the issuance of additional Senior Notes.

Loan Size. The following table sets forth the distribution of loans by size (based on the unpaid principal balance) at the dates indicated:

The Company saw a modest increase in average and median loan sizes from 2017 through 2020, reflecting the Company’s shift toward west coast states, which have relatively higher priced real estate on average.

The Company’s objective is to make loans secured by real estate priced in the liquid segments of each geographic market. Therefore, the distribution of loan sizes between time periods largely reflects both changes in real estate prices over time and a mix shift between geographies. While the Company is sensitive to loan size diversification, it does not target a mix of loan sizes.

Portfolio Loan Criteria and Policies

Underwriting. The Company engages in the business of making loans secured by first lien deeds of trust or mortgages that encumber real estate located in the United States, its territories and possessions. The Company may also invest indirectly in a loan by acquiring an ownership interest in an entity formed for the sole purpose of holding a qualifying loan. The Company’s loans are not insured or guaranteed by any governmental agency or private entity.

For each Portfolio Borrower, the Company performs a criminal background check, orders a credit report, measures liquidity, interviews the borrower to assess experience level and evaluates the quality of previous work. The Company also requires each Portfolio Borrower to provide a construction cost budget, detailing the cost and scope of planned capital improvements, and a profit analysis, detailing the borrower’s estimated resale price, total project cost and estimated profit.

As an asset-based lender, the Company’s underwriting guidelines are heavily weighted toward real estate valuation, liquidity and loan-to-value (LTV) coverage. Specifically, the Company operates under the following underwriting guidelines:

The Company has the sole discretion whether to originate a mortgage loan at a given LTV. Some of the factors considered by the Company when determining the maximum LTV to be extended on a mortgage loan are:

In determining the value of real estate collateral for purposes of loan underwriting and LTV calculations, the Company inspects the properties and evaluates comparable property values in the area through the use of Multiple Listing Service (MLS) data. Based on this information, the Company prepares an estimate of the “after-repair value” of each property. The Company’s “after-repair” value estimates assume that all planned capital improvements to the real estate collateral have been completed and that the Company has disbursed all construction loan proceeds, and represents the Company’s estimate of the market value of the collateral after completion of the project based on information about comparable properties available at that time. In more complex transactions or for properties with limited comparable data, the Company may seek a formal valuation report such as an appraisal or broker price opinion. Appraisals are recognized in the mortgage banking industry to represent estimates of value, and should not be relied upon as the only measure of true worth or realizable value. Collateral value is determined solely in the judgment of the Company.

The Company believes that performing in-house real estate valuations provides it with a competitive advantage. By performing hundreds of in-house valuations per year in multiple geographies, the Company is able to continually refine its appraisal process and analyze real estate market trends within different geographies. This internal valuation analysis enables the Company to make faster and more informed lending decisions, which we believe help mitigate risk while providing Portfolio Borrowers with a higher quality of service.

There are no limitations on the types or locations of real estate investment loans within the United States or any requirement for current yield as opposed to overall return. Moreover, the Company’s investment strategy does not seek to balance the investment portfolio by property types, return characteristics or location, but the Company is sensitive to concentration risk. The Manager has the discretion to lend the Company’s assets on both new construction and existing properties.

The Company will not enter into any new commitment to make a loan where the cumulative principal amount of such loan would exceed 10% of the principal value of Portfolio Loans plus cash and cash equivalents of the Company as of the date of such commitment.

The Manager has discretion to amend the Portfolio Loan criteria and policies from time to time. Therefore, in essence, the investment objectives are those defined by the manager from time to time.

Disbursement of Loan Proceeds

Company loans are funded through an escrow account handled by the Manager or a qualified attorney, title insurance company or escrow company. The escrow agent is instructed not to disburse any funds until the following conditions are met:

Disbursement of Construction Draws

The Company disburses construction draws to Portfolio Borrowers to pay for planned capital improvements to the real estate collateral based on a pre-defined scope of work, construction budget and time schedule. To mitigate risk in this process, the Company follows certain policies and procedures that incorporate some or all of the following practices. However, it is important to point out that the Company evaluates the risks related to each project, considering such variables as borrower experience, and project location, size, timing and scope of work to determine the right combination of practices to follow.

Practices related to disbursement of construction draws include, but are not limited to, the following:

Loan Servicing

The Company’s loans are serviced by the Manager and the Manager is compensated for such loan servicing activities. See “Management Fees” on Page 52 of this Offering Circular.

We believe that the quality of service provided by the Company to Portfolio Borrowers is an important competitive differentiator in the private lending industry. For this reason, the Company chooses to originate, underwrite and service all of its loans in-house. In-house loan underwriting enables the Company to make fast, common sense lending decisions, which Portfolio Borrowers appreciate. For example, new borrower applications generally can be processed in 48 hours, loan proposals generally can be made in 24 hours and existing Portfolio Borrowers can receive funding in two to five days. In addition, because the Company does not require third party approvals to make loans, Portfolio Borrowers have confidence in the funding commitments made by the Company.

We also believe that in-house loan servicing is important for mitigating loan portfolio risk. Maintaining a close relationship with Portfolio Borrowers and servicing Portfolio Loans through every step of the loan life cycle allows the Company to quickly identify and address problem loans.

Loan servicing includes, but is not limited to, the following:

Loan Performance

We measure our performance through various metrics, including our net income, net margin, net interest rate spread, net interest margin, ratio of interest-earning assets to interest-bearing liabilities, non-performing loans to total loans, late fee and default interest from non-performing loans, charge-offs on non-performing loans, estimated active portfolio loan-to-value compared to actual paid-off portfolio loan-to-sale price, and interest coverage ratios.

The following selected ratios regarding the performance of our loans for the six month periods ended June 30, 2020 and June 30, 2019 and for the fiscal years ended December 31, 2019 and 2018. Historical performance is not necessarily an indicator of future performance, and we cannot guaranty that these ratios will be maintained into the future.

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(1) Unfunded loan balance is comprised of construction funds that have been approved but not yet disbursed.

(2) The Company prepares an estimate of the “after-repair” value of the collateral for each Portfolio Loan. The Company’s “after-repair” value estimate for each property assumes that all planned capital improvements to the real estate collateral have been completed and that the Company has disbursed all construction loan proceeds, and represents the Company’s estimate of the market value of the project after completion of all repairs based on information about comparable properties available at the time. See “Portfolio Loan Criteria and Policies – Underwriting” on Page 29 for additional details regarding estimation of “after-repair” value.

(3) Estimated “after-repair” loan-to-value is calculated by dividing the sum of the unpaid principal balance and the unfunded loan balance by the estimated “after-repair” value. Real estate values are based on the Company’s “after-repair” value estimates and loans are weighted by the principal balance of each loan.

(4) Actual loan-to-sale price represents the amount of the fully funded loan divided by the actual sale price of the real estate collateral. The principal balance of each loan was used to calculate the weighted average. Loans that were refinanced or secured by real estate collateral that was sold wholesale (prior to planned improvements being completed) to other investors were excluded from the calculation.

(5) Bank Borrowings have a first priority security interest in all of the Company’s assets, including Portfolio Loans. Interest coverage equals gross income divided by the interest expense related to Bank Borrowings.

(6) Senior Notes have a second priority interest in all of the Company’s assets, including its Portfolio Loans. Cumulative interest coverage of Senior Notes equals gross income divided by the total interest expense related to Senior Notes and Bank Borrowings combined. The Company began issuing Senior Notes on March 1, 2018.

(7) Junior Notes have a third priority security interest in all of the Company’s assets, including Portfolio Loans. Cumulative interest coverage of Junior Notes equals gross income divided by the total interest expense related to Junior Notes, Senior Notes and Bank Borrowings combined.

Non-Performing Loans and REO Assets. The following definitions are used when categorizing the Company’s Delinquent, Non-Performing, Non-Accruing, Impaired and Real Estate Owned assets:

The Company’s policy is to categorize a loan as both a Delinquent Loan and Non-Performing Loan and to begin the foreclosure process if the Company has not received payment from the borrower within 30 days of the due date. Industry standard is to categorize a loan as Delinquent for the first 90 days and then to categorize the loan as Non-Performing after 90 days. We believe that our more aggressive policy is appropriate given that our loans have shorter maturities relative to traditional loans. This policy enables the Company to get an earlier start on the foreclosure process should the loan continue to remain delinquent (the time to foreclose on a property can range from 75 to 180 days or longer if the borrower files bankruptcy). However, this more conservative policy does tend to generate more Non-Performing Loans that are ultimately cured.

When a loan becomes Non-Performing and the foreclosure process is initiated, accounting rules require the Company to continue to accrue interest monthly on the Non-Performing Loan, as long as the Manager believes in good faith that the net proceeds from the disposition of the collateral, through foreclosure sale or otherwise, will be sufficient to recover the principal, unpaid accrued interest and foreclosure fees due. In contrast, if the Manager, at any time, believes that the net proceeds from the disposition of the collateral may not be sufficient to recover the principal, unpaid accrued interest and foreclosure fees due, then accounting rules require the Manager to stop accruing interest on the loan. Only this type of loan will be classified as a Non-Accruing Loan. Finally, if for whatever reason, the net proceeds from the disposition of the collateral are estimated to be insufficient to pay the principal, unpaid accrued interest and foreclosure fees due, then the loan will be classified as an Impaired Loan. Accounting rules require that the shortfall related to an Impaired Loan be booked against the Company’s allowance for loan losses.

The Company anticipates that its provision-for-loan-losses accrual rate will fluctuate on a monthly basis between 0.0% and 1.0% annualized. However, due to macroeconomic risks related to the COVID-19 pandemic, the Company increased its provision for loan losses to an annualized rate greater than 1% during the six months ended June 30, 2020. These adjustments will increase or decrease distributable income to Equity Program investors, accordingly. However, the provision-for-loan-losses accrual rate and the associated allowance-for-loan-loss balance are subject to adjustments based on the rate of historical charge-offs and the Company’s assessment of near-term portfolio performance.

While the Company’s objective is to minimize the number of non-performing loans in its loan portfolio, on average non-performing loans and related REO properties have generated additional profits for the Company.

The Company provides further information about Delinquent, Non-Performing, Non-Accruing, Impaired and Real Estate Owned assets in the reports of quarterly financial results it provides to investors and files with the Securities and Exchange Commission.

Portfolio Roll Forward Analysis. The Company makes short term loans with maturities of 12 months or less. These Portfolio Loan payoffs provide a primary source of cash flow to the Company. To help analyze the velocity of this cash flow the Company performs a monthly loan portfolio roll forward analysis. This analysis evaluates the number of active loans and the principal balance of those loans at the beginning of each month, and the dollar volume of principal advances made and principal payment received by the Company during each month. With this information the Company is able to analyze historical monthly cash flows related to loan portfolio funding and payoffs, and calculate the number of days required for the loan portfolio to turn over or to pay off in full, assuming the Company stopped making new loans and the historical principal payment velocity remained constant.

The Company provides further information about its portfolio roll forward analysis in the quarterly financial results it provides to investors and files with the Securities and Exchange Commission.

Cash Utilization. The Company considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. Cash on deposit occasionally exceeds federally insured limits. The Company believes that it mitigates this risk by maintaining deposits with major financial institutions.

Average cash utilization during the six months ended June 30, 2020 and 2019 was 99.3% and 99.1%, which was similar to the high levels of average cash utilization achieved during the years ended 2019, 2018 and 2017 of 99.2%, 99.0% and 99.1%, respectively. The high level of average cash utilization reflects the Company’s use of a revolving line of credit provided by Bank Borrowings. The revolving line of credit is an important cash management tool, which allows the Company to fully utilize investor capital while managing the ebbs and flows of Portfolio Loan originations and payoffs. See “Bank Borrowings” Page 48 for additional details.

We generally maintain liquidity to make Portfolio Loans, pay monthly investor distributions and otherwise efficiently manage our long-term investment capital. Because the level of these borrowings can be adjusted on a daily basis, the level of cash and cash equivalents carried on the balance sheet is significantly less important than our potential liquidity available under our Portfolio Loan payoff schedule and revolving line of credit. We currently believe that the Company has sufficient liquidity and capital resources available to make additional Portfolio Loans, repay Senior Notes and Bank Borrowings, and make monthly cash distributions to investors.

The Company provides further information about these metrics in the quarterly financial results it provides to investors and files with the Securities and Exchange Commission.

Leveraging the Portfolio

The Company intends to continue to leverage its loan portfolio. The Company anticipates borrowing funds from bank lenders and the offer and sale of additional Senior Notes in order to fund additional mortgage loans. The aggregate amount of debt provided by the Company’s debt securities and Bank Borrowings may not exceed eighty percent (80%) of total assets (the “Maximum Debt Covenant”). See “Financial Statements” beginning on Page F-2 for information regarding debt and Bank Borrowings. In addition, under the Second Amended Operating Agreement, effective February 1, 2021, the Company is required to maintain Class A and Class B Units with unreturned capital contributions of a minimum of 20% of the total assets of the Company.

As of December 31, 2019, 2018 and 2017, the Company was in compliance with the Maximum Debt Covenant.

Sources of Income

While the Company’s revenues come primarily from monthly interest payments on Portfolio Loans, other sources of income include gains from asset sales, discount points, origination fees, late fees and recapture of loan amounts on discounted note purchases.

Monthly Interest Payments. The Company’s newly originated loans average an interest rate of 8% to 16%. Payments are typically interest-only, due monthly and paid in arrears.

Short Term Capital Gains or Losses. The Company may generate a profit or loss when the disposition value of a foreclosed property exceeds or falls short of the principal amount owed plus accrued interest. The disposition value is defined as the liquidation price minus costs specifically incurred due to the foreclosure process (e.g., legal fees, filing fees, reparation expenses).

Discount Points and Origination Fees. Discount points are pre-paid interest that Portfolio Borrowers purchase to lower the rate of interest the Portfolio Borrowers pay on subsequent monthly interest payments. These points are typically paid as a percentage of the loan’s value. The income generated from discount points range from 0% to 4% of the principal value of the loan. Similarly, origination fees are paid by the Portfolio Borrower at the time the loan is originated to cover the Company’s cost of originating the loan and can range from $0.00 to $2,000. All discount points and origination fees are paid directly to the Company and are accreted to income over the life of the loan.

Late Fees or Default Rate. The Company is entitled but not required to collect late fees if any installment is not received within five days of the due date. The borrower may be charged a late payment fee equal to five percent (5%) of the monthly installment. A similar fee is charged again if late by 10 days and again if late by 15 days. Any dishonored checks are treated as an unpaid installment and are subject to the same late payment penalties plus a $250.00 special handling fee. In the event any installment is past due more than 15 days, the interest rate on the note may be increased to 24% per annum and remain in effect until all defaults have been cured.

Analysis of Net Interest Income

Net interest income represents the difference between the income we earn on our interest-earning assets, such as Portfolio Loans and bank deposits, and the expense we pay on interest-bearing liabilities, such as private debt and Bank Borrowings. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on such assets and paid on such liabilities. This analysis allows the Company to determine its interest rate spread, net interest margin, and ratio of interest-earning assets to interest bearing liabilities.

The Company provides further information about its analysis of net interest income in the quarterly financial results it provides to investors and files with the Securities and Exchange Commission.

Analysis of Interest Coverage

The interest coverage ratio is the ratio of total income to interest expenses. Bank Borrowings have a first priority security interest in all of the Company’s assets, including Portfolio Loans. Therefore, interest coverage for Bank Borrowings equals gross income divided by the interest expense related to Bank Borrowings. Senior Notes have a second priority interest in all of the Company’s assets, including its Portfolio Loans. Therefore, cumulative interest coverage of Senior Notes equals gross income divided by the total interest expense related to Senior Notes and Bank Borrowings combined. The Company reports to investors on a quarterly basis the results of its interest coverage analysis, indicating the amount of income available each quarter to pay interest expense on Bank Borrowings and Senior Notes.

The Company provides further information about its analysis of interest coverage in the quarterly financial results it provides to investors and files with the Securities and Exchange Commission.

Portfolio Loan-to-Value and Asset Coverage

Portfolio Loan-to-Value based on “After-Repair” Value. The Company is an asset-based lender and its underwriting guidelines are heavily weighted toward real estate valuation, liquidity and loan-to-value coverage. In determining real estate collateral value, the Company inspects the properties and evaluates comparable property values in the area through the use of Multiple Listing Service (MLS) data. Based on this information, the Company prepares an estimate of the “after-repair” value for each property. The Company’s “after-repair” value estimates assume that all planned capital improvements to the real estate collateral have been completed and that the Company has disbursed all construction loan proceeds, and represents the Company’s estimate of the market value of the collateral after completion of the project based on information about comparable properties available at that time. In more complex transactions or for properties with limited comparable data, the Company may seek a formal valuation report such as an appraisal or broker price opinion. However, appraisals are recognized in the mortgage banking industry to represent estimates of value, but should not be relied upon as the only measure of true worth or realizable value. Collateral value is determined solely in the judgment of the Company. Please see “Portfolio Loan Criteria and Policies” on Page 29 for additional details regarding the Company’s loan underwriting methodology.

The Company believes that performing in-house real estate valuations provides it with a competitive advantage. By performing hundreds of in-house valuations per year in multiple geographies, the Company is able to continually refine its appraisal process and analyze real estate market trends within different geographies. This internal valuation analysis enables the Company to make faster and more informed lending decisions, which we believe help mitigate risk while providing Portfolio Borrowers with a higher quality of service.

“As-Is” Loan-to-Value and Asset Coverage Based on Percentage Completion. In order to provide an estimate of the “as-is” real estate collateral value at end of period, and to account for projects that are in process of construction or redevelopment, the Company uses a straight line percentage completion method to estimate the “as-is” real estate value. Specifically, the Company estimates the percentage completion of all real estate projects based on the percentage of construction funds disbursed as of a particular date and then multiplies this percentage completion by the total estimated value creation (estimated “after-repair” value of real estate minus purchase price) to determine the current value added through capital improvements. The current value added through capital improvements is then added to the original purchase price to calculate the “as-is” value of the real estate collateral as of a particular date. This estimated “as-is” value is then used to analyze the cumulative loan-to-value and real estate asset coverage of each investment program. It is important to note that the “as-is” loan-to-value and asset coverage ratios improve as the percentage completion increases.

The Company reports to investors on a quarterly basis the cumulative “as-is” loan-to-value and cumulative “as-is” asset coverage ratios for all investment programs, based on the estimated “as-is” valuation of real estate collateral. Cumulative loan-to-value is the value of the debt or equity investment plus any senior debt divided by the estimated “as-is” real estate collateral value. Cumulative asset coverage is the estimated “as-is” real estate collateral value divided by the debt or equity investment and any senior debt. The Company also reports to investors on a quarterly basis the results of its valuation methodology testing. These tests compare the actual loan to sale-price for those loans that paid off during a given quarter against the Company’s estimated valuation for those same properties at the time the loans were made. This quarterly analysis helps the Company to analyze and improve its in-house valuation methodology on an ongoing basis.

The Company provides further information about these metrics in the quarterly financial results it provides to investors and files with the Securities and Exchange Commission.

Purchase and Sale of Loans

The Company typically originates its mortgage loans. However, the Company may also purchase loans from unrelated third parties. Loans purchased by the Company must not be in default at the time of purchase and must otherwise satisfy the lending guidelines described above. Generally, the purchase price to the Company for any such loan will be the lesser of par value or fair market value. From inception (2009) through the effective date of this offering circular, the Company has not purchased a mortgage loan.

The Company does not presently invest in mortgage loans primarily for the purpose of reselling such loans in the ordinary course of business; however, the Company may sell mortgage loans or enter into inter-creditor agreements if the Manager determines that it is advantageous for the Company to do so based upon the current interest rates, the length of time that the loan has been held by the Company, and the overall investment objectives of the Company.

The Company makes mortgage loans for investment and does not expect to engage in real estate operations in the ordinary course of business, except as may be required if the Company forecloses on a property on which it has invested in a mortgage loan and takes over ownership and management of the property. The Company may sell non-performing Portfolio Loans or foreclosed property securing Portfolio Loans, or sell an interest in such collateral to an affiliate of the Company, for the purpose of restructuring the Portfolio Loan or repositioning the property for sale. From inception (2009) through the effective date of this offering circular, the Company has not sold a loan or a property to an affiliate of the Company.

None of the Company, its Manager, Managing Directors or affiliates is precluded from (i) selling a property to any Senior Noteholder or Equity Program investor in the Company in connection with a foreclosure, including with purchase financing, or (ii) making a loan to, purchasing a loan from or entering into a loan or co-lending transaction or activity with any Senior Noteholder or Equity Program investor in the Company, provided that any transaction meets our contractual obligations under our agreements related to the Senior Notes or any other contractual or legal obligations. From inception (2009) through the effective date of this offering circular, the Company has not completed such a transaction.

Legal Proceedings

The Company is not subject to any legal proceedings that are material to its business or financial condition.

Competition

The real estate market is competitive and rapidly changing. We expect competition to persist and intensify in the future, which could harm our ability to identify suitable Portfolio Loans. The business in which the Company is engaged is highly competitive, and the Company and Manager and its affiliates compete with numerous other established entities, including banks and credit unions. The Company and Manager also expect to encounter significant competition from other market participants including private lenders, private equity fund managers, real estate developers, pension funds, real estate investment trusts, other private parties, potential investors or homeowners, and other people or entities with objectives similar in whole or in part to those of the Company. Competition could result in reduced volumes, reduced fees or the failure of the Company to achieve or maintain more widespread market acceptance, any of which could harm the Company’s business. Most of our current or potential competitors have significantly more financial, technical, marketing and other resources than the Company, and may be able to devote greater resources to the development, promotion, sale and support of their platforms and distribution channels. The Company’s potential competitors may also have longer operating histories, or extensive customer bases, greater brand recognition and broader customer relationships than we have.

The Company has historically been able to earn Portfolio Loan yields above the industry average by providing superior service to its Portfolio Borrowers and by opportunistically expanding its loan origination in those markets that offer the best return per unit of risk. However, we anticipate that our portfolio yields will continue to decline over time as we adjust our loan programs to remain price competitive. In order to remain competitive long-term the Company must continue to provide its borrowers with a superior quality of service and lower its cost of capital in order to provide borrowers with more competitively priced loans.

Governmental Regulation

Investment Company Act. An investment company is defined under the Investment Company Act to include any issuer engaged primarily in the business of investing, reinvesting, or trading in securities. Absent an exemption, investment companies are required to register as such with the SEC and to comply with various governance and operational requirements. We intend to structure the operation of the Company so as not to subject the Company to the provisions of the Investment Company Act. In particular, the Company expects to rely on, among other things, the exemption from registration afforded by compliance with Section 3(c)(5) of the Investment Company Act. Section 3(c)(5) excludes from the definition of “investment company” issuers of non-redeemable securities primarily engaged in “purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” The Manager has not sought a no-action letter from the SEC to confirm that the Company is eligible for this exemption. However, the Manager will rely on guidance issued by the SEC stating that so long as (1) qualifying percentages of the Company’s assets consist of mortgages and other liens on or interests in real estate; and (2) the remaining percentage of the Company’s assets consist primarily of real estate-related assets, the Company will remain exempt from the Investment Company Act registration requirements. If we were considered an “investment company” within the meaning of the Investment Company Act, we would be subject to numerous requirements and restrictions relating to our structure and operation.

Lending Regulations. The Company is a lender with respect to its Portfolio Loans, and the Company will be deemed a borrower and the Senior Noteholders deemed lenders with respect to the Senior Notes. Oregon and other states have numerous laws and regulations, which apply to the activities of lenders and the rights of borrowers. The applicability of these laws and regulations, and their exemptions and exclusions, are frequently complex and highly fact-centric, and they vary by jurisdiction and are subject to change. In addition, litigation in a number of states has imposed liability upon lenders, or otherwise adversely impacted lenders, in a manner that Senior Noteholders may not be accustomed to as a result of other investment activities. For example, a number of states have adopted usury laws, which generally prohibit the charging of interest in certain circumstances in excess of a statutorily defined rate. The Company relies on qualified advisors and uses commercially reasonable efforts to comply with laws and regulations applying to lenders and borrowers, and seeks exemptions and exclusions as advisable from such laws where appropriate to meet the investment objectives of the Company and this offering.

In addition, the Company makes its Portfolio Loans pursuant to state finance lender licensing exceptions for commercial loans. However, the Company or the Manager may obtain a finance lender’s license in specific states or retain the services of third parties to comply with such licensing, should it be deemed advisable. The Company relies on qualified advisors and uses commercially reasonable efforts to comply with laws and regulations applying to lenders and borrowers, and seeks exemptions and exclusions as advisable from such laws where appropriate to meet the investment objectives of the Company and this offering. The Company believes that such efforts are sufficient to avoid issues of noncompliance. However, investors should be aware that, under certain circumstances, a failure to comply with applicable regulations by the Company or a Senior Noteholder could result in civil or criminal penalties.

Lender Liability. As an additional consideration, legal decisions in many jurisdictions have imposed liability upon lenders for actions such as declaring defaults with respect to loans and refusing to meet company loan commitments under certain circumstances. In addition, some courts have permitted litigants to pursue claims against lenders for environmental torts of a borrower and other liability as a result of their association with the borrower. Such so-called “lender liability” is a developing and uncertain area of the law, and there can be no assurance that such a claim could not be brought against the Company or, by extension, an investor. In addition, in some cases, courts have re-characterized loans or debt securities as equity instruments, such that lenders or debt security holders have been subject to “equitable subordination” and thus not entitled to the preferred status of a creditor in a bankruptcy or other adversarial proceeding. Such decisions have been highly fact specific, and there can be no assurance that a court would not follow a similar approach with respect to the Senior Noteholders’ loans to the Company, or the Company’s loans to its Portfolio Borrowers. Investors are encouraged to consult with their legal counsel regarding the lender-related issues discussed above.

Environmental Regulations. Federal, state and local laws and regulations impose environmental controls, disclosure rules and zoning restrictions that directly impact the management, development, use, or sale of real estate. Such laws and regulations tend to discourage sales and lending activities with respect to some properties, and may therefore adversely affect us specifically, and the real estate industry in general. The Company’s failure to uncover and adequately protect against environmental issues in connection with a Project investment may subject us to liability. Environmental laws and regulations impose liability on current or previous real property owners or operators for the cost of investigation, cleaning up or removing contamination caused by hazardous or toxic substances at the property. Liability can be imposed even if the original actions were legal and the owner had no knowledge of, or was not responsible for, the presence of the hazardous or toxic substances. Such liabilities may interfere with the Company’s ability to realize on its lending activities.

Property

The Manager leases office space for its principal executive offices in Portland, Oregon pursuant to a multi-year lease. We believe that these facilities are adequate for our current operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the Company’s results of operation, financial condition, and liquidity.

Overview

We are a private lender formed in 2009 as an Oregon limited liability company. The Company makes commercial purpose loans by lending funds to real estate investors to finance the ownership, entitlement, development and redevelopment of residential and commercial real estate throughout the United States. We generate most of our revenue from interest on loans and loan fees. Our loan portfolio consists of a mix of single-family and multi-family redevelopment and new construction projects. Our primary source of funding is private equity, private debt and Bank Borrowings. Our largest expenses are management fees paid to the Manager, Iron Bridge Management Group LLC, and interest paid on private debt and Bank Borrowings.

The following selected financial data as of and for the six month periods ended June 30, 2020 and June 30, 2019 is derived from unaudited financial statements of the Company and should be read in in conjunction with the Company’s unaudited financial statements and the notes thereto as of and for the periods ending June 30, 2020 and 2019 included in this Offering Circular beginning on Page F-1. The following selected financial data as of and for the fiscal years ended December 31, 2019 and 2018 is derived from audited financial statements of the Company and should be read in conjunction with such financial statements and notes which are included in this Offering Circular beginning on Page F-5.

Effects of COVID-19 on business model and portfolio performance

Through December 31, 2020, the Company experienced no material financial impact from the COVID-19 pandemic and related stay-at-home orders. The Company remains hyper-focused on monitoring its borrowers, improvement loan draws, and the health of the underlying real estate sub-markets it serves. Our Portfolio Borrowers have continued to successfully buy, fix and sell properties despite the over 40% year over year decline in pending home sales following the April 2020 COVID-19 stay-at-home orders. Our observation during April and early May of 2020 was that the decline in buyer demand due to stay-at-home orders was more than offset by a decline in the number of homeowners willing to list their homes for sale due to their reluctance to have strangers enter their homes for showings. While this did lead to a significant decline in overall residential real estate transaction volume, our Portfolio Borrowers do not occupy their properties and generally had few problems securing buyers and selling their projects consistent with anticipated timelines. However, during late May and June 2020 demand for residential real estate rebounded significantly, approaching pre-pandemic levels, while the supply of homes for sale remained low as many homeowners were hesitant to list their homes for sale. From July through December 2020, the supply of homes for sale has remained low while demand for housing has increased significantly, resulting in increasing home prices. A market environment that has generally benefited our Portfolio Borrowers.

It is also important to point out that the residential real estate market entered the pandemic with strong demand, very low inventory and generally conservative bank lending standards, a sharp contrast to the real estate bubble that existed prior to the great recession of 2008. In addition, the government has deployed many policy tools developed during the great recession that are designed to avoid a massive supply of foreclosures that could depress housing prices and lead to a financial/banking crisis. For example, all government backed mortgages currently allow borrowers to avoid foreclosure for up to 12 months through forbearance. Similarly, many states and counties have implemented legislation or executive orders to delay foreclosure activity on non-government backed mortgages. While these foreclosure restrictions could affect the Company’s ability to foreclose on some of its Portfolio Loans under certain conditions, the Company has mitigated this risk by requiring interest reserves on almost all of its loans since mid-April 2020.

While the Company has not experienced an increase in delinquent loans so far, the Company is prepared to manage those situations individually. In an abundance of caution, the Company has taken the following actions to mitigate future risks, until the Company has determined the risks associated with the COVID-19 crisis have sufficiently dissipated: (1) new loans require borrowers to pre-pay interest; (2) new loans are being made at lower loan-to-value ratios; (3) the Company continues lending to only the highest quality borrowers; (4) the Company continues to focus its lending in non-judicial states, which it believes to be less risky than judicial states; and (5) the Company only lends on lower risk projects (less complex scope of work, existing occupancy permits, resale prices in the liquid segments of each real estate sub-market).

Due to the complex nature of the impact of COVID-19 on the economy, it is difficult to predict future impacts, though we believe the structure of our business remains solid. Please see the Company’s most recent quarterly or annual results for any additional updates.

Recapitalization

As of January 31, 2021, the Company had one class of equity, and in addition to the Bank Borrowings, two forms of debt outstanding: the Junior Notes and the Senior Notes.

Effective February 1, 2021, the Company adopted a Second Amended and Restated Operating Agreement, which among other changes, created four classes of membership interests consisting of Class A, Class B, Class C and Class D Units (collectively “Units”):

The Company may unilaterally redeem the Unit, and any member has the right to require the redemption of their Units, subject to certain limitations, including that the Company is prohibited from redeeming any Class A Units or Class B Units when the unreturned capital contributions of the Class A Units and Class B Units on an aggregate basis equal less than 20% of the total assets of the Company.

References herein to the Junior Notes refer to the historical Junior Notes, and effective February 1, 2021, no Junior Notes remain outstanding.

Critical Accounting Policies and Accounting Estimates

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and which could potentially result in materially different results under different assumptions and conditions. The Company believes that the most critical accounting policies upon which its financial condition depends, and which involve the most complex or subjective decisions or assessments, are set forth below.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to expense, which affects our earnings directly. Loans are charged against the allowance for loan losses when the Company believes that the collectability of all or some of the principal is unlikely. Subsequent recoveries are added to the allowance. The allowance is an amount that reflects the Company’s estimate of the level of probable incurred losses in the loan portfolio. Factors considered by the Company in determining the adequacy of the allowance include, but are not limited to, detailed reviews of individual loans, historical and current trends in loan charge-offs for the various portfolio segments evaluated, the level of the allowance in relation to total loans and to historical loss levels, levels and trends in non-performing and past due loans, external factors including regulatory, competition, and the Company’s assessment of economic conditions.

The provision for loan losses is the charge to operating earnings necessary to maintain an adequate allowance for loan losses. We have developed policies and procedures for evaluating the overall quality of our loan portfolio and the timely identification of problem loans. The Company continuously reviews these policies and procedures and makes further improvements as needed. However, the Company’s methodology may not accurately estimate inherent loss or external factors and changing economic conditions may impact the loan portfolio and the level of reserves in ways currently unforeseen.

Due to macroeconomic risks related to the COVID-19 pandemic, the Company’s expects to accrue a provision for loan losses at a rate higher than the historical rate of 0% and 1.0% annualized. See “Comparison of Financial Condition at June 30, 2020 and 2019 and at December 31, 2019, 2018 and 2017 – Non-Performing Loans and REO Assets” on Page 34 for additional disclosures.

REO and Foreclosed Assets. Assets acquired through or in lieu of loan foreclosure are initially recorded at lower of cost or fair value less estimated costs to sell, establishing a new cost basis. Subsequent to foreclosure, valuations are performed annually and the assets are carried at the lower of carrying amount or fair value less estimated costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in other non-interest income or expense. Costs related to the development and improvement of REO assets are capitalized.

Due to the subjective nature of establishing the asset’s fair value when it is acquired, the actual fair value of the REO or foreclosed asset could differ from the original estimate. If it is determined that fair value declines subsequent to foreclosure, a valuation allowance is recorded through non-interest expense. Gains and losses on the disposition of REO and foreclosed assets are netted and posted to other non-interest income or expenses. See “Comparison of Financial Condition at June 30, 2020 and 2019, and at December 31, 2019, 2018 and 2017 – Non-Performing Loans and REO Assets” on Page 34 for additional disclosures.

Fair Value of Mortgage Loans Receivable. The Company has the intent and ability to hold its mortgage loans to maturity. Therefore, mortgage loans are stated at their outstanding unpaid principal balance with interest thereon being accrued as earned. Mortgage loans receivable make up the only class of financing receivables within the Company’s lending portfolio.

If the probable ultimate recovery of the carrying amount of a loan, with due consideration for the fair value of collateral, is less than amounts due according to the contractual terms of the loan agreement and the shortfall in the amounts due are not insignificant, the carrying amount of the loan will be reduced to the present value of estimated future cash flows discounted at the loan’s effective interest rate. If a loan is collateral-dependent, it is valued at the estimated fair value of the related collateral. If events and or changes in circumstances cause the Company to have serious doubts about the further collectability of the contractual payments, a loan may be categorized as impaired and interest is no longer accrued. Any subsequent payments on impaired loans are applied to reduce the outstanding loan balances including accrued interest and advances. See “Comparison of Financial Condition at June 30, 2020 and 2019, and at December 31, 2019, 2018 and 2017 – Non-Performing Loans and REO Assets” on Page 34 for additional disclosures.

Deferred Loan Origination Fees. The Company will capitalize loan origination fees and recognize the fees as an adjustment of the yield on the related loan. Deferred loan origination fees are accreted to income over the life of the loan under the effective interest method.

The Company offers its borrowers loan options with a combination of low origination fees and high interest rates or loans with high origination fees and low interest rates. While the yield earned by the Company on these loan options is similar, changes in the percentage of Portfolio Loans with high origination fees can affect the amount of interest income derived from deferred loan origination fees.

Income Taxes. The Company is a limited liability company for federal and state income tax purposes. Under the laws pertaining to income taxation of limited liability companies, the Company as an entity pays no federal income tax. Accordingly, no provision for income taxes besides the minimum state franchise taxes and the LLC gross receipts fees are reflected in the Company’s financial statements. The Company has evaluated its current tax positions and has concluded that as of December 31, 2019 and as of June 30, 2020, the Company does not have any significant uncertain tax positions for which a reserve would be necessary.

Comparison of Operating Results for the Six Months Ended June 30, 2020 and 2019

Net Income, Net Margin and Net Interest Rate Spread. Net income was $1,149,088 for the six months ended June 30, 2020, compared to $1,204,399 for the six months ended June 30, 2019, a decrease of $55,311 or 4.6%.