How long has The Loan Company of San Diego been in existence?

The Partnership has been in existence since 1974.

What is the track record of The Loan Company of San Diego?

The Partnership targets a return of 4% over the 10-Year Treasury Rate, which typically equates to a 7% return with a two percent variance. Historical returns will be provided to Qualified Investors upon request. Historical returns are not a guarantee of future returns.

Are the Principals also investors?

The shareholders of Corporate GP and their families are significant investors in the Partnership, giving them a vested interest in the Partnership’s success and longevity.

Is the Partnership audited?

The Partnership has had an annual Independent Auditors’ Report since the year ending December 31, 2002. The Independent Auditors’ Report is available to Qualified Investors.

What is the Partnership’s banking relationship?

The Partnership’s primary banking relationship is with Pacific Premiere Bank. The bank requires independent appraisals for all properties securing loans pledged to the bank as collateral for the Line of Credit. The Partnership has a secondary relationship with Enterprise Bank and Trust.

Are there any defaults, delinquencies, or deferrals of income and is there an Aging Report for receivables?

A Delinquency and Aging Report is available upon request to Qualified Investors.

Does the Partnership have a Reserve for Bad Loans?

The Partnership maintains an Allowance for Credit Losses in the approximate amount of 3% of Partnership receivables.

Does the Partnership have an Advisory Committee?

The Partnership Agreement provides for the appointment of an Advisory Committee. The Limited Partners Committee was formed January 1, 1989 and meets quarterly with the General Partner. The Committee consists of 3 to 7 members, each of whom has a significant investment in the Partnership.

Corporate GP is the Partnership’s General Partner. Corporate GP performs the functions of the General Partner through its Directors, elected by its shareholders. Corporate GP’s Directors are: Steven B. Dillaway, Ed Mateer and Michelle McGuire Richardson. Corporate GP’s Officers are: Michelle McGuire Richardson, as Chief Executive Officer, and Laurie Dunlop, as Secretary/Treasurer. All Directors and Officers are a matter of public record. Please see Corporate GP’s Statement of Information filed annually with the California Secretary of State.

Steven B. Dillaway was the Partnership’s sole General Partner until September 2000, when the Partnership was amended and restated. Along with other substantive changes, the Partnership’s name was changed to The Loan Company of San Diego and the General Partner’s interest in the Partnership was restructured. The GP’s share of net profits remained the same, but was divided between Steven B. Dillaway, an individual, and The Loan Company, a California Corporation. The Loan Company, a California Corporation changed its name to Corporate GP in May 2005.

Several amendments were made to the Partnership Agreement on May 1, 2006. Article 2.05 (c) provided that Steven B. Dillaway’s 5% General Partner profit interest would be converted to a Preferred Limited Partner interest, also known as Founder’s interest, upon his dissociation (i.e., death, retirement, or incapacity).

Steve retired from operations January 1, 2014; he retired as President of Corporate GP January 1, 2016; he retired as the individual General Partner November, 15, 2023.

As a Preferred Limited Partner, Steve shares in the profits and losses of the Partnership equal to 5%, with voting rights equivalent to a capital account consisting of 5% of Partnership capital. He remains one of the Directors of Corporate GP and is the Limited Partner with the largest investment.

Michelle McGuire Richardson, as President of the Partnership and CEO of Corporate GP, is at the helm of Partnership management. She is a southern California native who has lived and worked in San Diego since 1986.

Michelle is a professional risk manager with 30+ years of banking, lending, and operations experience. She has provided oversight for multiple nationwide teams as a high-level executive, with significant tenure at financial institutions such as U.S. Bank, Union Bank, and Wells Fargo.

Michelle is accomplished in growing, optimizing, and transforming lending businesses. She is adept at aligning team members with their areas of strength, and empowering them to leverage existing technologies more effectively, to develop solutions, and to create memorable customer experiences.

Michelle holds an active NMLS License and a Lean Six Sigma Green Belt Certification (for process improvement).

Laurie Dunlop is the Chief Financial Officer of the Partnership. She graduated magna cum laude from Northern Arizona University with a BS in Accounting, became a Certified Public Accountant in 1996, and has accumulated over 28 years’ experience in auditing, finance, accounting, and real estate. She holds a California Real Estate Broker’s license and has owned multiple personal investment properties in Arizona and Southern California.

Laurie started with the Partnership in 2000 when capital was less than $10M, serving as CFO and having a broad managerial role. In 2018, she returned to Arizona to care for family, while remaining a Limited Partner and continuing occasional CPA services. Laurie returned to San Diego in 2024 to rejoin The Loan Company of San Diego as CFO.

Laurie has a strong entrepreneurial spirit. She has been a small business owner, which includes a CPA firm with a concentrated real estate clientele. Her passion is private equity growth, assisting investors to grow their retirement funds and achieve their dreams.

Chris Richardson is Chief Technology Officer of the Partnership. He is an expert in his field with more than 25 years’ experience in computer technology, security, and network administration. His certifications include CCNA, CCNE, and MSCE.

Chris began his technology career working for Wells Fargo in the Home Equity division, where he managed the bank’s enterprise network of over 40 servers and 600 end-users in a mortgage banking environment.

In 2007, Chris left the bank and started his own technology firm called Flexible Networking, bringing his skills to medium-sized companies in the San Diego area. This is when Chris’ relationship with The Loan Company of San Diego began, and ever since he has been an integral part of the Partnership’s development processes, including in-network security, new production software, and information infrastructure.

Chris’ technology expertise, combined with his historical knowledge of The Loan Company of San Diego and his long relationship with the team, are an invaluable contribution to daily operations and future growth.

Shares in Corporate GP are earmarked for Management Stock Options.

The Partnership’s General Partner has gone to great lengths to eliminate conflicts of interest. This starts in the Partnership Agreement, which provides that the General Partner’s compensation is based solely on NET income and loss.

• The General Partner receives no guaranteed or fixed income.
• The General Partner receives 5% of the Partnership’s NET income and loss. This share is non-cumulative and paid monthly as earned. The General Partner receives no guaranteed income or fees. This means that 5% of any expense or loss of the Partnership is borne by the General Partner.
• The Founder’s interest is also based on 5% of NET income and loss and accordingly shares 5% of any expense or loss incurred by the Partnership.
• The shareholders of Corporate GP are Limited Partners, as well. The shareholders and the Founder, Steven B. Dillaway, share pro rata any expense or loss with other Limited Partners.
• Except for office rent, no Partnership activity is contracted or outsourced to any entity in which an Officer or Principal — or person or entity related to an Officer or Principal — has an economic or personal interest.
• Points paid by borrowers are paid to the Partnership.
• All employee compensation is at the discretion of the General Partner with input provided on Officers’ compensation by the Limited Partners Committee’s Sub-Committee for Compensation.

What is Liquidity?

There is widespread confusion about liquidity. Part of the problem is that the term liquidity is used interchangeably with marketability, when in fact the two terms are distinctly different. Marketability is the ability of an asset to be readily bought and sold; liquidity implies that the value of the asset is preserved.

Marketability is defined by a timeline beginning with the decision to sell and ending when the asset is converted to cash. Before any asset can be converted to cash, an acceptable price must be communicated to a buyer willing to pay that price or vice versa: a willing buyer must communicate an acceptable purchase price to a willing seller. The prospective seller and buyer locate one another in the marketplace. For example, owners and buyers of stocks and bonds find one another at one of the various exchanges.

This is where people get the most confused. Neither a shorter time line nor an exchange makes an asset liquid; a shorter time line or an exchange simply assist the asset’s marketability. Further, what makes an asset marketable is a function of perception: the asset’s perceived ability to generate consistent or increasing earnings (e.g., manufacturing and selling an increasing number of widgets); the asset’s perceived beauty (e.g., art or jewelry); or the asset’s perceived ability to increase in value over time (e.g., crops or land in path of development).

What makes an asset liquid is its real ability to hold value against inflation or
deflation.

For nearly fifty years, The Loan Company of San Diego has held value against inflation and deflation. Limited partnership interests are perceived as illiquid, as are many other asset classes, like a personal residence, commercial real estate, a farm, or artwork. Stock interests, by comparison, are perceived as liquid. In our opinion, when a limited partnership provides for and makes a practice of re-acquiring partners’ interests, those partnership interests are extraordinarily liquid!

Can I withdraw some or all of my income?

A Partner’s income accrues unless he or she elects to have income paid on a quarterly basis. A Partner’s current year’s income, not withdrawn by year end, is rolled over into his or her capital account on the first day of the following year and treated as a capital investment.

Can I withdraw some or all of my capital investment?

The Partnership Agreement requires the General Partner to publish terms and conditions for withdrawal of capital. Similar to a bank CD, Partners withdrawing capital within three years of the capital’s contribution will forfeit a 6% withdrawal fee on the capital withdrawn. After three years, Partners may withdraw capital at quarter-end with forty-five days written notice to the Partnership without a withdrawal fee.

Article 3.06(a) of The Partnership Agreement requires the General Partner to protect the integrity and liquidity requirements of the Partnership. There can never be a guarantee, therefore, that the Partnership will be able to partially or fully pay a Partner who requests a withdrawal of capital.

In the unusual circumstances of the 2007-2009 Recession, the General Partner temporarily suspended capital (not income) withdrawals for the quarter ending March 31, 2009. In subsequent quarters through the quarter ending December 31, 2010, Partners withdrew capital subject to a 6% withdrawal fee. All Partner’s requests were fully satisfied. The General Partner removed this temporary withdrawal fee beginning the first quarter of 2011.

Similarly, at the outset of Covid-19 in May 2020, the General Partner put restrictions on the withdrawal of capital (not income) in place. The restrictions were modified during the course of Covid-19 and eventually returned to the pre-Covid restrictions.

Again, due to an unusual set of circumstances beginning the quarter ending March 31, 2024, the General Partner restricted capital withdrawals to partial withdrawals to ensure the Partnership could readily meet its commitments to borrowers.

What can I do if the Partnership is unable to return my investment?

As with any asset a person owns — like stocks, bonds, or real estate — a Limited Partner is free to sell all or part of his or her account at any time to an existing Partner or a third party on terms and conditions acceptable to the parties involved.

In anticipation that a Limited Partner may desire to sell all or part of his or her account, the Partnership Agreement provides at Article 2.08 for a Right of First Refusal, first to the Partnership and then to Limited Partners with a ten (10) day notice requirement. Article 2.07 provides that Admission of Substituted Limited Partner requires the consent of the General Partner and Article 7.01(k) provides that a fee may be charged.

In March 2010, the Partnership adopted a simplified method of transferring interests between Partners or third parties, referred to as the generic Notice of Right of First Refusal. So long as the terms of the generic Notice are satisfied, no additional Notice is required.

What if I have an emergency?

Quite simply, an investment in The Loan Company of San Diego should not be earmarked as a source to meet emergencies. Nor is The Loan Company of San Diego a bank for depositing cash. An investment in The Loan Company of San Diego is a long-term investment for fixed income.

You must be an Accredited Investor to invest in The Loan Company of San Diego. Before investing in The Loan Company of San Diego, carefully consider whether it meets your long-term goals.

Approximately 90% of the Partnership’s loans are adjusted semi-annually to a proprietary index based on the 10-Year Treasury Rate.

All of the Partnership’s Adjusted Rate Mortgage loans have a floor below which the interest rate will not be adjusted.

The Partnership’s loan portfolio is constantly being refreshed. The overwhelming majority of the Partnership’s loans have been written with a balloon date of five years or less. Accordingly, on average, 20% of the portfolio will be paid-off or rewritten every year reflecting the then prevailing economic conditions.

New capital and accrued earnings are loaned out reflecting the then prevailing economic conditions.

The Partnership has a written Loan Policy that establishes standards for the loan underwriters in underwriting and for the Limited Partners Committee in review.

• The Partnership does not make subprime loans. The Partnership requires borrowers to have equity in the property securing the loan.
• The Partnership has an internal standard requiring that over 85% of the Partnership’s loans are First Trust Deeds.
• Recognizing that in some circumstances junior trust deeds may be beneficial to both the Partnership and the borrower, the Partnership has an internal standard allowing junior trust deeds so long as the total of all junior trust deeds does not exceed 15% of Partnership capital.
• All of the Partnership’s loans are real estate secured. On the whole, the Partnership lends only on properties improved with Commercial, Mixed Use, Multi-Family Apartments, investor-owned Single-Family Residences, and Construction. The Partnership can make loans secured by owner-occupied Single-Family Residences or Unimproved Land but rarely has.
• Our Loan-to-Value Ratios on new loans are generally between 65-75% of the current market value of the property securing the loan. Often loans at or near the 75% LTV Ratio will be cross-collateralized with additional security.
• Our Income-to-Debt Service Coverage Ratios are generally not less than 1:1. Loans at or near the 1:1 ratio often will be cross-collateralized and other sources of servicing the debt will be in place.

The Partnership’s precautions for a depression include those put in place for recession. The Partnership’s business plan was totally revised after the huge one-day decline of the Stock Market in October 1987. Steve Dillaway asked himself, “How would I want my assets deployed if there were to be another depression?” The answer was to be holding well-underwritten First Trust Deeds.

Over the next three years, with the consent of the Limited Partners Committee, the portfolio was converted to primarily First Trust Deeds. The Partnership rode through the significant decline in property values in the early 1990s without any principal losses to the Partners and maintained average annual yields exceeding 8%.

Partners incurred no losses to principal in the 2007-2009 Recession. Partners making no additions or withdrawals of capital realized returns of 8.10%, 6.57%, and 6.44% for 2008, 2009 and 2010, respectively. Actual loan losses incurred during this period were charged against the Allowance for Credit Losses that had been established in prior years for just such an occurrence.

In a worst-case scenario, the Partnership would acquire the properties securing its loans, subject only to real property taxes, and this can be adjusted down by application to the County Assessor. Deliberately positioning itself in First Trust Deeds with LTV Ratios of approximately 65-75% and Debt Service Ratios of not less than 1:1 gives the Partnership room to experience a drop in property values and net operating income before we are affected.

If we were required to foreclose and become the property owner, we would be well-positioned to manage the property and would receive rental income in place of interest income. Rental incomes across the market place would be severely depressed, but owning the properties outright would maximize our options. Our overall rental income may be less than our previous interest income; however, the prices of other goods and services (for example the cost of bread) should also be equally depressed. It could be anticipated that as Limited Partners we would be more financially sound during and after a depression than before.

In a severe recession or depression scenario, the General Partner is empowered to restrict the withdrawal of capital to protect the integrity and liquidity requirements of the Partnership. See Partnership Agreement Article 3.06(a).

The Partnership’s Line of Credit is renewable annually. However, so long as the Partnership is not in default, the LOC cannot be called. If the bank declines to renew the LOC, the remaining balance will be amortized over a fifteen-year period, all due in two years. This means the bank cannot put us in an illiquid position.

The Partnership does not borrow to arbitrage. Arbitrage is the practice of taking advantage of a price differential between two or more markets. In our case, that would mean borrowing for the purpose of making loans at a higher interest rate to take advantage of the rate differential.

In appropriate circumstances, arbitrage is a legitimate business practice. However, due to the increased risk arbitrage introduces, we feel it is not in alignment with The Loan Company of San Diego’s Mission Statement.

The Partnership does, however, utilize a Line of Credit for the purpose of cash management, which in turn increases our yield. The Partnership LOC is like a savings account in reverse: it is a reserve account used to fund loans, pay expenses, and pay income and capital withdrawals.

The Partnership cash flow is significant but unpredictable. Our monthly income from payments is predictable, but loan pay-offs and new investor capital are not. Cash is an unproductive asset. Therefore, by being slightly leveraged at all times, the Partnership profits from the old axiom “a penny saved is a penny earned.” The Partnership targets borrowing approximately 10% of its capital with zero in cash.