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Due diligence fees?

    • 1 posts
    July 19, 2012 5:55 PM EDT

    My experience was that due diligence fees were always charged, but with a debt investor, the client paid pre-funding. With a private equity investor, the fees were added to the funds requested and paid after funding. In both cases, the due diligence fee budget was presented to the client in advance of a term sheet.

     

    Is this a standard practice or are there many variations for payment of these fees?

    • 1 posts
    June 13, 2012 9:54 AM EDT

    @doubleday

     

    The due diligence process is a necessary and wise business practice.  RobertJ stated that generally professional lenders do not ask for a fee at the beginning.  With this I agree, however most all professional investors will require a due diligence fee PRIOR to funding the venture.  "Upfront fees" are generally used to refer to a fee rendered before any service is given.  There are firms that will charge you an "upfront fee" that is paid to them, whether or not you are approved for a loan.  This is an unscrupulous practice. 

    Most professional firms will submit your application, review it, and if there is interest, the lender will contact you for an interview.  It is then that should receive a Letter of Interest (LOI).  You should also request a POF (proof of funds) prior to paying the due diligence fee.  After both parties have agreed to move forward, the borrower will be responsible for due diligence fees.  This ensures that the lender is not wasting money on projects that have been misrepresented by borrowers.  

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    • 39 posts
    July 22, 2012 3:55 PM EDT

    Sounds suspicious, tell them to take the 'fee' out of the money they invest before they deposit it into your bank :P

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    • 2 posts
    July 25, 2012 8:05 PM EDT

    I agree with Menappi. No kidding, up front fee before they give you money. SCAM!

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    • 927 posts
    April 9, 2009 6:02 AM EDT
    Doubleday,
     
    There are a lot of people "out there" who position themselves as "investors" when actually they are finders, brokers and other types of "middle-men". This group almost always asks for a "due diligence fee".
     
    Venture Capital firms usually identify their portfolio companies. There are often some exceptions and limitations - but you can usually get enough info to do a check on them.
     
    Professional Angels may be a bit less forthcoming - but will at least tell you the types of situations they have previously invested in.
     
    Generally, these folks don`t solicit you and ask for a fee at the beginning.
     
    You can contact me directly if you want to discuss the specific details of your situation.
    robertj4/9/2009 10:59 AM

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    • 4 posts
    April 9, 2009 5:38 AM EDT
          I have recently been contacted by a potential investor for a start-up. They are requesting $2500.00 "due diligence fee", is this common practice for this sort of process? Also, is it common practice to not disclose referrals as an investor, or is this considered confidential information?