This is a review copy. Nothing has been sent to the bank. A draft reply to Tony Tran is sitting in Drafts (Finance > Legal > Drafts), addressed to [email protected], cc Candy Yee, from [email protected] displayed as "Kelvin Yan." Review it there and send when you are satisfied. ===================================================== WHY THIS LETTER EXISTS - THE THREE FINDINGS ===================================================== 1. RECAST FAILURE. The July 31, 2020 note describes Payment Stream 3 as 239 payments "in the initial amount of $2,076.73," and projects a final payment of only $2,078.52 on August 5, 2045. Both phrases mean the payment adjusts with the rate and the loan fully amortizes. The rate reset to 7.48% in September 2025; the payment never moved. Correct payment is roughly $2,542. At $2,076.73 the loan runs to about 2065 and leaves an estimated $255,000 balloon at maturity. 2. PREPAYMENT WINDOW MISSED. The note gave a 90-day penalty-free refinance window at the end of year five - roughly August through early November 2025. It opened and closed without notice, during the same months the rate reset. The next one is around August-November 2030. Leaving today costs roughly $9,800 to $12,200 depending on which tier applies. 3. FREE PAYDOWN AVAILABLE. 20% of the original balance ($71,500) can be prepaid every Note Year with no fee, non-cumulative. Against a 7.48% loan that is a guaranteed 7.48% return on any idle cash - the highest-certainty use of capital available on this property. ===================================================== STRATEGY BEHIND IT ===================================================== Do not consolidate the SBA 504. Its note rate is 1.16739% with a balance of $240,581.65. Folding it into a new first at market would cost roughly $11,000 per year in additional interest. Your blended cost of capital today is about 4.75% precisely because of that debenture. Refinancing the first away right now probably does not pencil either: prepayment fee plus appraisal, environmental, title, lender fees and SBA consent totals maybe $18,000 to $27,000 on a $316,000 loan. A 100 basis point improvement saves about $3,200 a year - a six to eight year payback. So the play is to fix it in place. The recast costs the bank nothing to correct. The margin reduction is where the real money is - 3.500% over index is rich for a first lien this well protected, and moving it to 2.50-2.75% is worth $2,400-$3,200 a year with no closing costs, no appraisal and no SBA consent required. The prepayment waiver is the most valuable single item: it converts a locked position into a free option to leave whenever the market improves. Pull two competing term sheets from lenders experienced with 504 seconds regardless - they cost nothing and they price the leverage. Screen them on willingness to sign SBA Form 2287 before anyone starts underwriting. ===================================================== BEFORE YOU SEND - THREE THINGS TO CHECK ===================================================== 1. The note is a scanned image and the quoted language came from OCR. Verify the two quoted phrases against the original signed document before the letter goes out. 2. Balance figures are derived from Tony's own August 7 interest numbers, not from a bank statement. They are close, but the letter asks him to confirm them, which is the right posture. 3. Separately worth an email to TMC Financing: the SBA portal shows $240,581.65 outstanding, but the original amortization schedule projects $234,211.47 for August 2026 - a gap of about $6,370, roughly seven months of principal. The Assistance Agreement in your loan folder (CARES Act Section 1112) may explain it. ===================================================== DRAFT TEXT AS WRITTEN ===================================================== Tony, Thank you for the August 7 summary. Before we take the refinancing or consolidation discussion further, I need several items on Loan #21851 resolved and documented. 1. The payment was not recalculated at the September 2025 rate adjustment. The Promissory Note dated July 31, 2020 sets out four payment streams. Payment Stream 3 is "239 monthly consecutive principal and interest payments in the initial amount of $2,076.73 each, beginning September 5, 2025," at the Index plus a margin of 3.500%. Payment Stream 4 is "one principal and interest payment of $2,078.52 on August 5, 2045." The phrase "initial amount," together with a projected final payment of $2,078.52, establishes that the payment is to be recalculated when the rate adjusts, and that the loan is to amortize fully by maturity with no balloon. Your August 7 email confirms the rate adjusted to 7.48%, but the payment remains $2,076.73, of which approximately $107 is applied to principal. On a balance of roughly $316,000 at 7.48% over the remaining 239 months, the correctly amortizing payment is approximately $2,542 - about $465 per month higher than what is being collected. At the current payment this loan does not retire until roughly 2065, and would leave an estimated balloon near $255,000 at the August 5, 2045 maturity date. That is inconsistent with both the Note and your own description of the loan as "fully amortizing through 2045." Please confirm whether the payment was recast at the adjustment date and, if it was not, when it will be corrected. 2. Please provide the following in writing: a. The current principal balance, and the balance as of September 5, 2025. b. A complete amortization schedule to the August 5, 2045 maturity date at the current rate, showing any projected balloon. c. The Index used at the September 2025 adjustment, the index value applied, and the resulting rate calculation. d. The date of the next scheduled rate adjustment. 3. Prepayment position. The Note permits prepayment of up to 20% of the original balance per Note Year without a fee, with a declining 5% / 4% / 3% / 2% / 1% premium on amounts prepaid in excess of that allowance, and a 90-day penalty-free refinance window at the end of each five-year period. Please confirm: (i) the exact date on which the current five-year period began, (ii) which premium tier applies as of today, (iii) the opening and closing dates of the 90-day window at the end of the current period, and (iv) the unused 20% allowance remaining in the current Note Year. I would also note that the 90-day window following the fifth year appears to have opened and closed during 2025 without notice to us, in the same period in which the rate adjusted and the payment was not recast. 4. What I am asking the bank to do. a. Recast the payment prospectively so the loan amortizes fully by August 5, 2045, with no retroactive catch-up assessed for the months in which the payment was not adjusted. b. Reduce the 3.500% margin. The bank holds a first lien of approximately $316,000 against a property acquired for $700,000 in 2020, senior to the SBA 504 second, with the operating company in occupancy since closing. That margin is not consistent with the risk in this position. c. Waive the prepayment premium for the balance of the current five-year period. I remain willing to continue the broader financing conversation, but I want these items addressed and documented first. -- This message is intended only for the addressee and may contain confidential information. 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