Manhattan Bridge Capital (LOAN) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01Our loan origination activities, revenues and profits are limited by available funds. If we do not increase our working capital, we will not be able to grow our business
2. 02We operate in a highly competitive market and competition may limit our ability to originate loans with favorable interest rates
3. 03We may change our investment, leverage, financing and operating strategies, policies or procedures without shareholder consent, which may adversely affect the market value of our common shares and our ability to make distributions to shareholders
4. 04Management has broad authority to make lending decisions. If management fails to generate attractive risk-adjusted loans on a consistent basis, our revenue and income could be materially and adversely affected and the market price of a share of our common shares is likely to decrease
5. 05Our Chief Executive Officer and Chief Financial Officer are each critical to our business and our future success may depend on our ability to retain them. In addition, as our business grows we will need to hire additional personnel
6. 06Terrorist attacks and other acts of violence or war may affect the real estate industry generally and our business, financial condition and results of operations
7. 07Our existing credit line has numerous covenants. If we are unable to comply with these covenants, or obtain necessary waivers, the outstanding amount of the loan could become due and payable
8. 08Our indebtedness could adversely affect our financial flexibility and our competitive position
9. 09We may incur additional debt, which could exacerbate the risks associated with our leverage
10. 10While we are implementing protocols to prevent future cyber-security incidents, these protocols may not prevent future incidents and any significant similar future incidents could expose us to liability and have a negative impact on our business and our reputation

Risks Related to Our Portfolio

1. 11Interest rate fluctuations could reduce our ability to generate income and may cause losses
2. 12Rising or continued high interest rates may reduce our profitability and may cause losses
3. 13If we overestimate the yields on our loans or incorrectly value the collateral securing the loan, we may experience losses
4. 14Difficult conditions in the markets for mortgages and mortgage-related assets as well as the broader financial markets have resulted in a significant contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets that we intend to originate
5. 15Loans on which the maturity date has been extended may involve a greater risk of loss than traditional mortgage loans
6. 16We may be subject to “lender liability” claims. Our financial condition could be materially and adversely impacted if we were to be found liable and required to pay damages
7. 17An increase in the rate of prepayment of outstanding loans may have an adverse impact on the value of our portfolio as well as our revenue and income
8. 18The geographic concentration of our loan portfolio may make our revenues and the values of the mortgages and real estate securing our portfolio vulnerable to adverse changes in economic conditions around the New York metropolitan area
9. 19A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could impair our investments and harm our operations
10. 20Our due diligence may not reveal all of a borrower’s liabilities and may not reveal other weaknesses in its business
11. 21Our loans are usually made to entities to enable them to acquire, develop or renovate residential or commercial property, which may involve a greater risk of loss than loans to individual owners of residential real estate
12. 22Volatility of values of residential and commercial properties may adversely affect our loans and investments
13. 23Our inability to promptly foreclose on defaulted loans could increase our costs and/or losses
14. 24Our loans are typically not funded with interest reserves and our borrowers may be unable to pay the interest accruing on the loans when due, which could have a material adverse impact on our financial condition
15. 25Liability relating to environmental matters may impact the value of properties that we may acquire or the properties underlying our investments
16. 26Defaults on our loans may cause declines in revenues and net income
17. 27Our revenues and the value of our portfolio may be negatively affected by casualty events occurring on properties securing our loans
18. 28Borrower concentration could lead to significant losses, which could have a material adverse impact on our operating results and financial condition

Risks Related to Financing Transactions

1. 29Our existing credit line has numerous covenants with which we must comply. If we are unable to comply with these covenants, the outstanding amount of the loan could become due and payable and we may have to sell off a portion of our loan portfolio to pay off the debt
2. 30Our use of leverage may adversely affect the return on our assets and may reduce cash available for distribution to our shareholders, as well as increase losses when economic conditions are unfavorable

Risks Related to REIT Status and Investment Company Act Exemption

1. 31Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the IRS
2. 32Complying with REIT requirements may hinder our ability to maximize profits, which would reduce the amount of cash available to be distributed to our shareholders. This could have a negative impact on the value of our securities
3. 33Our failure to remain qualified for taxation as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our shareholders
4. 34REIT distribution requirements could adversely affect our ability to execute our business plan and may require us to incur debt or sell assets to make such distributions
5. 35Even if we remain qualified for taxation as a REIT, we may face tax liabilities that reduce our cash flow
6. 36Our qualification for taxation as a REIT may depend on the accuracy of legal opinions or advice rendered or given and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax
7. 37We may choose to make distributions in shares of our capital stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive
8. 38Dividends paid by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our common shares
9. 39Liquidation of our assets may jeopardize our qualification for taxation as a REIT
10. 40Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders
11. 41We may be unable to generate sufficient cash flows from our operations to make distributions to our shareholders at any time in the future
12. 42We could be materially and adversely affected if we are deemed to be an investment company under the Investment Company Act
13. 43If we were required to register as an investment company but failed to do so, we could be prohibited from engaging in our business, and criminal and civil actions could be brought against us

Risks Related to Our Common Shares

1. 44Our largest shareholder’s interests may not always be aligned with the interests of our other shareholders
2. 45There is limited trading in our common shares, which could make it difficult for you to sell your common shares

Risks Related to Our Organization and Structure

1. 46Certain provisions of New York law could inhibit changes in control
2. 47Our authorized but unissued common and preferred shares may prevent a change in our control
3. 48Our rights and the rights of our shareholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests
4. 49Our bylaws contain provisions that make removal of our directors difficult, which could make it difficult for our shareholders to effect changes to our management

Risks Related to the Notes issued by MBC Funding II

1. 50Shareholders’ interests may not always be aligned with the interests of the Noteholders
2. 51The Indenture contains restrictive covenants that may limit MBC Funding II’s operating flexibility and could adversely affect its financial condition
3. 52The limited covenants in the Indenture and the terms of the Notes will not provide protection against significant events that could adversely impact MBC Funding II’s obligations under the Notes
4. 53As the controlling shareholder of MBC Funding II, we have an inherent conflict of interest and we may not always act in the best interests of the Noteholders
5. 54Various provisions in the Indenture restrict the ability of the Indenture Trustee and the Noteholders to enforce their rights against us in the event MBC Funding II defaults on its obligations under the Notes
6. 55If a bankruptcy petition were filed by or against us or MBC Funding II, Noteholders may receive less than the outstanding balance on the Notes
7. 56An active public trading market for the Notes may not develop
8. 57MBC Funding II may not be able to make the required payments of interest and principal on the Notes or may not be able to refinance the Notes before their maturity
9. 58MBC Funding II is not obligated to contribute to a sinking fund to retire the Notes and the Notes are not guaranteed by any governmental agency
10. 59Our access to financing may be limited and, thus, our ability to maximize our returns may be adversely affected
11. 60Continuing weakness in the capital and credit markets could adversely affect our ability to secure financing on favorable terms or at all. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell loans at an inopportune time or price
12. 61The market prices of our common shares may be adversely affected by future events
13. 62The price of our common shares is volatile, and purchasers of our common shares could incur substantial losses
14. 63Common shares eligible for future sale may have adverse effects on our share price
15. 64Future offerings of debt or equity securities, which would rank senior to our common shares, may adversely affect the market price of our common shares