Shepherd's Finance Seeks $70M in Subordinated Notes Amidst High Risk

TL;DR

**Shepherd's Finance's $70M subordinated note offering is a high-stakes bet on the housing market, making it a speculative play for investors comfortable with significant risk and illiquidity.**

AI Summary

Shepherd's Finance, LLC is offering up to $70,000,000 in Fixed Rate Subordinated Notes on a continuous basis, with maturities ranging from 12 to 48 months and interest rates from 6.00% to 8.00%. As of September 8, 2025, the company had already issued approximately $104.5 million in Notes from previous offerings. The Notes are unsecured and subordinated to all present and future senior debt, with approximately $53,710,000 in debt outstanding as of June 30, 2025, ranking equal or senior to the Notes. The company's business is concentrated in commercial construction loans to homebuilders and developers, with significant reliance on the Hoskins Group in Pittsburgh, Pennsylvania, and a second major customer in Central and Southwest Florida. Key risks include the speculative nature of the investment, lack of FDIC insurance, absence of a public trading market, and high exposure to the cyclical homebuilding industry. The company expects to incur additional debt, including the current offering, which will increase its risk profile.

Why It Matters

This S-1 filing reveals Shepherd's Finance's strategy to raise $70 million through subordinated notes, a move that could provide capital for its concentrated homebuilding loan portfolio but also significantly increases its leverage. For investors, the lack of FDIC insurance and a public trading market, coupled with subordination to $53.71 million in existing debt, means high risk and illiquidity. Employees and customers of the Hoskins Group and other concentrated borrowers face indirect risk if Shepherd's financial health deteriorates. The broader market should note the company's reliance on a single industry and a few key customers, highlighting potential systemic vulnerabilities within niche lending sectors.

Risk Assessment

Risk Level: high — The risk level is high due to several factors outlined in the filing. The Notes are 'risky speculative investments' and 'not insured or guaranteed by the FDIC.' As of June 30, 2025, the company had approximately $53,710,000 in debt outstanding that ranks equal or senior to the Notes, increasing repayment risk. Furthermore, the business is not industry-diversified, with a 'significant portion of revenues' reliant on a single developer, the Hoskins Group, and another major customer in Florida, exposing it to concentrated credit risk.

Analyst Insight

Investors should approach Shepherd's Finance's subordinated notes with extreme caution, recognizing the high risk and illiquidity. Only those with a high-risk tolerance and no need for near-term liquidity should consider an investment, and even then, it should be a small portion of a diversified portfolio. Thoroughly review the suitability standards and understand that repayment is entirely dependent on the company's operational success in a concentrated, high-risk lending sector.

Financial Highlights

debt To Equity

Not Disclosed

revenue

Not Disclosed

operating Margin

Not Disclosed

total Assets

Not Disclosed

total Debt

$53,710,000

net Income

Not Disclosed

eps

Not Disclosed

gross Margin

Not Disclosed

cash Position

Not Disclosed

revenue Growth

Not Disclosed

Executive Compensation

Key Numbers

• $70,000,000 — Aggregate principal amount of Fixed Rate Subordinated Notes offered (New capital sought in this offering)
• $104.5 million — Aggregate principal amount of Notes issued in previous public offerings (Existing debt from prior offerings as of September 8, 2025)
• $53,710,000 — Debt outstanding ranking equal or senior to the Notes (Existing senior debt as of June 30, 2025, impacting subordination)
• 6.00% — Annual interest rate for 12-month Notes (Lowest interest rate offered for the Notes)
• 8.00% — Annual interest rate for 48-month Notes (Highest interest rate offered for the Notes)
• $500 — Initial minimum investment amount (Entry point for investors in the Notes)
• $1,000,000 — Maximum investment amount per investor (Upper limit for individual investments in the Notes)
• 180 days — Minimum holding period for early redemption request (Liquidity restriction for investors)
• 10% — Maximum investment as percentage of liquid net worth (Suitability standard for residents of multiple states like Alabama, Idaho, Iowa, Kansas, Maine, Massachusetts, New Mexico, Missouri, North Dakota, Oregon, Tennessee, and Vermont)

Key Players & Entities

• Shepherd's Finance, LLC (company) — Registrant offering Fixed Rate Subordinated Notes
• Daniel M. Wallach (person) — Chief Executive Officer and agent for service
• Michael K. Rafter, Esq. (person) — Legal counsel from Nelson Mullins Riley & Scarborough LLP
• Nelson Mullins Riley & Scarborough LLP (company) — Legal counsel for the registrant
• Securities and Exchange Commission (regulator) — Regulatory body for S-1 filing
• Hoskins Group (company) — Single developer and homebuilder, significant portion of revenues
• Federal Deposit Insurance Corporation (regulator) — Notes are not insured by this entity
• Pittsburgh, Pennsylvania (location) — Market concentration for Hoskins Group
• Central and Southwest Florida (location) — Market concentration for second largest customer

FAQ

Risk Factors

• Concentration Risk in Loan Portfolio [high — financial]: The company's business is heavily concentrated in commercial construction loans, with significant reliance on two major customers: the Hoskins Group in Pittsburgh, Pennsylvania, and another in Central and Southwest Florida. This concentration exposes Shepherd's Finance to substantial risk if these key clients experience financial difficulties or if the homebuilding industry in these specific regions declines.
• Cyclical Nature of Homebuilding Industry [high — market]: Shepherd's Finance's primary business is tied to the cyclical homebuilding industry. Downturns in this sector, driven by economic conditions, interest rate fluctuations, or changes in consumer demand, can directly impact the company's ability to originate new loans and the performance of its existing loan portfolio.
• Subordinated and Unsecured Debt Structure [high — financial]: The Fixed Rate Subordinated Notes offered are unsecured and subordinated to all present and future senior debt. As of June 30, 2025, the company had $53,710,000 in debt ranking equal or senior to the Notes. This means noteholders will only be repaid after senior debt holders in the event of liquidation or bankruptcy.
• Increased Leverage from New Debt Offering [medium — financial]: The company plans to incur additional debt, including the current offering of up to $70,000,000 in Notes. This will increase its overall leverage and financial risk profile, potentially impacting its ability to service its debt obligations.
• Lack of Liquidity and Trading Market [medium — market]: The Notes are not listed on any public exchange and there is no established public trading market for them. Investors seeking to liquidate their holdings before maturity may face significant challenges and may not be able to find a buyer or may have to sell at a substantial discount.
• Speculative Investment and Lack of FDIC Insurance [high — regulatory]: The Notes are considered a speculative investment and are not insured by the FDIC or any other government agency. Investors could lose their entire principal investment.

Industry Context

Shepherd's Finance operates within the commercial construction loan sector, specifically targeting homebuilders and developers. This industry is inherently cyclical, highly sensitive to economic conditions, interest rates, and consumer confidence. The company's reliance on a few key customers and specific geographic regions, such as Pittsburgh and Central/Southwest Florida, amplifies its exposure to localized market downturns and industry-wide fluctuations.

Regulatory Implications

As a financial services entity offering debt securities, Shepherd's Finance is subject to securities regulations governing public offerings and investor disclosures. The speculative nature of the Notes and the lack of FDIC insurance necessitate clear and comprehensive risk factor disclosures to potential investors, aligning with SEC requirements.

What Investors Should Do

1. Carefully review the 'Risk Factors' section of the S-1, paying close attention to concentration risk, industry cyclicality, and the subordinated nature of the Notes.
2. Assess personal liquidity and risk tolerance against the investment's limitations, such as the minimum holding period of 180 days for early redemption requests and the suitability standard of 10% of liquid net worth.
3. Understand that the Notes are unsecured and subordinated, meaning repayment is secondary to senior debt holders in case of default.

Key Dates

• 2025-06-30: Debt outstanding ranking equal or senior to the Notes — Provides a snapshot of the company's senior debt obligations as of a recent date, highlighting the subordination of the offered notes.
• 2025-09-08: Aggregate principal amount of Notes issued in previous public offerings — Indicates the company's history of raising capital through similar debt instruments and the scale of its existing noteholder base.

Glossary

Subordinated Notes

Debt instruments that rank below other debt in terms of repayment priority in the event of bankruptcy or liquidation. Holders of subordinated debt are paid only after senior debt holders have been fully repaid. (The Notes being offered are subordinated, meaning investors bear a higher risk as they are repaid after senior debt holders.)

Unsecured Debt

Debt that is not backed by any collateral. If the borrower defaults, lenders have a general claim against the borrower's assets but do not have a specific lien on any particular asset. (The Notes are unsecured, increasing the risk for investors as there is no specific collateral to seize in case of default.)

Continuous Offering

A type of securities offering where the issuer can sell securities over an extended period, often on a rolling basis, rather than in a single, discrete offering. (This allows Shepherd's Finance to raise capital incrementally up to the $70,000,000 limit over time, providing ongoing funding flexibility.)

FDIC Insurance

Insurance provided by the Federal Deposit Insurance Corporation to protect depositors in case of bank failure. It does not apply to investments like corporate notes. (The absence of FDIC insurance on these Notes means investors are not protected against loss by a government agency.)

Year-Over-Year Comparison

This analysis is based on a single S-1 filing and does not include comparative data from a previous filing. Therefore, a comparison of key metrics like revenue growth, margin changes, or new risks cannot be provided.

Key Financial Figures

• $70,000,000 — Y PROSPECTUS DATED September 15, 2025 $70,000,000 in Fixed Rate Subordinated Notes Shep
• $500 — l minimum investment amount required is $500. From time to time, we may, however, ch
• $1,000,000 — ximum investment amount per investor is $1,000,000 aggregate principal amount, or $1,000,0
• $104.5 million — egate principal amount of approximately $104.5 million. The term "Notes," as used throughout t
• $53,710,000 — of June 30, 2025, we had approximately $53,710,000 in debt outstanding that ranks equal or
• $19,679,000 — r to the Notes, including approximately $19,679,000 in Notes issued pursuant to our prior o
• $69,270,000 — s, we estimate will total approximately $69,270,000 after expenses. The date of this pros
• $70,000 — they have (i) an annual gross income of $70,000 and a liquid net worth of $70,000, or (
• $250,000 — orth of $70,000, or (ii) a net worth of $250,000. Further, investors in the State of Ala
• $65,000 — ng that they have (i) a gross income of $65,000 and net worth of $250,000, or (ii) a ne
• $500,000 — rth of $250,000, or (ii) a net worth of $500,000. For Idaho and Kentucky Residents - N
• $85,000 — hat they have (i) a liquid net worth of $85,000 and annual gross income of $85,000, or
• $300,000 — $85,000, or (ii) a liquid net worth of $300,000. Additionally, the investor's total inv
• $200,000 — stors have (i) a net income of at least $200,000 in each of the two most recent years or
• $499,470,000 — lots. We have originated approximately $499,470,000 of loans from December 2011 through Jun

Filing Documents

• forms-1.htm (S-1) — 1416KB
• ex23-1.htm (EX-23.1) — 4KB
• ex24-1.htm (EX-24.1) — 14KB
• ex107.htm (EX-FILING FEES) — 41KB
• forms-1_001.jpg (GRAPHIC) — 6KB
• forms-1_002.jpg (GRAPHIC) — 6KB
• 0001493152-25-013446.txt ( ) — 2021KB
• shep-20250915.xsd (EX-101.SCH) — 3KB
• shep-20250915_def.xml (EX-101.DEF) — 26KB
• shep-20250915_lab.xml (EX-101.LAB) — 36KB
• shep-20250915_pre.xml (EX-101.PRE) — 25KB
• forms-1_htm.xml (XML) — 5KB
• ex107_htm.xml (XML) — 9KB

RISK FACTORS

RISK FACTORS 12 Risks Related to Our Offering and Business 12 Risks Related to Conflicts of Interest 22 Risks Related to Liquidity 23

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS 28

BUSINESS

BUSINESS 30 Overview 30 Investment Objectives and Opportunity 32 Loan Portfolio 37 Credit Quality Information 40 Debt Summary and Sources of Liquidity 47 Competition 50 Human Capital Resources 51 Regulatory Matters 51

Legal Proceedings

Legal Proceedings 51 Reports to Security Holders 51

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 52 MATERIAL FEDERAL INCOME TAX CONSEQUENCES 52 Interest Income on the Notes 52 Treatment of Dispositions of Notes 52 Non-U.S. Holders 53 Reporting and Backup Withholding 53 Foreign Account Tax Compliance Withholding 53 CERTAIN EMPLOYEE BENEFIT PLAN CONSIDERATIONS 54 General Fiduciary Matters 54 Prohibited Transaction Issues 54 Representation 54 MANAGEMENT 55 Executive Officers and Board of Managers 55 Committees of the Board of Managers 57 Limited Liability and Indemnification of Directors, Officers, Employees, and Other Agents 58

EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION 59 Executive Officer Compensation 59 Board of Managers Compensation 61 PRINCIPAL SECURITY HOLDERS 62 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 63 Transactions with Affiliates 63 Affiliate Transaction Policy 66 Board of Managers Independence 66

DESCRIPTION OF NOTES

DESCRIPTION OF NOTES 67 General 67 Established Features of the Notes 67 Subordination 68 Redemption by Us Prior to Maturity 69 Redemption at the Request of the Holder Prior to Maturity 69 Redemption upon Your Death 69 Additional Redemption Options for Notes with a 36-Month Maturity 69 No Restrictions on Additional Debt or Business 70 Modification of Indenture 70 Place, Method, and Time of Payment 70 Events of Default 70 Satisfaction and Discharge of Indenture 71 Reports 71 Service Charges 71 Book Entry Record of Your Ownership 71 Transfer 71 Concerning the Trustee 71 PLAN OF DISTRIBUTION 72 CHARITABLE MATCH PROGRAM 73 LEGAL MATTERS 73 EXPERTS 73 INCORPORATION OF INFORMATION BY REFERENCE 73 WHERE YOU CAN FIND MORE INFORMATION 74 ii You should rely only upon the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell the Notes only in jurisdictions where offers and sales are permitted. QUESTIONS AND ANSWERS Below we have provided some of the more frequently asked questions and answers relating to the offering of the Notes. Please see the "Prospectus Summary" and the remainder of the prospectus for more information about the offering of the Notes. Q: Who is Shepherd's Finance, LLC? A: Shepherd's Finance, LLC, along with our consolidated subsidiary, ("Shepherd's Finance," "we," "our," "us," or the "Company") is a finance company organized as a limited liability company in the State of Delaware. Our business is focused on commercial lending to participants in the residential construction and development industry. Our Chief Executive Officer ("CEO"), who is also on our board of managers, is Daniel M. Wallach. Mr. Wallach is responsible for overseeing our day-to-day operations. Our office is located in Jacksonville, Florida. As of June 30, 2025, we have 58 customers in 2

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