SELLING AGREEMENT

Exhibit 10.3

SELLING AGREEMENT

This Selling Agreement (“Agreement”) made this 17th day of February 2005 by and between KH Funding Company, a Maryland corporation (the “Company”), and Spencer Edwards Inc., a Colorado corporation (“Seller”) (collectively, the “Parties”).

WHEREAS, the Company is an issuer of investment debt securities, and has registered or will register the Investment Debt Securities it issues under the Securities Act of 1933 (“1933 Act”), to the extent required thereby, on Form SB-2 (“Registration Statement”); and

WHEREAS, the Board of Directors of the Company (“Board”) has established and authorized the issuanceof those types of Investment Debt Securities listed on Schedule A hereto (each, a “Note” and collectively, the “Notes”), as the same may be amended from time to time by mutual written agreement of the Parties (“ Schedule A”); and

WHEREAS, Seller desires to act as an authorized seller of the Notes; and

WHEREAS, Seller is a broker-dealer registered under the Securities Exchange Act of 1934 (“1934 Act”) and a member of the National Association of Securities Dealers, Inc. (“NASD”); and

NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows:

1. Appointment and Obligation of Seller.

The Company hereby appoints Seller as an authorized seller of the Notes and Seller hereby accepts such appointment. By accepting this appointment, Seller represents and warrants that it is a business corporation duly organized, validly existing, and in good standing under the laws of the State of its incorporation as indicated above, and that it has full corporate power, authority and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. Further, Seller expressly represents that it is a member of the NASD and a registered broker-dealer under the 1934 Act, and in such states as broker-dealer registration may be required for the conduct of its business.

2. Sale of Notes.

2.1 Availability of Notes. The Company agrees to issue such Notes as Seller may sell in accordance with the terms and conditions set forth herein and the disclosures contained in the Company^’s Registration Statement.

2.2 Best Efforts. Seller agrees to use its best efforts to promote the sale of the Notes, but is not obligated to sell any specific number of Notes.

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2.3 Rejection or Suspension of Sales: Corporate Actions. Notwithstanding anything herein to the contrary, the Company may, at any time, reject for any reason any order to purchase any Note. In addition, the Company may suspend or terminate the offering of any Note, if such action is required by law, judicial order, or by regulatory authorities having jurisdiction, or if the Board, in its sole discretion, determines that such action is in the best interests of the Company. Further, the Company reserves the right at all times to terminate the future offering of Notes and to take any corporate actions, including, but not limited to, the dissolution, merger, and sale of its assets, solely upon the authorization of its Board.

2.4 Purchase Payments. Seller shall accept purchase payments for Notes as described in the Company’s then effective prospectus relating to the Notes as it may be amended or supplemented from time to time (“Prospectus,” unless the context otherwise requires).

2.5 Manner of Offering. Seller shall offer the Notes for sale in the manner described in the Company’s Prospectus, and only in those jurisdictions where Seller is legally able to offer or sell such Notes and where the Notes have been properly registered or qualified, or are exempt from registration.

2.6 Sales Commissions. As compensation for services rendered hereunder, Seller shall be entitled to payment of a commission on the sale of Certificates in accordance with Schedule A.

2.7 Order and Payment Processing. Seller shall immediately transmit to the Company any order to purchase Notes. Such order shall consist of a completed application to purchase a Note, accompanied by a check made payable to the Company, or any other form of payment deemed acceptable by the Company. The Company, in its sole discretion, reserves the right to reject, for any reason, any application for the purchase of a Note.

2.8 Purchases for Own Account. Seller shall not purchase Notes for its own account for purposes of resale to the public. Seller may purchase Notes for its own investment account upon its written assurance to the Company that the purchase is for investment purposes only and that such Certificates will not be resold.

2.9 Non-Exclusivity. Notwithstanding anything herein to the contrary, the Company may appoint other broker-dealers who are registered as such under the 1934 Act and members of the NASD, in addition to Seller to serve as authorized sellers of the Company’s Notes, and the Notes may be directly sold by the Company without the services of any broker-dealer.

3. Withdrawal, Surrender, Conversion and Exchange Requests.

Seller shall immediately forward any withdrawal, surrender or conversion request, or a request to exchange one type of Note for another that it receives to the Company. All such requests shall be provided in a manner deemed acceptable by the Company. The Company will make payments of withdrawal and surrender proceeds directly to the Note holder.

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4. Allocation of Expenses.

Except as set forth herein, each Party shall bear all expenses of fulfilling its duties and obligations under this Agreement. However, the Company may bear some of Seller’s initial costs in selling the Certificates, as the Parties may mutually agree from time to time.

5. Marketing Materials.

5.1 Preparation, Printing, and Distribution. Except as provided below, the Company, at its sole cost, shall be responsible for preparing, printing, and distributing, or causing the same to be done, all marketing materials to be used in connection with its offer and sale of Notes. Seller may create marketing materials in connection with the sale of the Notes. However, any such marketing materials shall be created at the Seller’s sole cost, and the Company shall be entitled to use such marketing materials at any time in its sole discretion with consent of Seller, which will not be unreasonably withheld. The Company will reimburse the Seller for the filing fees paid to the NASD for any marketing materials it may use.

5.2 Company Approval. Seller shall submit definitive copies of all marketing materials it creates to the Company for its approval; consent shall not be unreasonably withheld, at least ten (10) business days prior to their first use. The Company shall be deemed to have granted its approval of such marketing materials unless it objects within such ten (10) business day period.

5.3 Regulatory Approvals. To the extent required and in a timely manner: (i) Seller shall file with the NASD, or any other regulatory body, as appropriate, all marketing materials it employs (other than the prospectus, annual and semi-annual reports) in the offer and sale of Notes, whether such materials are created by Seller or the Company for Seller’s use. Seller shall obtain all necessary regulatory approvals of any marketing materials it proposes to employ, and shall, provide to the Company, promptly after receipt thereof, a copy of each NASD approval of marketing materials submitted to the NASD for review and approval.

6. Non-Marketing Materials.

6.1 Note Holder Correspondence. Seller, at its sole cost, shall be responsible for preparing, printing, and distributing, or causing the same to be done, all correspondence with Note holders in its capacity as an authorized Seller, except for correspondence prepared, printed, and distributed by Seller at the Company^’s request. Seller shall, from time to time, make such correspondence available to the Company for review upon request.

6.2 Confirmations. The Company, at its sole cost, shall be responsib