Having done many car wash loans, gas station and convenience store loans over the years, it never surprises me why people do NOT get their car wash loans financed. People call and frequently say “We have a full package on this deal.”

I’m not sure what they consider a “full package” but it is rare that we see a full package for financing. As a matter of fact, truth be told, bankers initially do not want to see any full package. There is a saying “A sermon doesn’t have to be eternal to be everlasting.” You don’t need everything initially. Bankers do not want to go through reams of papers or faxes or pdf, Word docs and Excel spreadsheets to figure out if there is a deal there or not. Think of it as eating a food for the first time and you’re not sure if you’re going to like it or not. You take a little taste, then if you like it, you dive into it. Bankers are the same way. They don’t want to dive right into it, they just want to take a little bite and see if they like it.

The Five C’s of credit have not changed over the years.

Capacity

Capital

Collateral

Conditions

Character

Fundamentally bankers really want to know if the potential borrower is qualified to buy and run the business and if the business in question can verifiably cash flow to service the loan and if there is sufficient collateral for the loan. That is it plain and simple.

A clear and concise executive summary with a usage of the proceeds will answer many of their questions right up front. Many times lenders will move forward or stop based solely on the executive summary and usage of proceeds.

Normally when you submit to a lender for financing any type of property or business car wash nearby, you are submitting a personal financial statement, a resume, a recent copy of your credit report and information about the cash flow of the business in question. This will answer many questions right up front and will indicate whether the lender will want to proceed to the next step.

One of the common denominators and main reasons for defaults in the past few years has been that borrowers have had insufficient non-borrowed equity into the transaction.  When you have little into the deal, it’s easy to walk away from it when times get tough. The days of having minimal equity into a deal with large seller held seconds are pretty much gone. As well they should be. Would you really want to lend your OWN money to someone that had hardly any equity into a deal? Why should a bank?

Next, lenders want to know if they are qualified from an industry experience point of view to run and manage a business. It’s one thing if you have managed a business for years and have found one that you would like to purchase, it’s another thing I’ve you neither managed nor owned one and are trying to convince a banker that you are qualified. Some people seem to know how to make money with anything they do, but most people do not fall in that category. There are only two ways to make more money in an existing business, increase revenues, decrease expenses or both. There is no other way. If you do not have the experience to do this, the learning curve will be steep and difficult.

It goes without saying that a borrower should have decent credit and not have an inordinate amount of personal debt. To an extent, personal debt is more important than a person’s credit score, although the credit score is definitely important.

Lastly, will the business service the debt based on current revenues and expenses. If this is not, what will the borrower do to change that trend. Many businesses will service the debt but much of the revenues might not be on the books they claim on their tax returns. Lenders can only go by what they declare, not what they have in a separate ledger.

If you get past these initial steps, you have a very good chance of obtaining financing for the commercial property or business you are evaluating.

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