Car Wash Loans - A New Reason Why Banks Will Not Lend
With car wash financing, just like any other type of commercial loans, the organization of the package presented is important now more than ever.
The obvious reason is that the more you can do to convince and underwriter or a business development officer that you know the industry, you have good business skills and you are a good risk.
Recently I had a conversation with a VP that I had done business with for over ten years. I sent him a transaction I knew he'd be interested in because I'd done so many deals with him. He called me back and said "normally we'd do this deal in a heartbeat but we're going to pass on it." I was really stunned. I asked him why. He said that the government and particularly the OCC was requiring banks to re-classify loans if they did not provide documentation yearly in a timely manner. If the borrowers do not submit them in a timely manner, they OCC will require them to re-classify the loan and set aside more reserves for the loan even though it is a performing loan and the borrowers were never a day late. Nuts huh? This particular borrower owned four businesses and had four different tax returns that they prepared. He was not impressed with how he did his books and felt that in ensuing years that the required documentation for compliance (financials, insurance, etc.) would be disorganized because his package had the appearance that he was disorganized. He wasn't worried at all that it would be a performing loan. He was worried that it would be a profitable loan. At the end of the day, the banks are concerned about profitability.
First, when you put together an executive summary of your transaction, don't make the people you submit to start scratching their heads and wondering what you are trying to explain. If it is a purchase, list the purchase price, if it includes inventory and add closing costs and show working capital as a total project cost. Then show your equity into the transaction, what the source of it is and if there are any credits due or seller held seconds. The less they have to think the better your chances are.
Coupled with this would be the usage of proceeds. Some transactions the usage of proceeds is very straightforward. A rate/term or a note due refinance is probably the easiest as long as there is no cash out involved. You're basically just paying off a note and paying closing costs since you're not factoring in working capital and inventory. For purchases, you need to also factor in inventory and working capital in addition to closing costs. Again, just make sure all the dollars add up so the underwriter isn't scratching their head wondering how much you really NEED to borrow.
Second, make sure your documents are current. If you have a personal financial statement filled out and dated nine months ago, it makes the lender think your loan has been all over the place. It's the same thing if you have really stale financials.
Third, make sure your documents are in an outline format or have your documents labeled (if they are pdf's or doc's) so that it is in a logical sequential format, starting with the summary and usage of proceeds. Lenders do not want to go through a mound of documents to get to the meat of it.
When you begin to understand that not only is it important to your bank that your loan performs and that it is a profitable loan to the bank, hopefully this will spur you to provide your information in an organized and timely manner.
The obvious reason is that the more you can do to convince and underwriter or a business development officer that you know the industry, you have good business skills and you are a good risk.
Recently I had a conversation with a VP that I had done business with for over ten years. I sent him a transaction I knew he'd be interested in because I'd done so many deals with him. He called me back and said "normally we'd do this deal in a heartbeat but we're going to pass on it." I was really stunned. I asked him why. He said that the government and particularly the OCC was requiring banks to re-classify loans if they did not provide documentation yearly in a timely manner. If the borrowers do not submit them in a timely manner, they OCC will require them to re-classify the loan and set aside more reserves for the loan even though it is a performing loan and the borrowers were never a day late. Nuts huh? This particular borrower owned four businesses and had four different tax returns that they prepared. He was not impressed with how he did his books and felt that in ensuing years that the required documentation for compliance (financials, insurance, etc.) would be disorganized because his package had the appearance that he was disorganized. He wasn't worried at all that it would be a performing loan. He was worried that it would be a profitable loan. At the end of the day, the banks are concerned about profitability.
First, when you put together an executive summary of your transaction, don't make the people you submit to start scratching their heads and wondering what you are trying to explain. If it is a purchase, list the purchase price, if it includes inventory and add closing costs and show working capital as a total project cost. Then show your equity into the transaction, what the source of it is and if there are any credits due or seller held seconds. The less they have to think the better your chances are.
Coupled with this would be the usage of proceeds. Some transactions the usage of proceeds is very straightforward. A rate/term or a note due refinance is probably the easiest as long as there is no cash out involved. You're basically just paying off a note and paying closing costs since you're not factoring in working capital and inventory. For purchases, you need to also factor in inventory and working capital in addition to closing costs. Again, just make sure all the dollars add up so the underwriter isn't scratching their head wondering how much you really NEED to borrow.
Second, make sure your documents are current. If you have a personal financial statement filled out and dated nine months ago, it makes the lender think your loan has been all over the place. It's the same thing if you have really stale financials.
Third, make sure your documents are in an outline format or have your documents labeled (if they are pdf's or doc's) so that it is in a logical sequential format, starting with the summary and usage of proceeds. Lenders do not want to go through a mound of documents to get to the meat of it.
When you begin to understand that not only is it important to your bank that your loan performs and that it is a profitable loan to the bank, hopefully this will spur you to provide your information in an organized and timely manner.
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