Got loan questions?

[Debra Gorgos]

I am interviewing SBA loan and PPP expert Pat Shannon, who is also president of the Heartland Carwash Association. He will answer any questions having to do with loans and PPP, etc. If you have any questions for him, post them here or private message me.

Thanks!

 

[Sequoia]

I am interviewing SBA loan and PPP expert Pat Shannon, who is also president of the Heartland Carwash Association. He will answer any questions having to do with loans and PPP, etc. If you have any questions for him, post them here or private message me.

Thanks!

What is the preferred SBA loan program that a buyer of a SS car wash could use? Would that be a SBA 7a loan of some type?

What minimum qualifying factors, and ratios, does a buyer (and seller) of a SS car wash need to meet for loan funding when the sale of the SS car wash also includes real estate? With real estate included, is the down payment requirement 10%? What credit history or credit score does the buyer need to have? How long is the process of funding if the buyer is qualified and the seller is organized with needed information?

What are the applicable ratios of gross income, net, and overall debt load of the buyer? If the buyer has other income, is that factored and accounted for even if the purchase is for a SS held in an LLC, which is a separate legal entity? Do they require the buyer to personally guarantee the loan?

When the ratios are applied, are they calculated against EBIDTA or tax returns? If the seller doesn't produce financial statements that include EBIDTA but merely file tax returns, are those sufficient records for the SBA to apply their qualification ratios against? Or do you need to have an accountant or CPA produce a financial statement showing EBIDTA?

 

[Kramerwv]

Sba 7a is most likely program for purchase of a wash including real estate. They will require tax returns for the wash being purchased and can calculate, along with the banker, the ebitda from them. They’ll also typically require you to pledge other personal assets like home equity, etc. if you don’t have sufficient down payment which is typically why you’d need sba in the first place. Having the seller carry a note for 20% is a lot easier but of course not every owner is comfortable with that arrangement.

 

[Sequoia]

Having the seller carry a note for 20% is a lot easier but of course not every owner is comfortable with that arrangement.

I'm not sure what you mean. Is the seller carry of 20% a way to get around the buyer who wants to purchase but does not have the required down payment? If that is the case, are lenders usually OK with that?

 

[Car_Wash_Guy]

I'm not sure what you mean. Is the seller carry of 20% a way to get around the buyer who wants to purchase but does not have the required down payment? If that is the case, are lenders usually OK with that?

Owner carry - You come with with the 20% and the owner acts as the bank/lender/mortgage holder. I've bought many commercial properties like this. A business is a bit trickier and since car washes are even more difficult to finance, it's usually the best option for someone wanting to get out.

 

[Sequoia]

Owner carry - You come with with the 20% and the owner acts as the bank/lender/mortgage holder. I've bought many commercial properties like this. A business is a bit trickier and since car washes are even more difficult to finance, it's usually the best option for someone wanting to get out.

Sorry but I don't really understand your post. When you write: "You come with ..." -- are you referring to a buyer, who has 20% down? And an owner carry of the 80% balance?

The post I responded to wrote: "Having the seller carry a note for 20%." I'm curious about that as I have a willing buyer but he doesn't have a downpayment necessary to secure a loan. I was curious if I could make the deal happen if I was willing to risk/carry a 20% amount which would equal to the "missing" downpayment. Again, apologies, I don't understand what you wrote?

 

[Rfreeman]

Yes the buyer would give you their down payment in this case we are talking 20% or whatever % you feel is reasonable for that matter.

Me personally I would ask for slightly more considering the risk you are taking on for lending a buyer (acting as the bank) the remaining 80% they could run the business into the ground.

I would also suggest at least a 3 to 5 yr balloon payment. Meaning at the end of 3 or 5 yrs the balance is owed so the buyer can either a.) Refinance with a traditional bank b) pay you off by some other means or c) if your okay with the way things are running between you two then refinance it for them.

 

[Kramerwv]

Some Banks are willing to lend 80% (maybe 70% these days) If the seller of the business/property carries a note for the 20%-30%. Essentially the buyer is getting the property with no down payment and has two loans, one to the Bank for 80% and 20% to the owner. The Bank will still underwrite the ability to produce enough cash flow to pay both but they will have a first lien position should things go south. If a seller is motivated then it can be a workable solution.

 

[Kramerwv]

Rfreeman is talking about seller financing where the seller takes a cash down payment of 20%-30% and then acts as the Bank by taking a note for the difference. Doesn’t require all the underwriting qualifications of a bank but is risky if the buyer turns out to be a poor operator or lack funds if times get tough.

 

[Rfreeman]

Rfreeman is talking about seller financing where the seller takes a cash down payment of 20%-30% and then acts as the Bank by taking a note for the difference. Doesn’t require all the underwriting qualifications of a bank but is risky if the buyer turns out to be a poor operator or lack funds if times get tough.

Personally with a car wash I wouldn't do either situation bc we all know what a beat down this business can be and who is to say a buyer doesn't just say screw it Im out....when I do sell I want a traditional transaction with a buyer getting a bank loan or all cash and be done with it.

In either situation above you either a) take an inferior lien position to the bank not to mention the buyer is way over leveraged or b) have to foreclose on a wash that the buyer ran into the ground.

 

[Kramerwv]

I agree - only way I do either is if I get 100% of my bottom line price at closing and the note I take back is just gravy.

 

[Sequoia]

Some Banks are willing to lend 80% (maybe 70% these days) If the seller of the business/property carries a note for the 20%-30%. Essentially the buyer is getting the property with no down payment and has two loans, one to the Bank for 80% and 20% to the owner.

Thank you for contributing that. I appreciate it. I wasn't aware that is an option, and will explore it.