Banker says "We can only loan on...

[soonermajic]

Land value & the building". "WHATEVER it makes is 'Blue Sky' money, & we can't loan on that"
What the literal blue hel?!!!

Anybody ever heard such nonsense? Why the hel should you turn all your $$ in to the bank?

 

[OurTown]

Land value & the building

and equipment.

 

[soonermajic]

and equipment.

Ok, + equipment. But what about "Blue sky" money? How is TOTAL taxable revenue Blue Sky?

 

[OurTown]

On a car wash loan they will use physical assets for collateral. That's been my experience. Are you saying they won't lend on a projections based project as opposed to one with income history?

 

[Bud's]

Pretty standard stuff for a bank to not loan money based on dreams unless you have other collateral to support said dream.

 

[Don B.]

Are you talking about a new wash, an operating wash, or a closed down wash?

 

[soonermajic]

A wash that has operated for 5 yrs running, + also has been remodeled in past 24 mos.
Has $200k 3 yrs running gross.
Bank wants to loan $450k on a 3/2. Very nice corner lot, 2 IBAs (under 2 yrs old) & 4 new Vacs including 2 Fragramatics Quad vacs.
Also brand new very impressive pitched metal roof.
But the Bank says the past 3 yrs gross revenue is "Blue Sky" & they won't loan on that. I always thought Blue Sky was the money that was NOT claimed, but the owner winked & said "yeh, it makes about $50k more, but we don't claim it all"...?

 

[ShinePro]

Had the same problem in 2018 with a bank that would only loan on land and buildings.
i finally found a bank that would play ball using my farm as collateral. It sucked!

Now they cant wait to help me.

 

[UtahYoutubeGuy]

Your bank wouldnt know how to run your business if they had to take it back so to them its not valuable doesnt mean someone else wont see it as valuable. Credit Unions seem to have a higher propensity to underwrite loans based on potential and look at the big picture.

 

[Zal]

Is this in house loan for the bank or SBA?

 

[Don B.]

A wash that has operated for 5 yrs running, + also has been remodeled in past 24 mos.
Has $200k 3 yrs running gross.
Bank wants to loan $450k on a 3/2. Very nice corner lot, 2 IBAs (under 2 yrs old) & 4 new Vacs including 2 Fragramatics Quad vacs.
Also brand new bery impressive pitched metal roof.
But the Bank says the past 3 yrs gross revenue is "Blue Sky" & they won't loan on that. I always thought Blue Sky was the money that was NOT claimed, but the owner winked & said "yeh, it makes about $50k more, but we don't claim it all"...?

Yeah, banks are getting as bad as insurance companies!

 

[soonermajic]

In house, not SBA.

 

[Zal]

I think banks are getting scared of this economy, inflation, etc. I hope it’s not that bad - for all of us.

 

[Zal]

Here in Illinois my bank said the same thing. Land value and buildings. Will loan 66%

 

[tdlconceptsllc]

What I have seen is the Banks wanted my Profit and loss statements and get a Bank appraisal on land and buisness and YOUR income and it should work out. Is this with a Local Private bank. They might be checking the brakes on things now the economy may be getting near the perfect storm if this is true it's here in our face and this is the beginning.

 

[Rfreeman]

In the past my bank would get an appraisal where they would look at cost (land and bldg value only) sales and income (taking what the biz makes into consideration) approaches. Personally I think it's crazy they don't consider the income the wash is generating because that would make the property more valuable.

Your bank is being ultra conservative with their lending standards. Personally I have never heard of this, banks lend on proformas on real estate development deals all the time.

The fact you have an existing business showing steady cash flow I would think a bank would want to do that deal. Plus your an experienced operator this isn't your first wash.

 

[Zal]

Odd, I thought - local bank loaned me 66% and then said they will be happy to loan for expansions and improvements, equipment, etc. the 66% was based on sale price or land and building value. Lessor of the two. This is my 3rd wash. No debt on other two.

 

[Roz]

If you have $200k gross documented then minimum value of the place if sold would be $600k (3x GR) if sold. Can argue about a higher multiple if thjngs are renovated but 3x is a good baseline. $450K is 75% of the value what is the issue? If they are offering $450K loan that sounds about right for such a place. I am sure you could get a hard money loan overnight at that number but you would pay a small premium for that quick loan.

 

[Zal]

I agree with Roz. Good reasonable number for starting point. New equipment would be an adder but should reflect in gross receipts.

 

[soonermajic]

If you have $200k gross documented then minimum value of the place if sold would be $600k (3x GR) if sold. Can argue about a higher multiple if thjngs are renovated but 3x is a good baseline. $450K is 75% of the value what is the issue? If they are offering $450K loan that sounds about right for such a place. I am sure you could get a hard money loan overnight at that number but you would pay a small premium for that quick loan.

As stated, place is newly remodeled, w/ 2 new IBAs, 4 new vacs, new $100k pitched roof & dbl front canopy. Worth $800k easily.
Bet nobody on here would sell that wash for 3x gross...