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    2 Replies Latest reply on Aug 8, 2008 1:11 AM by Milleisen

    What do we need to offer?

    droodspen Newbie
      My partners and I have put together a thorough business plan and it's time to start talking about lending. My background is in Real Estate so I am of little use in defining what may or may not be "reasonable" as far as loan terms. In my world, a 48 month stop is a very short term loan. Is that the case when borrowing for start-up business ventures? We'd like to borrow $220-250K with a 30 yr. amortization and a stop at 48 months.

      The plan is to refurbish and revitalize an existing property owned by one of the principals in order to host weddings and other events. The property consists of a 4500 square-foot three-story Victorian home with wrap-around decking on roughly ten acres with a small guest house and two-car garage. It is serviced by an operational artesian well which also feeds a small tree-lined pond which will serve as the main backdrop for ceremonies. About four acres are grass-covered and roughly five are wooded for privacy. Amazingly, this beautiful setting is located in the Arizona desert--offering a much desired escape from the cactus-laden landscapes of almost all of our area competitors.

      What we need to know is what kind of terms we can expect to find given our circumstances. For the purpose of the loan, there will be two principals--both with around 800 FICO's. The W-2's will NOT support the amount of the loan so it will have to be unconvetional at best. Our conservative projections show the company's ability to pay off $250K in three years. We'll shoot for four to be safe. The research is thorough, the exit strategies are strong, we just need the proper incentives to attract potential lenders. What reasonable terms will we expect to have to offer in order to stop talking to brokers and start talking to lenders?
        • Re: What do we need to offer?
          LUCKIEST Guide
          What do we need to offer??, Welcome

          It sounds like a DREAM location in Arizona. Are both of you from Arizona??

          Can I read your Business Plan?? You can email me at "pdeig@juno.com"

          Do you have a business name for this "hosting of events"?? Have you registered
          the name and received a Federal I D Number?? Do you have a Lawyer??

          This is just the start, LUCKIEST
          • Re: What do we need to offer?
            Milleisen Scout
            The fact that the W-2's don't support the debt can be tricky, but its not a death blow. I've financed properties on which the borrower signed up tenants prior to the purchase (condtional leases, of course), which gives the lender assurance that cash flow will commence as soon as you close the deal. In your case, will you remain open during construction or will the entire operation cease? If the business has a track record, some banks will consider interest only during the renovation, then begin amortization after construction is complete. If you get involved with something like that, be prepared to have the bank eye your progress like a hawk because construction loans are considered to be risky due to possible time delay and cost overruns.

            Basic Terms You Can Expect:
            • Total Term of 20 years. Some banks will do interest only for 6 to 12 months, followed by a 20 yr amortization. If you get interest only, draws will be contingent on your submission of invoices to prove that you are not going to have budgetoverruns.
            • Expect to pay a point (ie 1% of the loan amount)
            • Prepayment penalties vary but many loans call for them
            • Rates vary but most banks wont fix rates longer than 10 years.

            It sounds as if a community bank will be your best bet. If they see a potential relationship, they will be more willing to listen to your vision and work with you.