Board Topic: New Business Loan
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New Business Loan

Posted by: Terry Sep 15 2004, 08:36 PM
My girlfriend and I have recently invested in ATM Machines
We bought 30 machine last Feb and now have just signed
an agreement to buy 60 more in the name of our new business.
She has a credit score of about 750 and my score is around 600.
With these 60 new machines we are looking at a projected income
of about $200,000 plus. Each of these machine will average us about
$9,000 a month gross income. With this information, what are our
chances of getting a business loan for our company so that we can
finance the purchase of more machines?

Posted by: loanuniverse Sep 16 2004, 08:27 AM
Terry:

If you are thinking of a business loan secured by a specific lien on that equipment to be purchased, I would have to say it is very unlikely that you could get one. Your best bet would be to get that loan guaranteed or insured by some sort of governmental institution. {Think SBA / State or Municipality}.

Having said that, the loan will still be underwritten, and I am sure questions like the following are going to surface:

— You said that you bought 30 machines in February, this means that you have 6 months of operations on those. How have they performed? You have kept records, right?

— What is the average fee that you charge? If I had to guess, we are talking about $5 per transaction, right? Do you mean to tell me that you get 1,800 transactions a month or 60 transactions a day per machine?

— Do you already have the locations where you are going to place the machines secured? What kind of an arrangement do you get into? Do you have a large concentration with a particular business?

— How does your arrangement works with the people that own the locales? Do they get a fixed fee or a percentage of revenue?

— It just occurred to me that you have not even mentioned how much you need to borrow. The amount of cash flow that you produce has to be enough to repay this number. Also income and revenue are two different things.

— How about government regulation {existing and upcoming}?

Those would be some of the questions that I would have if the request crossed my desk, but this would not happen unless we had the guarantee of the SBA, the numbers for the 6 months of operations of your thirty machines, and a business plan with projections. In addition, most non-bank lenders would not be interested due to the lack of marketable collateral.

Good luck

P.S: After reading the package, I am sure that I would have more questions regarding specifics.

Posted by: Guest Sep 19 2004, 02:29 PM
Hi Administrator

Thanks for the reply. I will try to answer you questions the best I can.


— You said that you bought 30 machines in February, this means that you have 6 months of operations on those. How have they performed? You have kept records, right?

These 30 machines were purchased back in Feb of 2004. Now these are "Cashless ATMs" and cost us a total of $45,000. As of right now these 30 machines have been averaging us right at $3,000 per month income or $100 per month per machine.


— What is the average fee that you charge? If I had to guess, we are talking about $5 per transaction, right? Do you mean to tell me that you get 1,800 transactions a month or 60 transactions a day per machine?

The user of the ATM is charged a $2.00 transaction fee. .45 cents goes to the business owner. (5 year contract will each business owner) .65 cents goto the management company that maintains the machine. That leaves $1.00 per transaction in our pocket. There is no involvement on our part except to occationally request a relocation of a poorly producing machine. Which so far has only happened once. So each machine averages about 200 transaction a month.


— Do you already have the locations where you are going to place the machines secured? What kind of an arrangement do you get into? Do you have a large concentration with a particular business?

All the locations and contract have been established ahead of time by the management company. We just signed a contract to purchase 60 more machines on Friday 17th of Sept. They will all be in place and turned on by Oct 7th. So no scouting out for locations or dealing with business owners is required on our part. We only buy the machines and have this management company handle the dirty work for us.


— How does your arrangement works with the people that own the locales? Do they get a fixed fee or a percentage of revenue?

Answered above


— It just occurred to me that you have not even mentioned how much you need to borrow. The amount of cash flow that you produce has to be enough to repay this number. Also income and revenue are two different things.

We just spent $90,000 on our latest 60 machines. The vendor of the machines supplies us with financing for 1/3 of the purchase price or $30,000 for this latest purchase. So we would only be requesting 2/3 of the need funding. The vendor provides a short term loan with no interest charged. So we cant pass up that opportunity.

After all our loans are payed each month, we bank somewhere around $50 per machine per month.

I hope this answers your question

Thanks

Terry Huskey
Peach Street Properties

Posted by: loanuniverse Sep 19 2004, 08:08 PM
Terry:

You said:

” The user of the ATM is charged a $2.00 transaction fee. .45 cents goes to the business owner. (5 year contract will each business owner) .65 cents goto the management company that maintains the machine. That leaves $1.00 per transaction in our pocket. There is no involvement on our part except to occationally request a relocation of a poorly producing machine. Which so far has only happened once. So each machine averages about 200 transaction a month.”

but you also said:

” As of right now these 30 machines have been averaging us right at $3,000 per month income or $100 per month per machine.”

To me 200 X $2.00 = $400, 200 X $0.45 = $90 & 200 X $0.65 = $130 This results in about $180 income before other operating expenses and debt service, but you also mentioned that the machines are giving you only $100 each. Where did the other $80 go?

If you take that inconsistency along with the projection of $9,000 that you forecast for each of these machines as well as the very rosy $200,000 figure that you mentioned in the first post, a lender would be cautious.

Now to your question:

I believe that the business looks good, but it does not look as good as you want it to look. If something like this crossed my desk, I would try to get more answers about the operations, interim financial information and projections. However, this request would never hit my desk because it is too small and all of the employers that I have had do not lend to startups.

You also have to take into consideration that even if you were to be able to put a lien on these machines, the additional comfort provided by this type of collateral would be just like having an unsecured loan.

Taking into consideration that most banks would not consider the request, I think that you need to take steps to make it more appetizing.

- You need to prepare financial statements for the months that you have had the 30 machines.

- You might want to consider pledging some tangible collateral such as your home.

- You might want to go for an SBA guaranteed loan.

- At this level of lending, requests are usually underwritten using a credit-scoring system. Therefore, it is a good idea to build a business credit history. Getting a DUNS number is a good idea.

- You need a business plan…. Well maybe you don’t need a business plan, but you need projections.


Good luck





Posted by: Guest Sep 21 2004, 03:33 PM
You are right. My fat fingers have been at it again.

$2.00 per transaction

.35 cents - Retailer
.65 cents - Management Company
$1.00 to us
----------------------------------------
$2.00

Only 100 average transactions per machine - sorry, fat fingers at work again.

So 90 machines X 100 = $ 9,000 averagage income per month. Then theres the current loans that we took out for these machines which is right at $4,000 a month payment.

Thanks so much for the advice. We may be able to use real estate as collateral.

Thanks again for the great advise.

Terry
email

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