How do I get Started
Posted by: Paul Aubrecht Apr 17 2003, 09:45 AM
I want to buy an existing coin laundry.I have read the articles you cited as well as others.I would operate it with my wife as full time occupation.I have been paying off all my bills and will be done soon.I will also be selling my house and other items because of a career relocation issue.I have $30000 in cash(not counting asset proceeds) and my credit score is in the 700’s.The business’s I am looking at are in the low 100k range.I realize that due diligence has to be done.Here are my questions:
1.I am confused about how to do this because I cant go to the bank for a loan without the due diligence but I also am leery about going through due dilligence on a coin laundry if I wont qualify for a loan for the balance of the loan.What do I do?
2.Some of the properties I want to buy are in another state.I have no problem moving myself and getting a small apartment but how will a bank look on this?
3.If I have 25% of the business cost,75% I want ot finance,how much additional capital will I need over the 25% for the loan to go through?
Thanks (by the way,this site is great.I can find very few resources of this type.)
Posted by: loanuniverse Apr 23 2003, 06:04 PM
I think that the first thing you need to do is realize that you will have to do a lot of homework before taking your request to a lender. You have to approach this Due Diligence as something you need to do for yourself more than something you need to do for your banker.
First some observations, A credit score in the 700s is good. Most of the small business owners that I take a look at are on the high 600s with only about 25% breaking 700. Furthermore, if we are talking about a business with $100M in assets, then $30M in equity should be more than enough. This would mean that you will take on $70M worth of debt for a resulting debt to worth ratio of 70/30 or 2.33X . I am not at work right now so I can not check that against industry averages, but it sounds low enough not to cause me concerns if the request crossed my desk. Now let me see if I can answer your questions:
1 You need to do some research use to come up with an appropriate value. Then figure out if the business has enough cash flow to repay the debt that you will have to incur in order to purchase it.
2 When you mention properties, I get a bit confused. One thing is to buy a business and another is to buy the property where the business takes place also. Eventually, both loans will get paid with the same cash flow. However, the purchase of the property gets a bit more complicated as other factors come into play. If the plan is to buy the building and the business, then you have what is called an owner occupied property loan where the cash flow from operations replaces rental income as your source of repayment.
3 I can not give you a magic number on the amount of money that you need on top of your down payment. Frankly, if you have a regular job and decided to do this as a side investment, I would not even concern myself with how much money is left in your account. As long as the coin laundry can repay the loan, then there would not be a need to rely on a secondary source of repayment. For larger loans a more detailed look at a secondary source of repayment would be a requirement.
I hope this helps.
Also note that if you are interested in financing or buying a coin laundry, a long time ago I did a quick valuation exercise for a coin laundry that can be found HERE