Commercial Financing Difficulties - Solutions for Auto Services Properties

There are several types of commercial businesses that routinely experience commercial financing difficulties. One of the most problematic commercial financing situations occurs when a commercial property involves business activities relating to auto services. The most common commercial financing difficulties for an auto services business typically involve some variation of the following issues: (1) perception by the lender that an auto-related business is riskier compared to many other commercial enterprises; (2) environmental issues; (3) lender requirements to use short-term financing rather than long-term commercial financing; and (4) a common need for additional working capital.

These four commercial financing difficulties will each be profiled below. Following that discussion, seven practical commercial financing solutions will be described.

COMMERCIAL FINANCING DIFFICULTY: RISKY LOANS?

There are many businesses falling into the auto services category, and they generally involve activities that include automobile body repairing and painting. These properties are viewed as riskier loans by most traditional lenders. As a prime example of how non-traditional commercial lenders look at difficult commercial financing situations differently, auto services properties have been moved to a less risky underwriting category by several of these lenders. Because of this, it will usually be beneficial for owners of auto services businesses to work with a non-traditional lender because of the better commercial financing terms.

COMMERCIAL FINANCING DIFFICULTY: ENVIRONMENTAL DIFFICULTIES?

There are unique environmental issues for auto services properties that frequently produce difficulties in obtaining commercial financing from a traditional commercial lender. Properties involving environmental issues will often be politely declined by a traditional commercial lender. Auto services and related businesses are frequently mistreated in this manner. If such commercial financing is not declined outright, then typically a Phase I/II environmental report will be required (which can easily add $15,000 to $20,000 or more to the cost of the loan if a Phase II report is needed). The commercial borrower could end up paying this entire cost even if the report produces findings that result in commercial financing disapproval. If the cost for a Phase I/II environmental report wasn't already a sufficiently negative issue, this requirement also adds substantial time to the commercial loan process. As a practical time-saving and cost reduction strategy for addressing this unique but solvable problem, an environmental insurance fee can be used to meet the special commercial financing needs of environmentally-sensitive properties (thus frequently avoiding the need for Phase I/II environmental reports). Using this strategy, a non-traditional lender can usually get an environmental approval in 5-7 days.

COMMERCIAL FINANCING DIFFICULTY: SHORT-TERM FINANCING?

One of the primary underlying reasons for a high failure rate among many auto services businesses is directly due to the commercial borrower being forced into short-term commercial financing when long-term commercial financing is essential to the health of the business investment. Businesses should not be financed with short-term funds. It is essential to obtain long-term commercial financing of at least 15-20 years (and longer is even better). For most auto services businesses, long-term commercial financing is likely to be available only from a non-traditional commercial lender.

COMMERCIAL FINANCING DIFFICULTY: BUSINESS CASH ADVANCES FOR IMMEDIATE WORKING CAPITAL?

As noted above, traditional lenders are frequently reluctant to provide long-term commercial financing to an auto services business. However, some financing needs can be handled effectively with shorter-term commercial financing strategies. A retail auto services business will usually benefit from using credit card receivables to convert future cash flow into immediate working capital (usually up to $300,000). This solution should be actively evaluated by owners and prospective owners of auto services businesses.

COMMERCIAL FINANCING SOLUTIONS FOR AUTO SERVICE PROPERTIES

For an auto service business borrower facing any or all of the situations described above, the highest priority should be to locate a non-traditional commercial lender that:

(1) Openly welcomes auto service properties and routinely finances such properties.

(2) Does not add special requirements to commercial financing for auto service commercial properties.

(3) Has a history of making loans for the specific type of property under consideration.

(4) Can accommodate both small and large commercial loans for auto service properties.

(5) Can accommodate environmental issues with such practical solutions as environmental insurance.

(6) Can routinely provide 15-25 year commercial financing for auto service businesses.

(7) Is capable of providing immediate working capital via a business cash advance based on future credit card receipts.

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AEX Commercial Financing Group, LLC
Commercial Financing Strategies