Is Our Industry Being Redlined By The Banks?

Discussion in 'Lawn Mowing' started by PetalsandPines, May 7, 2003.

  1. PetalsandPines

    PetalsandPines LawnSite Member
    Messages: 248

    Although I have been in business now for 10 Years, I have found it a struggle to get commercial loans from banking institutions. On yet another one of my attempts to get funding for expansion I was informed by a representitive of a large bank that Lending to the Landscape Industry is discouraged amongst the underwiters. Is this fair? Maybe I should have posted a poll, but I am curious if this is just a statewide issue here in New York, or if it is like this all over? Lets not get into a discussion over credit reports & situations that may affect a decision. I am concerned over the banks unwillingness to collateralize your business assets against loans. It appears that if it's not real estate, they look the other way.
  2. brucec32

    brucec32 LawnSite Platinum Member
    Messages: 4,403

    Based on the number of mowers advertised for sale with "getting out of the business" in the ad, I can't say I blame the banks for looking twice at lending money to anyone in this business. I also know of a friend of my parents' that inherited a big lawn care biz and lost it and is still paying off those debts.

    As for collateral, there's a HUGE DIFFERENCE in lawn maintenance equipment and real property. My wife is an asset manager for a large finanacial institution. (handles disposal of assets at the end of leases) Equipment that YOU may know is valuable isn't always easy for a big institution to get rid of if you default on the loan. They have costs you don't have selling it. They have to find a warehouse to store it, they have to pay staff to manage the sales, they have to advertise, they have to hire a $100K/year expert to keep on staff to know your equipments' value, they have to hope you haven't sold the item on your own (remember, much of this stuff doesn't have titles, and you can pocket the cash). They also can't guarantee that you are keeping this asset in good condition. So, a $10,000 mower might only net them $3,000 after they've had to hunt you down to find it after you failed to make any payments, get a judgement against you or repo it, and cover all the other costs.

    For vehicles, the selling dealer should be able to get you financed if you're even a decent risk. As for equipment, ditto. Are you talking about borrowing working capital? It's not easy to get business loans anywhere w/o the right provable numbers on paper. Those with money in the bank and a track record have an easier time borrowing, ironically.

    I'm conservative, so my advice would be to try to fund expansion out of retained earnings when possible. An economic downturn could mean disaster if you're over leveraged. Banks saying no might be a sign your plans are considered over-ambitious by (traditionally conservative) bankers.

    As for the term "redlining" as used today.... I'll just say that hey, it's their money. I'm for letting them lend it to whomever they want, for whatever reasons they want.
  3. Lawn Specialties

    Lawn Specialties LawnSite Member
    Messages: 208

    I have run into this myself. I was at my credit union one day signing on a car loan and asked if they handled small biz loans. The loan officer responded that they did and asked what kind biz I was in.She told me that there was no way to verify a value on lawn equipment. I have been with this credit union for over ten years and have good credit. I have called them about car loans and they have told me just go buy it and come in next business day and sign the paperwork and have even gotten lower interest rates just by asking. Even though I have this good of a relationship with them I've been told other than high interest signiture loans they can't help me.
  4. I got denied to barrow my own money.

    They refused a cash collateral loan.

    I had to have my father co-sign the loan.
  5. PetalsandPines

    PetalsandPines LawnSite Member
    Messages: 248

    What if your only asking for 15% of your yearly sales to be accessible for seasonal startup costs, With signed contracts guaranteeing the income? Your only a social security number to lending institutions, business plan my ***** , it all come down to your SS #, I wasted my time & money on the plan....Bankers don't care.
  6. JasperStorm

    JasperStorm LawnSite Member
    from WA
    Messages: 71

    Could it be that the bankers read these boards?
  7. Green in Idaho

    Green in Idaho LawnSite Senior Member
    from Idaho
    Messages: 833

    Promote prepaid contracts with a discount to provide your seasonal startup costs. Let your customers finance you.

    Not sure what those seasonal start-up costs requirements would be and hey maybe the bank felt the same way. If you are an ongoing biz needing seasonal start-up might indicate you did not carry enough cash from the previous season. And if that was your only reason for requesting a loan, I can see why they denied.

    Exactly what do you mean when saying "I need start-up costs"?

    Home-equity lines work great for additional capital.
    Customers are great-- advertise "investors wanted" If a customer thinks you do a great job they may be interested in helping you expand. Either in a loan or some equity. Of course that takes a little more effort. A customer investor program with quarterly dividends.... ????
  8. redbull

    redbull LawnSite Member
    Messages: 182

    This relates to the posting by JDOG concerning unlic. cutters. To easy for a bank to get burned by a "fly by nighter". Its sad
  9. slowleak

    slowleak LawnSite Member
    from 63055
    Messages: 96

    try checking your newspaper. look for venture capitalist's. these people need people like you. they have deep pockets,you have a plan. sell your plan,yourself.good luck. hope this helps.kevin
  10. John from OH

    John from OH LawnSite Member
    Messages: 144

    Petals and Pines,

    Bruces32 gives a very good explantion of why banks shy away from the green industry. Lots of small companies that won't last 2 - 5 years and the banks take the loss. Look at the typical management experience of green industry companies, not many MBA's with solid financial skills, mostly high school education and bootstrapped companies, many not knowing their expenses and how to recover them, how much would you be willing to risk?

    After reading your post, I think a credit line might be what you are after. You tap the line in spring to cover expenses until cash flow improves and then pay it back. If you have 10 years in business and a good credit history, your banker should be willing to work with you on a line.

    Venture capitalist and stock holders typically don't find the green industry appealing for the same reasons as bankers. Smaller companies, seasonal cash flow and marginal profitability are not the key ingredients in high return investments.

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