By Joel Graybeal
Financing your climbing gym is a big and daunting task. Your debt servicing is normally one of the three most costly components of your expense structure (employees are generally your top expense category with mortgage or rent payment being second).
The following principles were put together by a former banking executive and current climbing gym owner to help prospective gym owners (and owners looking to expand) start on the right foot with a lender. These do’s and don’ts are key to getting the best terms on your loan while building a solid long-term relationship with your banking partner – something that’s necessary to take your climbing gym business to new heights!
1. At your first meeting, bring everything the bank asked you to provide on their checklist. Your banker is going to form an initial opinion about you and your business based on the first meeting. They have lots of ways they can choose to spend their time. Make them want to spend time with you by being organized and thorough. Be on time, be professionally dressed, and be prepared.
2. Save an electronic copy of all your documents to a thumb drive (or other portable device) and give each document a clear file name. Take the drive to the meeting with your banker, which will allow them to to have access to these documents at any time.. The easier you can make it for your banker, the more time they can and will spend helping you. It’s also a lot easier for you to share information with multiple banks when you have an electronic copy.
3. Prepare your business plan and be prepared with a 3 – 5 year Profit/Loss proforma. This is your opportunity to show the bank that you have thought through all aspects of starting your business. A well-crafted business plan along with a medium-term forecast helps eliminate doubt (bankers go to special schools to learn how to be skeptical!). You want your bank thinking that you’ve thought of everything and have committed sufficient time to developing the business plan. If you haven’t committed to preparing a great plan, why would you expect your banker to commit to you? It’s crucial that you instill confidence in your banker with your plan.
4. When your banker asks you for additional information, provide that requested info ASAP. Even if you provide 100% of what your banker asks (which according to bankers never happens), they will ask more questions as they peel back the layers of your documentation. It’s imperative that you respond quickly and thoroughly.
5. Talk to different banks as underwriting criteria and loan structures (rate, term, loan to value) vary from bank to bank. While the product offerings are generally the same between banks, the proposed financing solutions will vary. Some banks prefer the SBA 504 loans while other banks lean more heavily on the 7A loans. Or it’s possible the financing solution might be a hybrid. It’s good to get several different looks at your situation and financing needs before you commit to a bank financing partner.
1. Necessarily accept that the bank’s preferred financing structure is in your best interest. As disappointing as this may sound, the solutions that some bankers will propose may be more in their best interests than yours. SBA 7A loans are far easier to process than SBA 504 loans. Yet the terms for 504 loans are generally better, have longer interest rate protection, and use less SBA eligibility. By talking to different banks and Community Development Corporations (CDCs – the agents for the SBA), you will figure out the best way to structure your deal.
2. Go into any meetings with bankers looking unprofessional and unprepared. Your banker does not have a shortage of things to do and they almost always have to choose which clients’ deals they are going to work each day. Never give them a reason to think less of you. Unprofessional equals sloppy. Unprepared equals “can not execute.” Bankers do not want to work with sloppy clients who can’t execute. Remember, they’re assessing your ability to meet a monthly ongoing obligation on a timely basis.
3. Procrastinate in collecting requested documents. When you don’t move on providing the necessary documentation, you’re sending the signal to the banker that this loan is not important to you. This is another case of “don’t give them a reason to think less of you.” Show the banker that getting the right documentation back to them is important to you. When they send you an email, promptly acknowledge receipt of the request and tell them when you’re going to provide what was requested. Then do it before the time you told them you would. That’s how you impress bankers: under-promise and over-deliver.
4. Work with a bank who wants to be your vendor – find a bank that wants to be a partner to your success. Your first assessment of a potential banking partner is to determine if they are going to invest the time getting to know you and your business. It’s extremely important that they buy in to you and your vision for the business. You want a partner who is going to be there when times are good and when times are not good. Get some references from some of their other customers to get a feel for what it’s like to have a long term relationship with that banker. Your banker should be an asset to your business- not just a big liability!
Joel Graybeal is a retired Senior Vice President specializing in mortgage production and is now a managing partner at Triangle Rock Club in Raleigh, North Carolina.