Many enterpreneurs like the glamour of starting a limousine
business but the road to their success may be a little bit
more complicated than one might anticipate. This article
will concentrate on the financing side of the startup
investment and try to give the want to be limo entrepeneur
a reasonable assessment of what is in store for them.
Today, most typical lenders aren't interested in lending
money to a start up business for a limousine service. They
consider it a high risk type of business and feel that
their investment dollars can be better spent somewhere else
in their portfolio. However, there a few lenders out there
that feel comfortable in the transportation industry and
will lend accordingly. Their bankground might be
exclusively in this industry and will cover not only
limousines but additionally limousines and shuttle buses,
coach and tour buses, ambulances and hearsts etc.
Most lenders review the applicant's background and want to
ascertain that they have experience it in this industry
and/or have other key employees that can supplement this
situation. Additionally, they understand that this start up
business may lose money at the start and want a comfort
level that the applicant has a nest egg of money. An income
producing spouse that can support the cash flow
demand.during the start up phase would be a real plus.
Additionally, the personal credit of the applicants may be
raised to a higher standard to reinsure the lender that he
has a qualified applicant.
Once the lender gets passed the initial credit review and
the applicant's qualifications to run this type of
business, the amount of upfront money to qualify for a
lease becomes an issue. Each lender is different but for
the most part they require the applicant to put up
somewhere between 10%-25% of the acquired cost of the
limousine. Each limousine deal is reviewed separately by
the lender because, in their mind, a hummer vs a lincoln
stretch has different criteria to them. They review the
year, make and model, including the mileage, etc to come up
with a financing deal. Many lenders don't like lending
below $25,000 to $30,000 and a limousine no older than
maybe three to four years old. Additionally, their leases
could run as little as 30 months and as much as 60 months.
It is advised for you to look at more than one lender and
see what criterial is best for you.
The final part of the financing exercise is to find out how
much you monthly payment will be. This can be an
interesting excercise because know one is going to quote
you an interest rate. I have seen start up limousine
businesses being charged anywhere between 14%- 38% interest
per year once you get through all the red tape. This
carrying cost is criterical for you to make sure you are
able to afford the payment per month because you don't want
a run away business which will be out of balance from the
start. It is a good idea to have a business plan prepared
by you or a qualified individual to see what all the
variables are. I seen many times where a limo bus might be
a better investment than a stretch because the region
dictated this demand. Obviously, it is important that you
understand your customer base and hopefully obtain
contracts upfront to create your revenue base before you
wander to far.
At the end of lease, the limousines usually have a buyout
clause so you can title to the limousine. Sometimes it
is $101 buyout or 10% residual, make sure you understand
the buyout clauses.
The hardest part of this business is getting the initial
financing, sometimes a co-signor might be necessary and
additional collateral may be required. Once you get past a
couple of years and show the banking community you can
survive and pay your bills, then the next acquistion should
be a lot easier. The requirements of financing the second
lease hopefully be like night and day.
The last thing to remember is that you will wind up
personally guaranteeing the lease, so be prepared for this.
A personal financial statement by the lender might be
required and a couple of years of personal income tax
returns.
Happy hunting for your limousine and remember that each
lenders requirements might be different.
----------------------------------------------------
JM Luna has over thirty years in the areas of finance. This
includes accounting and taxes, leasing, hard asset money
and working capital loans and commercial lending. U.S
Corporate Capital Leasing Group assists start ups and
seasoned businesses to obtain financing in many industries.
http://www.cclgequipmentleasing.com
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