Automotive Property Loans – Credit Crisis

If you own an automotive property or are thinking of buying one, such as an oil change facility, collision shop or general auto repair, you’ve got to have you’re “ducks in a row” as they say, to get the loan closed in this market.Believe me I’m sick of hearing about it and sick of “warning” my clients. But as the credit crisis persists, you need to start thinking clean. In other words your loan requests have to be strong or you won’t be getting any term sheets from banks. They’ll simply pass on your deal. One of the more common issues is bad credit or mediocre credit. 6 months ago you could get away with a 620 and still have some good options. Now you really need a 680. Issues like late pays or an excessive amount of debt, even with good scores, will now kill most options.Another common issue is so many automotive property owners don’t show enough income to qualify. The idea on a bigger scale is to avoid as much taxes as possible, but when you go to get a loan, you’ve got a problem. Whatever money you saved by not paying tax you’ll “pay back” to a lender in the form of a higher interest rate or by not getting a loan at all. Pay now or pay later. Tal to your CPA about this he may be able to help you create more noncash items like deprivation so that you can have the best of both sides – low taxes and a good rate.Bottom line, if you want a decent loan, you’ve got to show a decent amount of income in this market. More exactly, you’ll need to hit a Debt Coverage Ratio of a 1.3, which has gone up from a 1.2 (some banks used to go down to a 1.1). What this ratio means, is that you’ll need to show $1.30 of net income, for every $1 of proposed mortgage payments. So after you pay all of your expenses and pay the mortgage you’ll still have $.30 left over…Automotive property loans are still doable! But you’re going to have to be more serious about pulling them off. And (I’m not just trying to up sell you) you should be more concerned about if the funding bank is really going to close vs. picking one bank over the other to save 10 basis points on your rate. Prepare in the beginning and have your loan package look as clean as possible BEFORE you submit it to a bank. You don’t want to have to “explain away” a single item if you can avoid it.