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 entrepreneur 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 exercise 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
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 you limousine and remember that each lenders requirements might be