The next step is increased scrutiny of the business plan and financial forecast, which needs to be completed by financial professionals (i.e., chartered accountants or certified general/management accountants). The do-it-yourself business plan without reference to industry standards and how the key ratios are established will not cut it. The lenders are looking more at who is doing the plan and how the numbers are developed.
A reference often used by banks and lenders is a business report compiled by The Risk Management Association (RMA), formerly known as Robert Morris Associates. RMA financial reports are completed annually on all types of commercial and industrial operations. The group collects information from financial statements provided on all types of businesses including self-storage. It then compares key ratios based on actual sales volumes, allowing lenders to compare your projections to business financials of companies already in operation.
Should the test of your forecasted numbers be out of line with RMA averages, your business is likely to pose a financial risk to the lenders in this economic climate. Banks manage risk, and if they cannot mitigate it, the deal is turned down. Therefore, it is best to compare your financial projections to RMA standards prior to submission for financing and explain any irregularities in the business plan.
Project costs and timelines are the next to be addressed. The permits and licensing for new operations should be in place, or there should at least be verification that permits are available for the project. A marketing plan based on demographics and competition should also be assessed. The marketing team with its track record will help in determining the projected time it will take to lease up the project. Initiatives should be detailed and include team members’ personal resumes.
A complete, detailed construction budget with timelines and a provision for possible extras (supported by a Phase II environmental assessment and an appraisal on the property) should complete your credit application. A plan without the above provisions and information has little likelihood for gaining successful financing from the lenders.
Light at the End of the Tunnel
While the economy has many developers and owners running scared, there are lenders available to assist with self-storage ventures. But only if you proceed with a strong business plan that addresses ownership, financial projections and marketing plans will give you be considered for financing.
So there is light at the end of the tunnel. All you have to do is modify your approach and seek out the lenders that are still prepared to do business. Many lenders have unwisely committed their operating capital to unworthy mortgage ventures and are now simply short of funds to lend. This makes funding any venture a challenge. However, there are still Canadian lenders ready and able in this economic climate, with funding available at reasonable fees and rates.
Dan Cardinal is the vice president of commercial lending for the Ontario office of Asset Capital Mortgage Corp., an Alberta, Canada-based company. Cardinal has more than 35 years of experience in commercial financing as a banker and mortgage broker. For information, call 905.672.5626; e-mail firstname.lastname@example.org.