Is your project a good candidate for bridge financing? How does bridge financing work?

• Bridge financing creates a bridge between a venture that requires funds and the necessary financing.
• Bridge financing is short-term.
• Bridge financing can lead to a quick closing, which then can give you the time you need to find a permanent financing solution.

Some examples of our clients who are good candidates for bridge loans:

Client #1 had discovered an underperforming hotel property with an off-site owner who very much wanted to sell due to changing family circumstances. Our client wanted to take advantage of Small Business Association products, but the seller wanted to close more quickly than a typical SBA loan schedule would permit. In order to satisfy the seller’s demands, GRP arranged for bridge financing, so that the property could be purchased without delay. Within an approved time frame, the buyer then was able to close at a later date with an SBA product, utilizing a lender that GRP had matched them with.

Client #2 is considering a HUD (Housing and Urban Development) loan to finance a project. At the cost of a long funding process, HUD loans can offer a maximum amortization period for a low long-term fixed rate. Taking on short-term debt initially may allow the client to take control of the project in a much shorter time frame.

Client #3, a repeat customer of ours, was quite experienced in the hospitality business and was ready to jump into a new venture. Our lender partners, some of whom are somewhat risk-averse, were not ready to jump into financing this project. By securing bridge financing, our client acquired and renovated the property and successfully launched the new business. After a year of healthy financial statements to show for his efforts, GRP Capital was able to find a permanent financing partner at a competitive rate.

Whether you are expanding your existing portfolio or investing in your first business, GRP Capital has the resources to help you meet your required capital needs. Our services include divisions of Real Estate Capital Markets, Small Business Financing, Construction Lending, GRP Capital Debt Fund, and Consulting and Advisory. Learn more at grpcapital.com.

We are a leader in commercial lending, advising, and investing because we are experienced, connected, and invested. Contact us to start the conversation.

On October 5th, 2018, GRP Capital published Knowing our Clients, Knowing the Marketplace. As a small business navigating the Great Lockdown, it remains our mission to connect borrowers and lenders alike.

In the Great Opportunity series, GRP Capital will be teaming up with industry experts to draw ideas for growth. In Part One of this series, we explain how lenders are evaluating businesses and which businesses are more interesting to lenders.

Business Diversification:

Through the ongoing Great Lockdown, lenders have been evaluating their portfolio with a new lens. Lenders have to carefully curate balanced holdings. They have to ensure they are funding businesses that have had consistent revenue, balancing those that are more unsettled. In general, lenders are diversifying their portfolio. In this way, they can avoid concentration issues in one asset class.

Rick Patel, President of GRP Capital remarks, “In the post-COVID 19 world, lenders are likely to be reluctant to lend to industries that have been hit extremely hard by shutdowns and may be slow to ramp up again. At GRP Capital, we expect that fewer loans for businesses in affected sectors will be underwritten, at least in the 3rd quarter of 2020.”

What Businesses are Attractive to Lenders Now?

Instead, we expect that lenders will be more receptive to loan requests for businesses in the following industries:

• Businesses that appear to be “pandemic proof”: These include gas stations, liquor and convenience stores, fast food and drive through food services, delivery services, and medical institutions.

• “Essential” businesses: Typically these include child care centers for essential workers and hotels which house essential workers. In addition, this may include senior living facilities for keeping both well and sick populations separate. Other businesses in the this category are those in the medical, laboratory, and manufacturing sectors.

• Operations that have adapted successfully to the “new normal”: Lenders may look favorably at businesses that have pivoted in the post-COVID 19 world. An example would be restaurants that have successfully made the switch to all delivery and all curbside.

Despite lenders’ increased focus on future economic cycles, there are still lending options available for businesses with adaptive operations.

Next week we’ll review what borrowers can do to demonstrate personal strength.

In Part One of this series, we discussed how lenders are evaluating businesses and which businesses are more attractive to lenders. In Part Two of this series, we discuss borrowing strength. What does it take to match an adaptive business with a strong borrower?

Demonstrating Your Borrowing Strength

• Liquidity: Now more than ever, liquidity is an essential gauge of a borrower’s strength. Having liquidity in a down economy illustrates growth potential  and an ability to withstand future economic downturns. Lenders like to see at least six months of payment reserves in liquid assets including checking, savings, and easily liquidated securities. Consider how you would handle future economic disruptions.

• Management Experience: Banks are more comfortable lending to proven managers. A management resume detailing experience and accomplishments is a common forum to highlight your ability to manage. It’s also critical to demonstrate your flexibility. Can you quickly pivot under changing social and economic conditions? Lenders like reviewing case studies and business plans, which help demonstrate that you have put time and thought into all possibilities.

• Credit Worthiness: Banks are also more comfortable lending to proven borrowers. A borrower who actively monitors their credit has an aim to be a more qualified borrower. Be sure that you remain credit healthy by keeping your debts manageable and staying on top of bills. Many borrowers forget that revolving credit, as well as medical debts, affect creditworthiness.

Krishan Patel, Managing Director of GRP Capital, advises that “Now is not the right time to overleverage yourself. Lenders are becoming more conservative through an uncertain market. If your next transaction will leave you feeling light in the pocket, then maybe this isn’t the best time to get into that project. Lenders put credit guidelines in place not only to protect their interests but to also protect borrowers from making an irreversible decision.”

Despite lenders’ increased focus on creditworthiness, there are still lending options available for businesses with borrowing strength.

Next week we’ll review how the valuation process has changed.

We at GRP Capital are continually examining our economic climate, determining the most effective way to secure debt financing for expansion. In Part One of our series, we discussed business diversion and what businesses are attractive to lenders – this week we’ll be focusing on our recent closing of a liquor store.

Why are Liquor Stores Great Opportunities?

• Pandemic-proof: Liquor stores attract customers, even when the bars and restaurants are closed. In fact, they see more diverse foot traffic when other options for drinking out “dry up”. In addition, most state and local laws forbid the consumption of liquor in the stores, which further protects the employees and the public. One of the first loans post-COVID-19 that we closed was a liquor store in Georgia. A successful liquor store should continue to be profitable, even if and when the virus escalates in the future.

• Adaptable: Liquor stores have built in systems for security that can be used to restrict touching of merchandise. A skilled manager can capitalize on liquor store offerings. Perhaps the store can expand into packaged treats, gift baskets or other items that are not easily available.

• No Price Wars: Many local and state governments regulate liquor stores, forbidding discounts. This preserves minimum price structures. As a result,  a successful liquor store thrives because of its inventory and its service, not by trying to beat their competitors’ prices.

What should you do to get funding for your liquor store?

• Buying a store? If you are considering purchasing a store, get to know the business well. How healthy is it? How have the revenue and expenses fluctuated before and during the pandemic? Did the managers make any operational changes or did they not? Consider whether you would be able to match or exceed the management skill of the current owners.

• If you currently own a liquor store: Determine if now is a good time to refinance debt. Interest rates are historically low and many lenders are willing to fund liquor store loans. You should also consider if this is a time to renovate or expand your liquor store, increasing your ability to sell more diverse products that are in higher demand. You may also utilize money to retrofit your store set up to separate employees and customers and to create greater opportunities to conduct business “touchlessly”.

• Prove your Management Experience: Banks are more comfortable lending to proven managers. A management resume detailing experience and accomplishments is a common forum to highlight your ability to manage. It’s also critical to demonstrate your flexibility. Can you quickly pivot under changing social and economic conditions? Lenders like reviewing case studies and business plans, which help demonstrate that you have put time and thought into all possibilities.

• Keep an Eye on your Credit Worthiness:  A borrower who actively monitors their credit will naturally be a more qualified borrower. Be sure that you remain credit healthy by keeping your debts manageable and staying on top of bills. Many borrowers forget that revolving credit, as well as medical debts, affect creditworthiness.

If you are interested in the liquor store business, now is the time to act. Read more about other aspects of finding funding in today’s climate here:

Becoming a Better Borrower

What Businesses do Lenders Like Now?

Gas station financing is hot right now. We routinely check in with our lending partners to see what their appetite is and they are telling us that they are interested in funding gas station purchases, refinances, and construction for qualified borrowers. In fact, one of the first loans that the GRP team closed after the COVID-19 pandemic was a gas station development loan.

As part of our Great Opportunity Series, we will discuss why a gas station loan makes financial sense right now for lenders.

Why are Gas Stations Great Opportunities?

• Recession-proof: Gas stations are considered essential businesses. Therefore, gas stations remained open throughout the COVID-19 crisis even during lockdown and travel bans. Gas stations did experience some disruption, as customers curtailed travel to offices and for leisure. However, gas stations that had a variety of food and beverage options as well as other sundries were popular shopping venues, even during the pandemic. Gas stations with service departments also saw an uptick, as people had time to turn their cars in for maintenance.

• Convenient: Customers looking for a quick bite to eat or who just needed a few items could pop in and out of a gas station convenience store without encountering long lines. As a result, convenience became critical and will remain a key component of gas stations’ abilities to prosper in any future economic downturns.

• Adaptable: Gas stations typically have just one or two cash registers. These registers are the major points of customer-employee contact. Gas station owners can fortify these points of contact with minimal expense, thereby protecting both customers and employees. Skillful, experienced managers also adapted other operational aspects during the peak pandemic times. These modifications included removing self-service items, switching to more packaged goods, adding extra cleaning time, and limiting the use of restrooms.

• Fuel Supply Agreements: Fuel supply agreements set up an established “cut” for the supplier. This protects both the supplier and the gas station owner. No matter what the price of the fuel is, the owner will still make money. This built-in stability makes a gas station loan attractive for many lenders.

Another Great Reason to like Gas Stations: 

• Advantages over Grocery and Big Box Stores: Gas station convenience stores have fewer shelves to fill and a smaller variety of items. Their customers know this. But this scale allows owners to quickly purchase a smaller amount of items that seem to be “hot”. These items could include toilet paper, bleach, or packaged and frozen food. Flexibility and established relationships with suppliers are the keys to being able to pivot to meet customer demands.

If you are interested in any form of gas station loans, now is the time to act. Read more about other aspects of finding funding in today’s climate here:

Becoming a Better Borrower

What Businesses do Lenders Like Now?

If you are even considering financing your business right now, be aware of the SBA program ending soon. We encourage our clients to move quickly to take advantage of the Small Business Administration (SBA) Debt Relief program.

Ultimately, this SBA program provides a great incentive for potential borrowers. Considering purchasing or refinancing? The SBA debt relief, coupled with particularly low interest rates, are added incentives.

Due to funding availability, the SBA is offering three months of  debt relief for new loans, which are fully disbursed by September 30, 2021. This relief comes in the form of minimized loan payments. For those whose mortgages are $9,000 or less, the SBA will cover those payments, whether they include principal or interest. For those with mortgages of larger than $9,000, the SBA will contribute $9,000 to the mortgage payments. Borrowers will be responsible for the remainder of the amount for the three months.

How Does this Debt Relief Work?

• New loans must close and disburse by September 30th:  This means that the loan has to fully close and the money has to be used to pay off the seller or the note holder by that date. Therefore, these loans cannot be used for large construction projects or even an ambitious PIP. However, in some cases, some working capital for minor renovations can be included in the loan. There is no wiggle room, as the SBA program ending is a set date and is non-negotiable.

• Applying is automatic. If your SBA guaranteed loan closes prior to September 30th, the SBA subsidy takes over the payments for three months. The SBA will directly pay your lender during this time. Even better, there are no additional applications to fill out. As a result, you will never be responsible for these payments and you will see the balances of your loan decrease each month in the statements.

• Why This Program Now?  The SBA (and the Federal government) want to encourage economic growth, which includes commercial lending and borrowing. Historically low interest rates are a great incentive for business loans in general. Wise business owners can take advantage of these low rates, and the time of no payments.

Other Aspects of this SBA Debt Relief Program:

•  What kind of borrowers should apply?  Borrowers need to show credit-worthiness and strong management skills. Because of the quick turnaround (this program closes soon), borrowers should be able to show that they are able to pay back the loan. If you are refinancing a note, it should be in good standing. Borrowers will need to have filed 2020 taxes (or an extension) and should be ready to submit absolutely up to the minute financials. The underwriting of a client’s file needs to show ability to pay, strong management skills and a thoughtful, effective response to COVID-19.

• This program is different from the Paycheck Protection Program and the Economic Injury Disaster Loan. Those programs are also available to certain borrowers. But the three months of no loan payments are a different program. Borrowers who have PPP loans should organize their documents to show what the status of their forgiveness is. In addition, lenders will deal individually with EIDL loans.

• What does the relief include? Loan payments, interest payments and other associated fees.

Becoming a Better Borrower

What Businesses do Lenders Like Now?