April 1, 2013: Application for a Golf Course Bank Loan
Last week, as consultant for a golf course buyer, I attended a loan application meeting with the bank loan officer, the bank branch manager, the golf course buyer and borrower and an attorney. The golf course buyer was under a purchase and sale contract to buy the golf course and was seeking bank financing for a portion of the purchase. Earlier, I visited and reviewed the subject golf course, its marketplace, and reviewed three years of financial statements.
There was one very impressive aspect of the golf course property that I knew would impress the banker: It is a 'some-day' valuable piece of land.
However, in the world of banking the same holds true today as it has for 100-years: The banker looks at the ability to repay the loan, which must be clearly demonstrated in the recent financial history of the course. Unfortunately, the financial history was not impressive enough to qualify for a head-office-approved loan - for which I was not surprised.
It was an interesting meeting, because the loan officer and the branch manager knew the property and really wanted to approve the loan. That's because the land under the golf course still retained most of its property rights. That fact is typical of a golf course built forty or more years ago. Therefore, future value of the land could be anywhere from $10 to $20 million, more than adequate to support a $1 million dollar mortgage. Nonetheless, the ability of the borrower to make loan payments today could not be demonstrated, so the borrower was advised the bank could not process the loan request.
So, how can one finance a golf course with a bank?
Conventionally, the business must show the banker it can meet debt service based on the most recent financial history - usually the trailing 36-months of income less expenses.
But wait! Some loan officers can make loans of under $1 million without going to head office for approval. However, it will likely be a loan of 50% or less loan to value (LTV). If a convincing business plan can show the loan officer the true potential and performance of the business will meet debt service, a 50% loan might be approved. So, we continued...
Applying my expertise, plus exceptional field work by the borrower a presentation in power point was created. I believe the assumptions and forecasts are very attainable and could get a positive response from the bank. The presentation is in the final edit stages.
Stay posted. It will be an experience to achieve the first golf course bank loan I have seen in at least 8 years.
Mike
Hello from Mike Kahn: I'm all about the golf business and the game. As my distance off the tee shrinks, apparently participation in golf is also shrinking. I've seen it all and done it all in the golf business, yet I've been a recreational player 99% of the time. The 1% was when I was a Canadian PGA member in the early 60's. As I blog along, probably mostly talking to myself, my comments might be picked up by a blind squirrel - and maybe even post a reply.
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