Many entrepreneurs like the glamor of starting a limousine business, but the path to their
Success may be a bit more complicated than one might anticipate. This article will focus on the financial aspect of the initial investment and will try to give those who want to be limousine entrepreneurs a reasonable assessment of what to expect.
Today, most typical lenders are not interested in lending money to a new business for a limo service. They consider it a high-risk type of business and feel that their investment dollars can be better spent elsewhere in their portfolio. However, there are some lenders who are comfortable in the trucking industry and will lend accordingly. Your banking base could be exclusively in this industry and it will cover not only limousines, but also limousines and shuttle buses, tour buses and coaches, ambulances and hearing aids, etc.
Most lenders do a background check on the applicant and want to make sure they have experience in this industry and / or have other key employees who can complement this situation. Also, they understand that this start-up business can lose money at first and want a comfort level that the applicant has a nest of money. An income-producing spouse who can support the demand for cash flow during the start-up phase would be a real advantage. Additionally, applicants’ personal credit can be raised to a higher level to reassure the lender that they have a qualified applicant.
Once the lender passes the initial credit review and the applicant’s qualifications to run this type of business, the amount of money up front to qualify for a lease becomes an issue. Every lender is different, but for the most part they require the applicant to place somewhere between
10% -25% of the purchased cost of the limousine. Each limo deal is reviewed separately by the lender because, in their opinion, a Hummer vs Lincoln tranche has different criteria for them. They check the year, make, and model, including mileage, etc. to reach a financing agreement. Many lenders do not like to loan less than $ 25,000 to $ 30,000 and a limo that is not more than three or four years old. Plus, your leases could last anywhere from 30 months to 60 months. It is recommended that you look at more than one lender and see which criteria are best for you.
The final part of the financing exercise is figuring out how much your monthly payment will be. This can be an interesting exercise because you know that one will quote you an interest rate. I have seen limousine businesses start up charging between 14% and 38% interest per year once all the red tape is cleared. This maintenance cost is a criterion to make sure you can afford the monthly payment because you don’t want a run-away business that will get thrown out of balance from the start. It is a good idea to have a business plan prepared by you or a qualified person to see what all the variables are. I have seen many times where a limousine bus could be a better investment than a stretch because the region dictated this demand. Obviously, it’s important that you understand your customer base and hopefully get upfront contracts to build your income base before you go too far.
At the end of the lease, limousines generally have a release clause so that you can own the limousine. . Sometimes it’s a $ 101 purchase or a residual 10%, make sure you understand the purchase
clauses.
The hardest part of this business is getting the initial financing, sometimes a co-signer can be
Additional and necessary warranties may be required. Once you spend a couple of years and show
the banking community can survive and pay its bills, then the next acquisition should be a lot
easier. Hopefully the requirements to finance the second lease will be like night and day.
The last thing to remember is that you will end up personally guaranteeing the lease, so be prepared for this. A personal financial statement from the lender and a couple of years of personal income tax returns may be required.
Happy searching for your limo and remember that the requirements of each lender may be
different.