Many entrepreneurs like the glamor of starting a limousine business, but the road to success
success can be a bit more complicated than one might anticipate. This article will focus on the financial side of the initial investment and try to give the entrepreneur who wants to be a limo 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 view it as a high-risk type of business and feel their investment dollars can be better spent elsewhere in their portfolio. However, there are some lenders who are comfortable in the transportation industry and will lend accordingly. Your bank may be exclusively in this industry and will cover not only limousines, but also limousines and shuttle buses, coaches and tour buses, ambulances and passenger cars, etc.
Most lenders do background checks 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 may lose money at first, and they want a comfort level that the applicant has a reserve of money. An income generating spouse who can support the cash flow demand during the startup phase would be a real plus. In addition, applicants’ personal credit can be raised to a higher standard to reassure the lender that they have a qualified applicant.
Once the lender passes the initial credit check and the applicant’s qualifications to run this type of business, the initial amount of money to qualify for a lease becomes an issue. Every lender is different, but for the most part they require the applicant to submit something between
10%-25% of the purchased cost of the limousine. Each limo deal is reviewed separately by the lender because, in his mind, a hummer vs. a lincoln stretch 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 lend less than $25,000 to $30,000 and a limo that is no more than three or four years old. Additionally, your leases could last anywhere from 30 months to 60 months. It is recommended that you look at more than one lender and see what criteria is 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 you are going to be quoted an interest rate. I have seen limo businesses start that are charged 14-38% interest per year once all the red tape is cleared. This maintenance cost is critical for you to make sure you can afford the payment each month because you don’t want a business to run away and be out of balance right from the start. It’s 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 that a limo bus might 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 contracts up front to build your revenue base before going too far.
At the end of the lease, limousines usually have a termination clause so that you can acquire title to the limo. . Sometimes it’s a $101 total purchase or a 10% residual, make sure you understand the total purchase
clauses.
The hardest part of this business is getting the initial financing, sometimes a co-signer can be
necessary and additional warranty 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. The requirements to finance the second lease will hopefully 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 limousine and remember that the requirements of each lender can be
different.
