What Would You Do?

[CuddleBugFirewood]

As of right now its not gonna happen.. The one bank I talked too wants almost half down, the other won't have an answer till next year..

End of year is usually ver busy for banks, and many banks have lots of bad commercial loans on the books.  Not the best time to apply for a commercial loan. 

banks are very lery of new business.  Especially logging.  My day job is a bank lending officer for a small bank, my side job is logging and firewood producer.  You must have impeccable credit and a good amount down in many cases, I don't know any bank that would loan 20k over what you are buying the business for.  To high of risk.  The way to look at this is the bank is your business partner, if you go belly up, they lose all the money, and you have nothing invested (dollar wise).  Also, experence has show that tools and equipment can "disappear" in the woods, and in general what "banker" wants to mess with selling a beat up logging truck or skidder, those are speciality items for many banks. 

You can get creative with the down payment, ie do you have other assets to put up as collateral, equity in your truck or house.  But realize what you are doing.  I would also recommend you get your bosses tax returns from him  if you haven't already, and review those on the logging business, this will also help at the bank if you can show he is making a profit.  But you are still a new business, and something like 80% of new business fail in the first 5 years.  I would also talk to his accountant if you have questions on his tax return.  I know this sounds personal, but I did this with a gentleman before I started banking.  I was looking at buying a landscaping company.  If he doesn't show it to you then chances are it has not been good.  The average net margin in logging is something like 3%, which is very thin.  You only keep 3 cents for every $1 you spend.  Not much room to mess up. 

At our bank we like to start small and build up with a customer as we learn his management ability.  I would also recommend going to a community bank, and try several until you find a loan officer willing to work with you.  You may need to work up a contract to have it owner financed until you can get the financing arragged, or buy one piece of equipment at a time through the bank. 

As was said earlier, working capital is critical as well.   

To recap

1.  Review tax return and profit / loss statement, possibly show bank. 
2.  Consider owner financing (my dad sold his business this way)
3.  Consider financing just one piece of equipment through the bank as your down payment on the owner financing.  This would build your credit with the bank as well, pay this off then try to do the whole thing.  It would be easier for them to loan a smaller amount to try you out if you do not already have a relationship with them.


Good luck, and sorry about the rambling...I hope it helps.

[CuddleBugFirewood]

If you do buy it, you will also need to check with his bank and make sure they release the liens on the equipment.  I would recommend making the check payable to him and the bank he has the equipment financed with. 

you need to be careful, because when banks do commercial or ag loans they generally file a "blanket lien" which means "all equipment, tools, accts rec, inventory, etc.. etc."  is collateral.  So even though he does not make payments on the "skidder", it may well be collateral on an operating line of credit. 

As a banker, I wonder if he is not in financial trouble and needs to liquidate some assets if he is selling it at such a good price.  If that is the case you could probably get a better deal than what he offered.

Just food for thought.

[bill m]

I am amazed at the number of responses you got saying to go for it. I guess it's real easy to spend someone else money. Be aware that with that amount of equipment you most likely will not be running any of it as much as you may want to. You will have employees to do that and you will become a boss.
Don't ask me how I know

[John Mc]

Got to wonder why the boss is really getting out of it as well.

[woodtroll]

From an earlier post he (the boss) is moving to an oil boom area in a near by region with his trucks.
Profit margin is better there than the woods.

[inthewoods]

Whole lot a headache

Happy holidays!