Most Americans will spend thousands of dollars per year – and hundreds of hours – to improve their appearance and attractiveness. Yet virtually nobody spends much time thinking about how to appeal to their local lender. Indeed, if you want to buy an RV park it’s vital that you know how to be attractive to banks in a manner that will make them want to make the loan. So what can you do to increase your attractiveness?
A great bank presentation
Being attractive to a lender starts with a great bank presentation (commonly called the “loan package”). This is your ability to describe in detail the proposed transaction and to shine it in a positive light. A good presentation starts with an overview of the RV industry and why RV parks are a secure investment, and then proceeds to give the property details with photos and maps, and then moves into the numbers and how the RV park will be able to pay the monthly debt amount with property coverage ratios. You can also add in a section on potential risks and how you are mitigating them. What banks want to see in these presentations is that you have thought through every possible scenario and will be a good steward of a great property. Remember that banks live by the saying “before there can be return on capital, there has to be return of capital”. Banks don’t get any extra interest rate for your deal being extra risky, so they are all about safety.
Being realistic on your projections
Because banks are all about safety of their money, they get immediately turned off if your RV park projections are too optimistic. For example, if you are buying a turn-around property with low occupancy, do not project that you will double the income in year one. Although that’s possible if you take all the right steps, banks want to see the “realistic” case (somewhere between the “best” case scenario and the “worst” case). So throttle back your projections to a level that anyone would accept as being possible – even a pessimistic banker.
Having a Plan B for every contingency
Bankers also like to see a thorough set of game plans to address anything that might threaten your RV park, such as weather events, national recessions (Covid-19 as an example), unexpected problems with your utilities, roads or amenities, and that type of thing. Even if you do not address these in your loan package, you will definitely be asked about them in person, and you need to already prepare your answers. If the banker says “if that river rises, what are you going to do?” you cannot say “wow, that’s a great question – I have no idea”.
Having decent credit and a reasonable financial statement
It goes without saying that banks like borrowers who have good credit and a strong financial statement. This allows them to feel better about trusting their money to a stranger – at least they know that stranger has a track record of honoring their commitments. If you do not have good credit, then you may want to stick with deals that include seller financing and stay away from the entire banking business until your credit is repaired. The good news is that seller financing is prevalent in the industry.
Being able to give a positive narrative to the purchase
Even if you have a good loan package, strong understanding of potential scenarios and how to mitigate them, and decent credit, there’s still one element missing: salesmanship. An attractive borrower is one that can put a positive spin on the whole purchase and makes the bank feel confident that everything will be OK. If you don’t have a natural “gift for gab” then your substitute is in great preparation and practice. This bank meeting could change your entire financial future – a bigger deal than a job interview – and you need to make sure that you are well practiced for it and on your “A” game.
Not needing this particular bank
There’s a general rule that we are all even more attracted to those who are indifferent to us. Playing “hard to get” has always been a natural law of attraction. And it’s no different with obtaining a bank for your RV park. It’s absolutely essential that you not have the attitude that “this bank is critical – I have no alternatives”. If you have that attitude you will never get the loan completed. Banks do not want to be the only game in town because it makes them think “if no other bank wants to do this deal then why should I?” Instead of thinking like this, make a lengthy list of banking options and always think that there is another alternative. If you send out the vibe that “this bank is just one of a number of options” then the bank will be more attracted to you.
Using a loan broker on bigger deals
If the RV park you are buying costs $1 million or more, then you might consider using a loan broker (now often called “capital consultants”). These are professionals that just obtain loans for real estate deals. They get paid based on success (at closing) and are very good at what they do. They prepare the loan package and meet with the lenders on your behalf, and then come to you with typically three banks to choose from. They are worth their weight in gold in some deals, yet only charge a 1% fee.
If you want to improve the odds of getting a loan on your RV park, then the key is to become a more “attractive” borrower. These tips will start you down the right path.