Newbie, need Help with starting my business, what am I missing??

[2B-The-Best]

Good afternoon everyone, ( I am now to the point of joining every Small Business forum to hopefully find that one missing piece of the puzzle) I am new and hopefully this forum can help me. I feel I am ready to start my business, but every time I go to the bank they, say they are not borrowing at this time. (Little back round) I am trying to build a 6000sq. ft. Salon,(from the ground up) I have been working on this for just over 2 years and here is what I got so far.
I have my LLC
I have the business name and logo which is trade marked
I have my tax ID
I have purchased the property and still paying on it (I have been paying for 2 yr)
I got it re-zoned business property, over a 1yr ago
I have drawings , that a builder did for me, and he gave me a price to build.
I have a 1/25 scale model built of the building.
I have had the land surveyed and have those drawings.
I have a 1inch thick business plan.
I have my own website page and domain name.
Credit scores are 803, 817, 821
But I can't get a loan, I am asking for $600,000 that is including the balance of the land loan (85,000) and the equipment as well (10,000) I am willing to put up, the business land it is going on, I have another piece of land (that is clear and free, I owe nothing on it 1/2 acre with lake access. Plus I have my home as well to put up, still owe on that but I have equity in it about 20,000 and I have a savings account with only $5,000 to put down, I know it's not alot of money, but remember, I have payed for everything mentioned above!!
Can some one help with Ideas, I am all ears!!!!

[boogle]

You need more cash upfront. I would get rid of the 85,000 for the land loan (maybe reconcile loans afterwards), sell the half acre if you can, hopefully with lake access that can fetch a decent number, and then bring your loan down to a much lower number. If your planning on putting your house up against the loan anyways, hopefully that can cover the loan expense.

No I certainly do not know anything about the Salon business, but half a million sounds pretty high since you already have the location. I have a friend of mine that performed an amazing renovated a 6,000 sq. ft. building on the square. He put so much into it the mayor awarded him with a historic beatification plaque at our annual state of the city address. His total costs (I know renovating is different, but it is not always cheaper) was "350,000" and that included buying the building! I know I am getting off topic from your question, but I am pretty sure the problem you are running into is your loan is to big for the bank to give it too you, so maybe cutting back some of those costs and getting your loan down to about half that could help you get the loan, and make business a lot easier.

[Spider]

I see no reference in your description concerning how you will repay the loan, and I see no indication of collateral even approaching the amount of the loan. These are probably the most important aspects that need addressing.

[2B-The-Best]

Thanks Boogle & Spider for responding, yes I need to explain more about my business. First Boogle, the price as mentioned, $600,000 price tag, after you minus the balance of the land owed & equipment the building price tag is $505,000 that is under 100 dollars a sq. ft. (everyone I have talked to said that is a good price for a Commerial Building to be built (the big costs is the fire sprinkler system) now I realize that the price could even be a little cheaper with the economy even slower then when it was bidded. The piece of land that is free and clear, I will be building my future home on it, it is less then 5 minutes from the business land (but I want to build my business first) I have tried all different ways to get the debt off the business land, but don't have enough equity to put it on my home (I know this because I just did a refinance to a 20yr on my home) This also put my debt to income ratio down to 39% it was at 43% before. Now I realize this helps very little (but that they look at that, when it comes to the worst case that I have to pay the business loan if money isn't coming in)
As for Spider here more info on the business, this 6000sq ft Salon will have 20 seperate suites, which will be leased (10 "double" hair suites, 2 "double" Nail suites, 3 "single" massage suites and 5 "single" hair suites) All double suites are going to be leased for $920 a month and all single suites are going to be leased for $650. (which I must add are priced lower then the going rates) I forgot to mention I already have letters of intent for a couple of the suites ( I included these in my business plan as well incase the bank would like to contact them) As you every suite would be furnished but the tenant would supply their own clients and products, so they are leasing the suite and in a sence running their own business in a business (kinda like a shopping mall is run). Because of this I would not be collecting a paycheck from the business the first 5yrs (which is in my 5 yr business plan outlook) I would retain my current job, which brings me back to getting funding. I don't qualify for SBA 504 program, because it is Commercial Real estate, which I would have to occupy 50% of the building, The area I am in the average income is to high that it doesn't qualify for any kind of Wheada, and as for a straight business loan, no bank wants to do that without some sort of goverment guarrenty. No angle network or venture capitalists want in (not enough money to be made) I have family and lots of friend with no money! (so that is out) So what am I to do. I realize that I don't have enough assets or cash to equal the amount to borrow, but isn't there anything in the new Small Business Bill just pass that can help. Just for the record, I am a white male, so I don't qualify for any woman or minority grants or special loans..
I hope I gave you both a little more information and I am open to more ideas from everyone here!!!!

[nealrm]

2B - There are a couple of things that stand out from what you have told us, and some things that are missing. First you state that your suites will be priced at less than the going rate. So I am assuming there are others offering similar suits. What are their occupancy rates? In most areas, commercial occupancy rate are not good. In general you can rent a commercial property at or below cost. That may be why the banks are turning you down.

In your business plan, are you showing numbers based on 100% occupancy. If so, cut that number by 75%. Also increase all your expenses by 10-15% and decrease income by the same. Banks like business plans that show you can repay the loan even at less than the full potential of the business.

Another issue is that you are asking the bank to loan you money a lot of money for your part time job. Think of it from the banks view - You are going to work 40+ hours each week on your regular job. Then in your spare time, you will run this other business. Given that many, many business go under with FULL time manager, how can you show you will succeed working only part time.

Also, look around. How many salons have thier own building? In the areas that I have lived, I cannot think of a single one. Most are in buildings with other businesses.

You may also be giving the bank an impression that you are not frugal with money. Why build a 600,000 commercial property when you can pickup one for less. Plus, you spent money on trademarking your business name and a scale model. Nether of these were really necessary.

In general banks will loan money if they are sure they will get it back. That means either the business is such that it can succeed even in a worst case event or some they can hold onto if you don't pay the loan. Right now using property as security on a loan is iffy. The property will need to be worth much more than the loan itself.

Have you really looked at try to start this out without a loan? Yes you would have to start out smaller, but your overhead would also be smaller. As the business grows you can put the profits back in.

[Steve B]

If I were the bank, I wouldn't loan the money. Banks want a practical guarantee that the money will be paid back. They want you to be taking the risk on the business succeeding, not them. You don't provide nearly enough equity for them to do this. If you fell off the face of the earth the day after you got the loan, what would they be able to sell to get all of their money back?

I'm guessing you're going to have to start out much smaller, or find a relative or investor with a lot of confidence in you to loan you the money. In high risk loans like that, you can expect to pay a much higher interest rate.

[nealrm]

Never borrow from a relative. If things go bad you will never be able to sit at the same table again. If things go good, they will want to backseat drive your business. Go with an investor, then aleast you can dump them by buying them out.

[SEOHelp]

Don't forget when you have everything in place you have to start from day one with your marketing efforts. That way, it will be ingrained in every decision that you make as you go forward. If you want people to find your business online and off - you really have to prefect your online and offline marketing efforts as soon as possible.
Trust me - I spent years building my business first then working on trying to market it online - and got no where. But, when I started my last business and focused on marketing from the very beginning, I finally found the success I was working so hard for.
Good Luck with your new adventure.

[phanio]

You mentioned in your first post all the things you spent money on like a 1/25 scale model and this and that. That was money well wasted. You seem to have spent your money going around the issue when the main issue was the building - bet you wish you had those funds back.

You have two options as I see it:

1) Scale down. Raise what you can raise and start smaller - then build up as the business grows. It takes understand of how small you can start - getting those funds then growing. No successful business starts out as a power house - they start small and grow.
2) instead of seeking one single loan - break your needs down. Let's say you can scale down and get started with only $75K - half to build or have a structure placed on the lot and the rest for equipment and marketing. Seek out an equipment loan for the equipment - that will reduce the amount you need for the others. Use the structure for collateral on its own loan - then whatever remains - seek an unsecured loan. This will make you life much easier and make it easier to qualify for each loan ($600K is too much for most lenders to a new business with little or no collateral).

Banks (all lenders) look for 2 main things. 1) Your willingness to repay - based on your past credit history. And, 2) your ability to repay the loan - with current cash flow - not what you think you will earn in the next few years - but cash flow today. It seems this is where you are lacking.

If you start smaller - by leveraging those assets you do have and start to build your cash flow - then you have a chance at a long term business. But, the way you are going now is in circles. Think about it this way. You start smaller and build your business - in 5 years you have a solid thriving business. Or, continue on your path now and in five years you have defaulted on what you do have and have nothing left.

[2B-The-Best]

Good morning or should I say Good afternoon, Thanks for your answers they are helpful and I will try to answer a couple that I have considered. As for the price tag and scaleing back I have (GULP) yes the $505,000 for the building is the price with building it in 2 phazes. You see the the building has a part exposed land, it will expanded into the basement, so instead of future expansion going out, it would be downstairs, so this price tag is to complete the first floor only, (9 suites 5-doubles hair, 1-double nail, 2-single hair and 1-single massage) the down stairs would only be ruffed out and drainlines put in. This help in 2 ways: 1)cut the price down,and 2)when the downstairs could be worked on without disturbing the flow of the business on the first floor. I realize you have all brought up "real problems" and I understand them. But I wanted to make sure in my business that I never want to "expand outwards and onto", especially in this kind of business women always want things clean (no dirt or mud) easy parking (not materials laying in areas) and no loud noises. (and I didn't want to post signs sorry for the construction) So with that in mind, the only thing to cut the price was to do it in phazes.
So here I sit, paying on the business land. Like I said above I could probably get the price down because of the economy, but not 70,000-100,000. And as we all know trying to save money at a fast rate doesn't happen, Plus I have been putting extra principle payments to the land loan, because it is on a balloon loan which comes due Feb. 8, 2012. And I know it will not be payed off by that date even at the rate I'm making extra payment.

So with this said keep the ideas coming. I am willing!!

My question is : WHAT SHOULD I DO NOW, the only thing I come up with is continue to paydown the business land loan, which isn't saving any money to have and show the bank when I go to them again, when they ask "So John, how much money do you have saved now? I reply the same $5,000 but I knock down the balance on the land loan? You see where I am going with this.
So let me know what you think I should do next. I am all ears!!!!