Marina Financing: Madison One
By: Jeff Grohs – Senior Business Development Specialist
Financing Your Marina
Marinas are a specialized asset class with many lenders exercising caution when a buyer seeks out loan. The lack of lending could force out buyers who either do not have the necessary equity to meet LTV (loan-to-value) requirements, or it could push an investment group’s returns beyond a threshold of reasonable comfort for making the purchase. For owner-operators, this is typically the “make-or-break” to getting the deal done and successfully closing on their new business. Avoiding these pitfalls is why working with a partner who understands the inner workings of the marina business is so important. Issues like land leases and water rights are just two examples of the many nuances specific to the marina industry that your lending partner needs to know when successfully closing, and ultimately funding, the transaction.
Madison One: Who We Are
Madison One CUSO is a full-service organization which originates, processes, closes and services SBA & USDA government guaranteed commercial loans on behalf of its partner Credit Unions through our nationwide, direct funding platform. The company’s principals and its staff have successfully implemented and operated a similar lending platform since 2010 while being recognized throughout the industry as Marina & Leisure Property experts. Madison One’s credit committees have an appetite for special purpose properties and niche businesses like marinas, which eliminates the learning curve and many potential surprises that other lenders could encounter when not experienced in marina lending. While acquisition, refinancing and expansion loans are the primary source (or operator need) of lending, M1 will also review opportunities that need construction, non-CRE and projection-based properties.
SBA & USDA Financing
SBA & USDA financing is a credit enhancement offered to federal lending institutions. These guarantees incentivize the Small Business Administration and United States Department of Agriculture Business & Industry to lend to businesses that have unique challenges in the underlying credit, such as inconsistent cash flow, lack of collateral, or special purpose nature of the business or collateral.
Many marinas are in rural or tertiary markets, have significant capital requirements in terms of acquisition and necessary improvements, and tend to have routine maintenance and repairs. SBA and USDA lenders can provide significant leverage and minimize the capital contribution for owners who either own or want to acquire marinas. For this reason, marina owners can conserve capital while leveraging the value of their assets to maximize their return on investment.
How You Can Apply
Like any lender, there are numerous factors that indicate a borrower’s strength when financing a marina. Some of those include: current cash flow of the marina; borrower experience in operating marinas; borrower financial strength (savings/liquidity/net worth); market feasibility; credit worthiness; ability to repay the loan/source of repayment; and ultimately the collateral. As you can see, the overall application is a blend of property AND borrower background/history to ensure that the asset will “pencil out” and the borrower will service the debt.
To proactively dig a little deeper into borrower preparedness, the key documentation required for SBA and USDA loans include:
· Borrower Application
· Personal Financial Statement
· Form 4506T – Verification of Tax Transcripts
· 3 years of most recent tax returns
· Current year statement of income (if applicable)
· Detailed business projections & assumptions
· Description of the business
· Marketing plan
· Analysis of competition
· Background of ownership & key personnel
While 2020 was an anomaly year, with many lenders retracting from marinas altogether, the 2021 lending environment has been somewhat scattered depending on region. Some regions see many lenders entertaining marina (especially those local to the property), while others see a complete avoidance. Stimulus funding has paved the way for SBA & USDA guaranteed financing to be the leading source of capital for all business owners. Key incentives include: 1) waiver of guarantee fees; 2) payment relief; 3) longer terms; and 4) longer amortizations (up to 40 years).
As many new business owners are relocating out of the cities and seeking out either primary residences and/or new businesses to grow, demand for marinas in rural markets has risen and created more opportunity for business owners to find that dream business and/or active retirement. While lenders in general are less inclined to finance special purpose properties like marinas, or are likely very conservative on terms, SBA and USDA guaranteed financing has quickly become the best alternative and a popular choice for new marina owners that qualify.
In summary, these nationwide programs differ from conventional financing primarily by allowing for higher leverage, longer terms, fewer loan covenants, and lower transaction costs than conventional financing. Additionally, the programs offer government guarantees of up to 90% which is an attractive credit enhancement to prospective lenders.