How To Ask For A Bank Loan

There’s an old saying “it takes money to make money” and often times that money comes from a bank loan. In this Billboard Mastery podcast we’re going to explore how to obtain a bank loan to build or buy a billboard, as well as some non-bank alternatives.

What is The Billboard Mastery Podcast?

Welcome to the Billboard Mastery Podcast, where you will learn the correct way to identify, evaluate, negotiate, perform diligence on, select the construction type, build, rent the ad space and operate billboard signs. And now here is your host – the guy that built from scratch the largest privately-owned billboard company in Dallas/Ft. Worth – Frank Rolfe.

If you're looking to buy or build a billboard, there's no getting around the fact it will cost money. And how you obtain that money can make or break how big you can grow, how far you can go. This is Frank Rolfe, the Billboard Mastery Podcast. We're going to talk about how to get a bank loan. Now, a bank loan is not the only way that you can obtain the funds to build or buy a billboard. You may already have enough money in your savings. If you want to go into the wooden billboard arena or build a sign on a masonry wall or buy an old dilapidated sign, well, those are not really big, heavy commitments of money. You might be able to do that for a few thousand bucks. If you want to get in the monopole business, though, building those big steel billboards, well, that's a different matter. Those are going to be very, very expensive, somewhat similar to a small rental house. May cost you 50 grand, 100 grand, 200 grand, who knows how much? And most people, eventually, particularly if they start doing monopole signs or more signs and volume, they run out of their capability of doing things with their own money.

And the minute you run out of money that you can write a check on, you have to start looking into doing lending or borrowing. Now, there are different ways to borrow money. You can borrow money from friends and family members, so that's always an option. Many people have built their business around that concept. Or if you fail in finding a friends or family member who wants to invest in billboards, then your fallback position is often going to a bank. Now, I've done a lot of banking in my life. I've been doing bank loans on commercial real estate for, oh, my heavens, 40 years now, approximately. And these are some of the lessons I've learned from doing billboard loans over the decades. So the first thing is, let's talk about what banks want. There's an old adage in banking that first you have to have return of capital before you can have return on capital. That's the standard saying of many bankers. And what it means is they got to get their money back before they even have to worry about what the return on their money was. Because when you take a loss at a bank on a loan, it's punishing.

You don't make that much money on the interest rate spread, so one bad loan could wipe out all the goodness you did on the whole rest of your loan portfolio. So they are constantly obsessed with return of principal. So when you go to the bank, when you write your loan package, it is absolutely essential that you focus on how the bank will get the money back. Now, how does a bank get the money back from a billboard? If, for example, you stopped making payments and they had to take it back? Well, let's see. One thing would be how much they could resell the billboard for themselves. Right? Another would be the value of if it's a monopole, what the scrap metal would be. But you got to think like a bank 'cause they're always very pessimistic. They always assume terrible things are going to happen. So the key question is, how will they get their money back? And in your conversation with the bank, that will be something you will be asked. They'll say, "Okay, but what if this deal goes bad? How do we get our money back? " Also remember that another part of that with most loans is, What do you have for collateral if the loan should go bad?

So you be prepared to ask, "Okay, so you know, what are you going to pledge as collateral if this loan goes bad and we can't sell the billboard for [0:03:48.7] ____? What do you have to make up the difference? " So they're going to want to know what collateral that you've got: Other real estate? Is it savings? What is it? Because they're obsessed with not losing money, not losing their original principal that they loaned out. Now they're also obviously going to want to know in a loan package where the billboard is located, whether it's already existing or it's something you're going to build from scratch. They'd like to see pictures of it from all directions. They'd like a description of it. They would like to know the amount of traffic on the highway or the secondary street that views it. How big it is, how tall it is and whether or not it is lighted. And then of course how the ground lease works. Because they're typically going to have this loan for a period of years. And if the period of years extends beyond your ground lease, you can see how that could be a deal-killing problem.

If they're going to put 10-year debt and your lease is only five years in length, then how is that going to work? And you're going to have to figure out how to present that. They're also going to want to see a copy of that lease. They're probably going to want to see a copy of the permit and then they're going to want to see your profit and loss statement known as a P&L, showing what you project the money to flow, how much you think you can rent the ads for, and then what you think the expenses will be leading to what is called the NOI, net operating income, or EBITDA, Earnings Before Interest, Taxes, Depreciation and Amortization.

You can look at both terms up on Google and there you have it. And then they want to know how much you're asking. Then it comes down to the conversational points between you and the lender. Now billboard loans are hard for some banks to grasp who've never done one before. Other banks look at them and think, "Oh, they're just little tiny microcosms of regular commercial real estate loans." But they're going to ask you then lots of questions. They're going to ask you about your expertise in what you're doing. They're going to ask comps of what other things are going for. They're going to want some level from you of knowledge that you have an idea. And then they're going to want to know more about you personally. Like have you run a business before? Have you ever done anything like this before? These are all the things you can probably guess are going to pop up in a meeting with a bank. Now you have to remember that banks have to make loans. That's the only way a bank can make any money is to make loans, because they pay people for their deposits in the bank and then they try to make a spread with those deposits onto what they loan them back out at.

Right now a lot of banks are paying 4% in a CD.

If they reloan that money back out to you at 8%, then they're making 4% profit, 4% on that spread. But if they don't make that money, they don't loan that money out, they're paying out 4%, they got 0% coming in. So don't for a minute think that banks don't want to make loans. Banks very much want to make loans. That is the bread and butter of banking. So don't go in with the opinion they'll say, "Ah, they don't want me, they'll never want to do this loan." No, they want to do some loans. That loan officer, his job is making loans. If he doesn't get loans made, he could get fired. So no, he's as anxious about you wanting to borrow money as you are about him wanting to loan it to you. Now if you do the banking circuit, if you do everything I just described and it's not working out for you for any reason, it's very scary to do it. And sometimes, to be frank with you, the amounts are too small to get the bank's interest. Because in a world where the single family homes are $400,000, making a 20 or 50 thousand dollar billboard loan seems appallingly small to the bank.

Now you need to remind them though, it will grow in volume over time. My very first bank that I did a bank loan with, over time I grew so big that I outgrew the bank's ability to loan. I reached their loan maximum. They then find another bank and they participated my loans out with another bank and just grew out of one loan. So that's how you overcome anything. "Well, it seems kind of small." It's like, "Well, yeah, but over time it'll certainly grow in volume." But if all that fails, you still have the friends and family angle, which you could probably hit more aggressively and you'll learn more the questions that friends and family will ask you, their thinking methodology from the bank. So every time you talk to a bank, don't be afraid about talking to a bank. It's more of a learning experience. Once you had the first loan or two, you'll have all kinds of swagger, self confidence. You'll know exactly the kind of thing they ask about. It's pretty much the same from bank to bank. But don't let the fear of asking for a bank loan stop you dead in your tracks.

If you want to get out there and do things, like the turtle, you have to stick your neck out to make progress. The same is true in banking, but you should always look at with a positive attitude. This is something that's good for you and that you'll learn a lot. This is Frank Rolfe, the Billboard Mastery Podcast. Hope you enjoyed this. Talk to you again soon.