Billboard Weekly

Getting traditional bank lending on billboards is a real challenge. Not only are most banks new to the concept, but the security that a billboard represents is completely contrary to most commercial loans, and takes an enormous amount of effort to educate the bank on the value of what they see as a bunch of metal worth, maybe, scrap value by the pound.

Look At Things From The Bank’s Perspective
A banker has no idea what a billboard is or how it works, other than looking at them casually while driving down the road. They have never seen a business plan on one, and never have had another customer to give them a track record of performance. So your first job is to give the concept of building a billboard credibility. Gather materials from the Outdoor Advertising Association of America (OAAA), and the annual reports of the publicly traded billboard companies such as Lamar, CBS and Clear Channel. The key is to give your banker confidence that this is not just some stupid concept you’ve dreamed up, but a huge, multi-billion dollar industry owned by some of the Forbes 400.

Demonstrate the Value of the Collateral
Prove out that a billboard is worth more than just a sum of its parts – a bunch of steel, lights and panels. Instill in the bank officer the concept that a billboard is like any other income property – and should be valued at a multiple of its net income. This is very similar to an asset class they are very familiar with making loans on: apartment buildings. Demonstrate, through the valuations from the annual reports and basic logic, that a billboard that earns $10,000 per year in net income is worth $100,000 based on a 10% cap rate, or return on capital. Get the bank focused on the income a billboard can produce, not how it’s built.

Give Them A Tangible Show of Value
There are three ways to demonstrate the sign’s value to the bank. The first is to get an offer or two from competing billboard companies to buy your groundlease and permit. This will show the bank what just these two items are worth, without even building the physical sructure. The second is to get an offer from a competing billboard company offering to buy your sign once it is constructed to certain dimensions, including the groundlease and permit. This offer is normally much higher than the cost of construction. Again, that makes your bank very happy. The final item, and one that is often overlooked by borrowers, is to rent one or both of the ad faces on the sign and then use those leases as collateral. If you pre-sell one face of the billboard for $1,000 per month on a twelve month contract, that it like giving the bank a $12,000 CD as collateral on the sign (of course, it’s not that simple as the sign will still have the expense of groundrent, etc. but, fortunately, banks are not always that bright). I once built a huge 20′x 60′ billboard and pre-sold both sides to a Toyota dealership for $3,000 per month on a 36 month lease. The value of that contract (face value of $108,000) gave the bank the peace of mind to easily loan me the cost of construction of the sign.

Show The Bank A Range Of Options
To give the bank even more confidence in you, show them a worst case, real case, and best case scenario of the financials on the sign. If you can prove to them that the sign can break even and cover the loan even in the event of high vacancy and drastic rent reductions, then you’ll make them feel very comfortable in the risks of making the loan. If you only show them a best-case scenario, they may turn you down because, in the banking world, there is never a best-case world that extends through loan maturity. And after the sub-prime meltdown in the home mortgage realm, those concerns are growing bigger daily.

Conclusion
Banks have to make loans to stay in business. Even in a recession, loans must be created or the bank dies. However, the criteria used to make loans becomes much tougher in recessions. Use these tips to improve your odds of getting a bank loan, even in a troubled market. There are loans out there, if you just know how to get them.

Tags: billboard bank loan

This entry was posted on Saturday, November 21st, 2009 at 12:25 am and is filed under billboard lease. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.