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Project Auditing - Example

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The borrower came to us asking to help with financing. His local bank declined start-up loan. We analyzed his loan request and find the following:

He decided to start-up a landscaping business.

The project break down :

The borrower planed to spend $60,000 of his own money for project and had additional 80,000 in his house.

So the borrower had more than 30% in down payment and additional collateral to secure the loan. What went wrong?

Before applying to the bank the borrower spent $60,000 of his own money on tracks, loosing down payment and not gaining collateral, because vehicle could not be counted as collateral. The borrower also opened home equity line which he planed to use in case his business goes wrong, loosing additional collateral he needed. Without down payment and collateral bank declined the loan.

Under the current circumstances the loan was unplaceable. And we regret to say that we did not accept this loan request for processing.

How we would approach this loan? First of all we would suggest not to buy tracks, and not to include them into the project. The best approach for start-up business is to lease vehicles. It eliminates the unwanted item from the project and decreased liability.

So the loan will be structured as follows:

In this case borrower has additional $20,000 for the rainy day. The loan of $60,000 is fully collaterized by equipment and his prime residence and is easily financed.

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