Financing a billboard acquisition

What level of interest do banks have in financing billboard acquisitions? I am interested in starting my billboard career with a small acquisition of an existing business, but I recently found out that billboard companies are ineligible for SBA loans because they are considered passive investments. My other option is acquiring a standard term loan, but the rates are much less attractive with minimal leverage levels.

If a billboard business is truly considered a passive business model similar to a rental property, why do banks not offer attractive debt packages like they do in the residential real estate industry (30 year term, up to 90% LTV, etc.)? Frustrating.

What experience has everyone else had?

It is frustrating. The two best options right now are 1) small, local banks and 2) SDIRA friends and family. Here’s how they work.

Small, local banks are where most people start out. My bank did just one billboard originally, and worked up to acquisitions of whole portfolios of billboards later. The big thing to remember is that you must EDUCATE the bank on why billboards are a good, safe loan. Where most people mess up is expecting the bank to even know what a billboard is. Your loan request should include about 50% of its bulk in why billboards are an attractive investment. Banks want to hear what the worst case scenario is, and if you can survive the worst case, then the bank feels reassured. Remember that banks are only concerned about getting their money back – they don’t share in the profit from the sign. They are pessimists by nature. So help them to understand that billboards are not a crap shoot, but a stable industry that’s been around for over 100 years.

SDIRAs are a derivative of traditional IRAs, which allow people with IRAs to make investments outside of the normal stocks and bonds. The reason I think this is a win/win concept for lending is that most people with IRAs right now are extremely unhappy with CDs with under 1% yields, and want ways to make more. And it is very patient money – people can’t use it until they retire. It only costs about $500 for someone to convert their IRA to SDIRA. Read up on this concept from EquityTrust, Entrust or Pensco (the three biggest SDIRA providers). You probably have at least 20 friends and family members with IRAs who might be players for this.

If you do borrow from friends and family, do it in small amounts from several people, and not all from one source. It’s a whole lot easier to borrow $5,000 from four people than $20,000 from one person. The smaller amounts make them more comfortable, and that makes you more comfortable, too.

I second Frank’s advice on SDIRA and i-401k (similar to SDIRA but it’s a 401k plan for your business that has no employees - meaning you and/or your spouse are the only employees) are excellent options.

I actually opened an i-401k for myself using a S corporation I operate as a side business. I rolled over an old 401k plan that had been sitting with a former employer. I now use those funds for Tax Lien investing and Billboard investing within the i-401k.

So besides getting loans from friends and families that have SDIRA or i401ks, if you have a 401k that you can rollover, you could create your own LLC, Sub-chapter S, or even sole proprietorship and open your own i-401k. Then you have two choices; use the i-401k funds for your billboard purchase, or loan yourself up to $50k from the i-401k to invest in the billboards.

A GOOD accountant with experience in these types of accounts (SDIRA, i-401k) will help you with the options.