Film-Tech Forum ARCHIVE: source of financing to buy theatre

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Posted by Dave Ganoe (Member # 53) on 11-03-2005, 09:44 AM:

Anyone have any ideas on getting financing to purchase a drive in. The business is/has been in continous operation since it opened in 1946, has 2 screens and does extremely well. I know how well as I ran it for 9 years as manager. Managing I know, buying something like this Im lost. If one goes to a bank do they look at the business alone or do they look at your personal credit? Someone suggested I go to Small Business Admin. Any advice at all would be greatly appreciated. If youd prefer to email directly that would be fine too. Thanks in advance.

Posted by Matt Fields (Member # 3211) on 11-03-2005, 10:24 AM:

Assuming you are talking about buying the real estate, you will need to get a professional apprasial done before a lending institution will do a deal.

Your personal credit will come into play.

Do you own a home or have any other capital (stocks, bonds, ect.?) You may have to put it up as collateral.

My local bank will only loan up to 2/3 of the appraised value on commercial real estate. Usually you have to come up with the other third. Other banks may have differnt policies, thats just an example.

Another option is to have the current business owner "carry the paper" and sell you the property on a land contract. You make a small down payment, and make monthly mortage payments to the current owner, usually at higher interest rate then a bank would give you. The current owner still owns the property until you either get a proper mortage or have totally paid him/her/them off.

That is how I bought my first theatre. Once I established my business and showed I could turn a profit, I then got a conventional mortage a year later.

Posted by Justin West (Member # 920) on 11-03-2005, 05:51 PM:

Ditto what Matt said, Dave, but add a business plan showing some record or history of operations at the theatre (sales, receipts, income/expenses, profit (loss) for the banker to review. Hopefully the seller would reveal some of that with you.

Posted by Richard Cockrum (Member # 2417) on 11-03-2005, 06:28 PM:

When my wife and I went to buy our theatre, we had to show a business plan, including cash flow projections based on what we knew of the theatre and its business. We required financials from the then owner. If they won't give them to you, I think I would be wary of the purchase. You don't know what you're getting into then in terms of other obligations on the business. We also had to submit personal financial statements. The bank required us to use personal real estate as additional collateral. On top of that, it was a SBA guaranteed loan. (If your wife signs on as the owner, its easier to get them)

Posted by Matt Barth (Member # 3429) on 11-03-2005, 07:37 PM:

What about opening a new theater, do you have to report revenue on the area or just submit a prospective financial forcast and expect a higher loan rate?

---Matt

Posted by Richard Cockrum (Member # 2417) on 11-03-2005, 09:56 PM:

I think you would have a tougher time with a new theatre, since most new businesses fail quickly if not planned carefully and operated very carefully and knowledgeably. As with any new business, the lender may require market research showing the probability that a new theatre would be viable along with prospective financials and a business plan. These would probably be easiest to do if you could find an area with a similar demographic and existing theatre that you could research as much as possible.

This is guesswork on my part, though. The theatre we bought is a small second-run that had been running for 35 years, so it was easy to show that it was a profitable business (barely). The owners trained us for six months, and my wife had been an assistant at the local Carmike. We also had a very helpful loan officer at the local bank. They lent us what we needed, though I don't think they would have without the SBA guarantee.

--Rick

Posted by Barry Floyd (Member # 385) on 11-04-2005, 10:10 AM:

We (my wife & I) went through all of the above when we bought/built our theatre. The SBA has several different loan programs available, so you might want to ask several different bankers.

When we were going through the funding portion of our project, we found the most helpful banks to be the smaller "mom & pop" local community banks, as opposed to the huge nation-wide financial institutions.

Like Justin said, a good business plan helps tremendously. I took advise here on the Film-Tech forums about 4 years ago from Ian Price and Ky Boyd, and met up with a small business councelor from SCORE . They pointed us in the right direction as far as business plan preparation, and helping us decide which SBA loan program to go for.

We went with the SBA 504 Loan Program which required the least amount of cash injection from us.

Posted by Jeremy Fuentes (Member # 2135) on 11-04-2005, 10:22 AM:

Anybody have any luck with business grants? I have a friend with a degree in business(not sure exactly what kind of degree), and she told me if I wanna start this kind of business, a good business plan is obviously a major key. She said she would also help me with applying for a business grant, in addition to a loan.

Posted by Barry Floyd (Member # 385) on 11-04-2005, 04:55 PM:

Unless you can prove me otherwise... there are NO business grants of any type. We looked. We looked for two years, and finally sat down and met with our SCORE rep, and he simply said, "You watch way too much late night TV."

My personal experience in the theatre world was NONE. I had never threaded a projector until the night before we opened.
I make decent money in my "day job", and my wife stays home with the boys. The biggest risk we took was selling our house to get the equity out of it.

quote: Richard Cockrum
(If your wife signs on as the owner, its easier to get them)

That part is right.

Posted by Justin West (Member # 920) on 11-04-2005, 10:04 PM:

quote: Barry Floyd
"You watch way too much late night TV."

You mean, "ASK LESKO" in his Riddler-like sportcoat is not telling us the truth??? Awww. [Wink]

Posted by Richard Cockrum (Member # 2417) on 11-04-2005, 11:59 PM:

The only business grant I could see happening would be a Main Street type grant or building rehabilitation/renovation grant. These are usually available through Community Block Grant programs, but won't help with buying a business. It has to be a going concern already. Even when they are available, they normally require you to pay a percentage of the work. You're not just given the money outright.

This has been my experience, at least, but I could be totally clueless.

--Rick

Posted by Brad Allen (Member # 470) on 11-11-2005, 07:51 PM:

Some counties around here have Economic Development "Grants". That's what they call them, but they are low cost "loans". Like 2% or such.

Posted by Barry Floyd (Member # 385) on 11-12-2005, 02:09 AM:

One of the things I do as part of my "day job" is helping secure Community Development Block Grants (CDBG). We mostly work with local towns, counties, municipalities, etc. The monies recieved from these "grants" is used to upgrade and expand water and sewer services, Main Street Revilizations, and other local government owned or controlled projects. I've never seen CDBG money used for a "for profit" private business.
Brad is right, most of them are low-rate loans.

The SBA 504 loan program we used, involved 3 sources of funding. 50% of the money came from a direct business loan from our local bank (backed by the SBA), a Community Development Company (CDC), and us. In the 504 program, if the local bank would do the 50% loan, the CDC would provide between 35%-40% of the total loan amount, and we only had to come up with 10%-15% in actual cash green money. The interest rates on the portion of the loan from the CDC was at a VERY low fixed rate for the life of the loan. The CDC is a private company, partnered with the SBA to provide start-up or "seed money" for new businesses that will create new jobs and create a significant economic impact on the area which the business serves.

Posted by Louis Bornwasser (Member # 3063) on 11-12-2005, 08:24 AM:

Barry: FYI, for over 20 years the SBA would not involve itself with any theatres due to the "opinion moulder" rule. This changed about 10 years ago due to efforts by myself and the ITEA. (Int. Theatre Eq. Association.) Louis