Lakepoint secures 85% LTV for an Okanagan HVAC contractor buying its own shop

Location: Okanagan

Industry: HVAC and plumbing contracting

Annual revenue: $7,000,000+

Loan products: Commercial mortgage, operating line of credit, corporate Visa

Total credit facilities: $1,441,500

LTV: 85%

Amortization: 25 years

Lender: Chartered bank

Primary goals achieved: Lower costs

This engagement came to us as an inbound enquiry from a prospect we had spoken with once before. The client is an owner-operated mechanical contractor that has spent more than twenty years installing and servicing heating, ventilation, air conditioning and refrigeration across the Okanagan. It has since added a plumbing arm, which ramped up quickly in its first year of trading. Between the two companies there are roughly twenty-five people and combined revenue of over $7,000,000.

The business had been renting its industrial bay for years. When the unit next door came up for sale at just under a million dollars, and appraised for more than the asking price, the owner wanted to buy it and stop paying rent. He had never financed a commercial property purchase before, and he was candid that his time was better spent running the company than running a lending process. That is what he engaged us to do.

His stated priority was leverage. He wanted as little of his own cash tied up in the purchase as possible, so we took a request to our lender network for 90% of the purchase price alongside a $500,000 operating line and a corporate card. Four lenders came back within two weeks, and the spread between them was wider than most business owners would expect.

One lender offered 100% of the purchase price. Another offered roughly 95%. Both came at materially higher rates, 6.00% and 6.67% on a five-year fixed term, against 4.89% from the lender that eventually funded. We set the four offers side by side with the full cost of borrowing over five years for each, and that changed the owner's thinking. The extra leverage was real, but it was being paid for through the interest rate for the whole term. The 100% offer also required moving every day-to-day banking account across, and committed the shareholders personally to injecting cash within thirty days if a covenant slipped.

He chose the cheaper money instead, at 85% of the purchase price. Measured against the one directly comparable offer at the same loan amount, the structure he selected costs $14,413 less in interest and fees over the five-year term. Against the two higher-leverage offers, the rate is 111 and 178 basis points lower.

The operating line came in at $500,000 and, importantly, unmargined. The company can draw the full amount without reporting a borrowing base against its receivables and inventory every month, which two of the other lenders would have required. The corporate card was set at $100,000, the largest of the four offers. Annual reporting was settled at a compilation engagement rather than the review engagement first proposed, which saves the group real money with its accountant each year. The owner's personal guarantee was capped at $600,000 on the operating facilities rather than left unlimited, and a full personal guarantee sought from the minority shareholder came off the table.

The client's own view, left afterwards as a public review, was that "working with Lakepoint was an outstanding experience from start to finish."

If you are looking at buying the building you have been renting, and you are not sure whether the biggest loan is the best deal, that arithmetic is exactly what we do. Start with a 15-minute commercial debt review and we will benchmark pricing, covenants, guarantees and available leverage against what we are seeing in the market right now.