Mike Andes (creator) explains that his planned Augusta Lawn Care headquarters project is stalled because the SBA is unlikely to fund the intended SBA 504 construction loan. He purchased five acres of industrial land (~$500,000) with ~35% down and has already bought building materials (metal frame, electrical supplies). The planned 14,000 sq ft building would cost roughly $3.3M; rising interest rates (previously ~5–6%, now ~7–8%+) have increased projected monthly debt service from roughly $14–15k to over $20k, causing underwriting concerns and a loan denial notice. He must occupy the new HQ by February next year (about eight months away) and is exploring using combined entities for underwriting or fallback to a commercial loan.
Questions this video answers
Five acres
Approximately $500,000
About 35%
About 14,000 square feet of office space
Over $3.3 million
Chapters
Hey everyone, it's Mike Andes. Today I'm out on a pier just overlooking the water. This is out in Blaine, Washington, and today was not a good day. And I'm going to talk to you about it today. And the fact of the matter is that over the past 15, 16 months, we've been planning to build a headquarters for Augusta Lawn Care. Kind of a headquarters where we can have a whole bunch of different uses for it. Number one is a place for us to train the franchisees and have a place where not only can we train them, but it's right next to the command center and it's also where the local shop, the first location of Augusta Lawn Care, would also be operating out of that location. So about 13, 14 months ago, I actually purchased five acres of industrial land that would be more than enough to suffice us to be able to grow substantially grow to pass 500 locations for Augusta Lawn Care. And the building has like 14,000 square feet of office space and it's very large also. I'd live there and it'd give us a lot of space to grow in the future. There's more room in five acres to grow down the road in terms of building more buildings and a lot of it, honestly, just parking. And so today, however, I was notified by our banker that it looks like the SBA is not going to fund our loan. And it's really, really frustrating because we've been talking to this bank for the entire 12, 13 months that we've been in this loan process. And we purchased the land already. So not only. It's not like we just haven't built, started the building project. It doesn't matter. Like I have bought the land, $500,000 that I purchased this land for. I had to put about 35% down because it's a land loan, two year kind of thing. So typically when you get a land loan, they want you to use it within like two years because otherwise it's not worth a lot. They don't want to put a loan against just land. They want you to build on it. So it's a short term loan, not great interest, et cetera, because it's just, it's supposed to roll into a construction loan. Well, the construction loan is an SBA 504 loan. 504 loans are built, are made for typically building projects and real estate projects. Under this SBA Small Business Administration, you get pretty good debt. And this is the problem. 12 months ago when we were considering this deal, interest rates for this debt was 5 to 6%. Well, now interest rates for this debt is gonna be 7, 8 plus percent. So it makes the cost of the project go up. Now, what that does is increase our, the cost, the debt service, every single month. So what they're looking at is like, well, can this company, can it actually sustain this debt service? And it's a big project. It's going to be over $3.3 million that this whole building project is going to take. And it's no small task, by no means. And the monthly mortgage will probably end up being like it was like 14, 15,000amonth. Well, now it's going to be probably $20,000 a month because of interest rates going up over $20,000 a month. And so they're looking at that like, hey, like, we don't know if you can afford this because this is a lot more expensive now, as well as the fact that we are trying to run the entire loan under one entity to make it simpler for the underwriting, because if you actually included all these entity structures, the franchise, the local shop, the media group, me personally, to be able to stay there, if you actually included all of those things on a loan, the underwriting would be an absolute beast. So our plan was like, hey, we' under Augusta Lawn Care Corporation, which is the local shop, because it's been in business for eight or nine years. It's been profitable for a long time. It's much more consistent profitability. It's not growing super fast like the franchise or the media group. So it'll be just more consistent, easier for underwriting. But the problem is a business that does 1.61 $.70 in annual revenue, even though it might profit two or three hundred thousand dollars a year, is still not going to be allowed to have a debt service of 250 grand a year, which makes total sense. But I got a call from the banker, basically saying, hey, oh, check that out. There's a. These are a bunch of sea lions out here. Come out here next to the pier. It's really nice. That over there actually, by the way, is. Oh, yeah, look at that guy's jumping around for us. Oh, check this guy out. I don't know if you can see that. Come on, come up again, bro. But way over there is actually White Rock. That's White Rock over there. Oh, yeah, there he is, look. Let's go. That's White Rock. That's Canada. But so anyways, they said, hey, we're not gonna be able to fund this loan. And what was really, really enraging is the fact that literally two months ago, I emailed them like, hey, this has taken us forever. I need to get this loan rolling because we need to break ground and start going here. And we literally. It's not only the land that I've purchased. I've now purchased all the materials for the building. Like, the actual metal frame of the building, the electrical supplies. We've ordered it all because, hey, because of all this backlog of the supply chain, everything takes so long to get here. So what I did is I like, hey, we'll go ahead and buy the land. We'll order all the materials and make sure that when we have the permits in place and the financing in place, that we're ready to actually break ground and go. And I had plenty of nods from the bank, like, yep, we're good. We'll roll the land loan into the construction loan. The sba, we'd already been in touch with them for, like, a year, and all of a sudden, they just have not been getting anywhere. And they made us do two appraisals because of the fact that the cost of everything was going up. The cost of the building alone has gone up, like, 40%. And so we've had to do two appraisals. We've gone through that process. I emailed them a couple months ago and was like, hey, where are we going with this? Cause it's been over a year. And they're like, oh, no, no problem. We're working through underwriting, whatever. And I was like, well, do I need to go to a different bank? Cause they're acquiring another bank. I'm like, hey, is this slowing you down? Cause I've done other SBA loans before when I was buying the gym, and I. We paid that one off by now. However, when we purchased it, it took us, like, eight months because that bank was buying another bank. And so I'm like, hey, this is not my first rodeo. If you guys are buying another bank and it's just slowing down the process, I want to know, because I am not going to sit here and wait for this acquisition that you're going through this bank. If my underwriting is being held up in the process. And they're like, oh, no, no, Totally not part of that. Not going to affect us at all. Don't worry about it. Well, two months. That was two months ago. Now today, they're like, oh, yeah, I should have told you back then that you probably should have chosen another bank. And the SBA doesn't look like they're gonna underwrite this loan. And we're gonna have to come up with some other solution or you're gonna find something else. So right now, in my bad spot, we've basically purchased land, we've purchased a bunch of building materials, but we still need like $3 million to complete this project. And so I'm either gonna have to get commercial. Commercial loan, but I am going to keep working the sba. I'm going to take it. There's a couple different routes you can take with the sba. I'm probably going to end up trying first and foremost to apply using all the entity structures, which would have way more revenue, all combined, much stronger balance sheet and assets. So that's the first step. That's my first thing. The next thing I'd have to do is get a commercial loan, which is not going to have as good terms in terms of financing. The interest rates are going to be higher, typically not as friendly to a borrower. So that's kind of where we're at right now. It's pretty discouraging. I was hoping by now we would have broke ground, already, had the structure up. Fortunately, because we have a lot of the materials, we have the metal frame already. As soon as we get the go ahead from the bank, we will tear this building apart. It'll go up fast. I'm looking forward to being able to share that with all of you.
We have to get inside this building by February of next year. So we're literally eight months away from when is a deadline for us to be in the building. Because I got leases ending in just a matter of several months here at three different locations. And we cannot move in during spring rush. Spring rush for command center is havoc as it is. The last thing I need to be is moving into a new building with new Internet, new computers, new everything in the middle of spring rush. So bit stressful. Wanted to share that with you. If you guys are doing SBA504 loan, expect to take a long time, especially in a market like we're in now where the cost of building is going up so fast, they're making you do multiple appraisals. They're redoing the loans all the time. The rates are going up. So they don't want to lend right now because they know the interest rates are going up. So it's just a mess. So pretty lousy day, but we'll figure it out. And we got the land. So at the very least we'll just be out in the sun on our computers, answering phone calls at command center. But the local shop will be fine because at the very worst, we'd clear the land. We would put down gravel. Most of it, they're all just mobile. They have a bunch of storage containers. So we could at least make it work for that. And have to figure out something with the leases on the office buildings for command center and the media side of things. But we'll figure it out. But just wanted to share with you guys. The loan has been denied currently. Got to figure things out and go from there.
