Thinking About Refinancing Your Golf Mortgage?

While reading the most recent edition of Golf Business, I noticed an advertisement for First National of America, Inc. The ad states, “Refinancing Your Golf Course Mortgage Can Be Easier Than You Think.” It got me thinking about the countless banks that specialize in servicing home mortgages. But golf courses?

Curiously, I went to the First National website to learn more.

Finding the right lender for anything can be a challenge, but it’s true that specialty lenders are more often at liberty to offer creative financing solutions. As it turns out, First National of America is one of the largest principal lenders to golf courses throughout the United States. Their focus is golf and they are behind the idea that working with a financial source that has previously lended on golf courses is the best way to go.

As lending to specialty properties requires specific knowledge of that marketplace, they are also aware of all the risks involved. By better understanding the unique needs of golf course investment strategies, these lenders often see more long term potential.

While First National is not the only golf course specific lender out there, they tout that they can save a lender steps in getting educated about the business of course-ownership and associated revenue streams. They list the following tips to help a course owner evaluate the viability of them as a prospect and ensure the successful financing of a golf course project:

• Credit: The borrowers and principals must have good credit. Further, the principals must have a balance sheet to support the equity investment required for the project. They also must support project operations during seasonally slower periods.

• Income: Net operating income (NOI) must be available to support debt service on the loan. In a construction loan, projections must show that the course is expected to reach an NOI supports debt service within two years of opening. The operation's debt-service-coverage ratio should be 1.2 or more.

• Collateral: The appraised value should be the discounted value derived from cash flow operations. All revenue streams are to be accounted for, including membership deposits minus the operations and maintenance expenses. The revenue and expense items are also compared to other area courses.

Specialists in the golf industry generally look for a loan to value of 65 percent to 70 percent. In the case of an operating golf course, this is based on a "stabilized value." In a construction loan, value is determined by market-based projections and is evaluated based on an "as completed" value.

Finally, First American says that making an effective presentation when seeking financing is as important to the financing effort as the merits of the project. Borrowers should be prepared to represent the entire facility's historical financial statements and a minimum of three years of financial projections. They also must provide their past year's annual financial statement and the most recent interim statement.

Bottom line, in a highly leveraged business like golf, refinancing can be as much of a competitive advantage as turf maintenance. Smart course owners need to continually assess their financial situation against changing market conditions and decide if refinancing is for them. It can be a smart strategy to improve cash flows or take equity out for course improvements.

If you are thinking about refinancing, take time to get educated to approach the appropriate lenders. Most importantly, get the terms and rates needed to meet your specific goals.

Sometimes, when banks compete, courses win.