The self storage deal the bank said would not service

On the vendor's accounts, the bank was right. The storage business on its own sat below a 1.0x debt service cover, and an application built on those accounts was always going to fail. That is where most deals die: not because the deal is bad, but because the accounts are answering the wrong question.

Two things were hiding in plain sight. First, the storage business had been paying well over $150,000 a year in rent to the vendor's family trust, which owned the freehold. The buyer was purchasing the freehold too, so from settlement day that rent becomes internal. Put back where it belongs, the earnings step up materially. Second, the buyer ran an established business of his own, and those earnings belonged in the servicing picture. We adopted them conservatively, at a discount to the recent average, and never counted anything twice.

Everything went to the banker as one consolidated worksheet:

• Sources and uses of funds balanced to the facility, so every dollar of the purchase had a funding line against it
• The rent normalisation evidenced from both sides: the operating accounts and the property trust's rental statements
• The buyer's existing business earnings adopted conservatively, at a discount to the recent average, never double-counted
• Covenant testing at sensitised rates, with the binding requirement and the headroom stated plainly
• A two-tranche structure: a senior loan against the freehold and a short amortising overlend for the balance

On the new file, the structure passed both covenants with clear headroom. The banker approved an additional $3m in lending, and the purchase went ahead. The acquisition added around $400,000 a year in revenue and roughly $240,000 of owner-occupied earnings to the client's position, in a business that had been growing every year on the trot.