Financing Your Next Restaurant Project
By Faye Fisher
Historically, it has always been difficult for restaurants to get financing for their projects and even more so since the financial debacle that began in October of last year. The first logical place to go for a loan is your neighborhood bank which would have the lowest interest rates. The problem is that these banks have very stringent requirements. First you must pledge serious collateral and have a credit score in the 700 range. Banks look to the individual and want to know that they themselves are putting 50% of total needs into the project. Banks turn down almost all loan requests from restaurant owners.
The only problem with private investors is that you can end up paying them interest for the lifetime of the business.
The next logical step...if you have been rejected for a loan is to apply for an SBA loan thru the bank. This is a loan that is guaranteed by the government and it is geared specifically for those already turned down for a conventional loan. They too require collateral and are more expensive than the neighborhood bank. SBA has had a huge amount of restaurant loan write offs in the past year, so again this loan might be difficult to obtain. The banks that generally offer the SBA loans to restaurants are TD bank and Capital One.
There is only one bank that is specifically geared to the restaurant industry. Advance Restaurant Finance is a national company with a large office in Manhattan that lends money solely to restaurants. Their loans range from $5,000 to $1 million. They do not request collateral and you can obtain money within 10 days. The rates are based upon personal credit and how long the restaurant is in business. If you are opening a new restaurant and already own another place, they give the loan on the already open establishment which is eligible for much lower interest rates.
People You Know
You can always look to family and friends for investment in your restaurant. Since the stock market took such a hit and real estate prices are low, people have no place to invest their money, so you might do well looking to those you know. The only problem with private investors is that you can end up paying them interest for the lifetime of the business and you can also end up having to listen to their opinions as well. So be sure you sign contracts very carefully to protect yourself. People in the financial industry were heavily invested in the restaurant industry and now these people no longer have extra money to invest so they are a lost source.
Factoring companies' rates tend to be high and they take a percentage of your business every day as payback for the money they have given you.
Factoring companies are firms that give you cash in advance of future credit and sales. You generally have to be open for a few months so they can see some credit card history before they lend you money. Their rates tend to be high and they take a percentage of your business every day as payback for the money they have given you. You must use their credit card processors and they take the money directly from your credit card sales.
Need Another Alternative?
Another alternative way of borrowing money is to lease your equipment instead of paying cash. A startup restaurant can receive $60,000 to lease equipment and an already existing restaurant can get $150,000 if they have sizeable income.
The most important question you should ask yourself is, "When should I borrow money?" The best answer is always: When you use the money for a project that will bring you a good return on your investment. This means using the money for expansion, renovation, adding an outdoor café, expanding your bar area, buying a new location, doing a marketing and public relations campaign, etc.
About Faye Fisher
Faye Fisher is Vice President of Advance Restaurant Finance in the Greater New York City area. Advance Restaurant Finance, LLC places short-term, restaurant loans and business loans for small to medium-sized merchants. ARF fills the void between traditional bank financing and less attractive avenues of financing, such as taking on partners. In short, ARF is able to secure lending where most banks stop, while allowing you to retain control of your business and meet your business's goals.
You can reach Faye at her office (212) 580-2234 or on her cell at (917) 575-8052.