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Limited Options Strangle Restaurant Loans

From a conventional stand point restaurant loans are taking the worst of it as the credit crisis has seemed to have worsen. Special use properties such as restaurants are always the first to feel the tightening as the process to sell the facility in case of borrower default is more difficult that your typical general use property that will have a wider pool of buyers.

Conventional financing for restaurants, meaning loan issued directly by the funding banks, without any guarantee by the SBA or other such institutions, are getting very conservative. Loan to values are hover at 55% on refinances and 60% on purchases. Debt coverage ratios have tightened as well from a 1.25 to a 1.3 and with some banks a 1.4. Meaning that for every $1 of proposed mortgage debt the borrower would still have $.40 left over after all expenses and proposed mortgage have been paid.

In addition, the cap rates have really been taking a beating with conventional sources. For example, I recently spoke to a bank loan officer that said they are putting on a minimum 10% capitalization rate on all restaurants regardless of the market.

The solution is to think non conventional for either purchase or refinance money. For example it’s still possible to get 85% financing on purchases on a 5 year fixed 25 year amortization loan, if you work through the right sources.

One loan program that deserves mention is the SBA 7a loan as it was designed for niche building types like restaurants, motels, etc. They can go as low as a 1.1 debt coverage ratio, and business projection can be used to supplement cash flow if it’s too low to meet the guidelines. Which in a cash business like restaurants, where most owners understate there income is very important.

CMBS sources are still out there though on a limited basis. For example, a 30 year fixed rate mortgage at 80% financing is still available. Primary benefit of course is that the borrower doesn’t have to worry about their rate fluctuating.

Author: Jeff Rauth
Article Source: EzineArticles.com
Provided by: Excise Tax

Tags: 30 year fixed rate, 30 year fixed rate mortgage, borrower, capitalization rate, coverage ratios, credit crisis, debt, debt coverage, example, financing, fixed rate mortgage, Jeff RauthArticle, Loan, mortgage, Rate, restaurant loans, SBA, sba 7a loan, use, year, year fixed rate mortgage

Restaurant Loan Options

Owners looking for a restaurant loan have limited options and the credit crisis is giving a “beating” on all special purpose properties; such as restaurants. Although borrowers still have three main sources for financing, including conventional bank loans, CMBS lenders and SBA programs, borrowers are encourage to take a hard look at the SBA programs first due to their reliability of closing and strong benefits.

SBA 7a loan has many benefits on both purchase AND refinances, despite the notorious reputation it has with some borrowers. Most of these earlier issues have been ironed out in the last 5 years though borrowers should be careful who they work with, as bank that are inexperienced with the SBA can quickly complicate the process.

Examples of the benefits include 85% financing and low rates at prime + 1-2% for most borrowers. Right now Prime is at 5%. An effective rate of 6% from a historical stand point on a special use property such as a restaurant is exceptional. In addition, most 7a loans are amortized over 25 years helping the borrower spread out their loan and thereby increasing cash flow as compared to most traditional bank loans of 15 or 20 year amortizations. Working lines of credit, equipment, and construction/renovation loans can easily be tied into the loan.

One of the other huge benefits is the flexibility this program has for cash flow analysis aka debt coverage ratios. Most sources want to see a 1.3 on this type of building while the SBA 7a loan only needs a 1.1. In other words, the business needs to show that for every $1. of proposed mortgage payments that the restaurant has $1.30 of net income to cover the proposed loan. So after all expenses have been paid including the mortgage the restaurant should have $.30 left over. With the 7a it would only have to be $.10 left over which can be a big difference for most business that have tight cash flow.

Further, the borrower is allowed to use future business projections as well, to supplement any existing short falls in cash flow. This is not possible with 99% of the other options out there as they will only look at historical statements like your tax returns, balance sheet or profit and loss statements.

The negative with the 7a loan is that the rate typically floats and the SBA has a guarantee fee of 2.75% of 75% of the loan balance. However this is not always the case. For example, we have a source that offers this as a 5 year fixed, 25 year amortization loan. And there are banks out there that will absorb or pay for the guarantee fee themselves.

The short of it is if you’re looking for a restaurant loan keep you eye on the 7a loan.

Author: Jeff Rauth
Article Source: EzineArticles.com
Provided by: Creditcard Currency Conversion Fee

Tags: 7a loans, Bank, Business, cash, cash flow analysis, conventional bank loans, coverage ratios, credit, credit crisis, Fee, flow, Jeff RauthArticle, Loan, notorious reputation, purpose properties, renovation loans, Restaurant, SBA, sba 7a loan, sba programs, year

Restaurant Loans and the SBA Programs

Examining options on a restaurant loan? Due to the current credit crisis you might want to take a look at the SBA programs first, as they are currently the most reliable programs. Not only do they have the highest probability of closing, they also boast some of the lowest rates, highest leverage, and longest fixed rate financing around for restaurants.

Rates right now, for restaurants, are in the 6%’s to low 7% depending on the particulars of the deal. Combine that with 90% to 85% financing, meaning you only have to come out of pocket 10 to 15%, it’s easy to see the benefits of these programs. Compare that to traditional bank financing, rates are about the same, but you would have to come out of pocket 30 -40% down. On refinances loan to values are also very conservative with banks at 60 – 65%. While with the SBA you can go up to 80% on restaurants refinances.

In terms of fixed rates it depends on the structure of the loan. With the SBA 504 you can easily get 10 year fixed, 25 year amortization loans. With the SBA 7a most are floating though we have a program that is fixed for 5 years and amortized over 25 years. Again, as a comparison most bank financing would not exceed 3 -5 years fixed and will often not have amortization schedules beyond 20 years. › Continue reading

Writing A Restaurant Business Plan Sample

The first step in opening a successful restaurant business is writing a comprehensive restaurant business plan. Almost everybody has a rough idea of what basically constitutes a restaurant business plan sample. But there are many things which you need to pay attention to, as most people often miss to include them.

So here’s a head start on crafting your restaurant business sample-

In general there are five things that all restaurant business plans should have. They are Executive Summary, Market Research, History and Position to Date, Operations and Business Strategy.

Speaking about executive summary it should address some vital issues like mission and objective of the company, description of the company, products and services offered, finance requirements as well as financial forecasts. An executive summary is often regarded as the foundation of any business. All the information that you will provide in the plan will be like a guiding path as to what your restaurant will do and how they will do it.

History and position to date is the second vital thing in a business plan sample. This part of the business plan will take you a step further in running your restaurant business. Here you require to include some vital things- such as, the key personnel and the management team of your business, history of your restaurant and also the structure of your restaurant business. › Continue reading

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Restaurant Loans – Credit Crisis

As you may have guessed restaurant loans are taking a serious beating in the current credit crisis. A year ago, and even 6 months ago there were many options. In fact, 30 year fixed programs on restaurant loans where an option, stated income commercial loans where available, borrowers with very low and or no net income could still get decent restaurant loans. Even borrowers with other issues like bad credit could find restaurant loans.

Now almost all of these creative options have frozen up and or are simply gone. What’s left are traditional loans. Primarily SBA commercial loans and a few, scattered, and only for very strong borrowers, conventional commercial mortgages. With these types of options, restaurant owners are going to have to start planning for the future and be more conscious of playing the traditional game. In other words, you’ve got to show some income! If you don’t show any income on your tax returns you’re not going to get a loan.

If for example you know you have a loan ballooning soon or if you’re in the process of expanding locations you’ve got to tell your CPA now to start showing some income. Yes you might increase the amount of tax you will have to pay but the alternative could be much more expensive. › Continue reading

Current Restaurant Loans Options

Restaurant owners have limited options for commercial mortgages, relative to other businesses and building types. One of the most common options is the SBA loans. Although not perfect, they can be a viable option. For one, they are still reliable and are still closing. Two, they do offer some of the lowest fixed rates available and the highest level of financing for restaurant loans.

Interest rates for restaurant loans are currently in the mid 6%’s to mid 7%’s depending on the particulars of the transaction. Combine that with 85% financing on purchases AND 85% financing on refinances and it is easy to see why the SBA has had such a huge impact on American Small Businesses.

Compare that to traditional bank financing, rates are about the same, but you would have to come out of pocket 30-40% of the purchase price. Refinance financing is more limited and harder to close and loan to values are normally capped at 50-60% as well. Again with the SBA programs you can go up to 85% loan to value on refinances on restaurant loans.

The SBA programs have received a lot of criticism over the years, some of it warranted, some of it not. One of the biggest complaints is the time frame and bureaucratic process. A key to avoiding the long delays is to work only with PLP lenders. If you do not your loan will have to be underwritten and approved twice, once by the funding bank and secondly by the SBA. If you work with a PLP lender the loan will only have to be underwritten once, and you will avoid at least one month of delays. It is common to close SBA loans in 60 days which is right in line with all commercial loans. › Continue reading