Start a Restaurant

Any business person will tell you that no plan, however well though out, survives its first encounter with reality. No matter how cautiously you have designed your method for a restaurant loan, something is bound to come about sooner or later. This could be an issue as simple as a sudden rise in the prices your supplier charges, or as difficult as your walk-in fridge failing one night.

When you run a business, especially while in the first few years, your profit margins are minimal and an unpredicted problem could be the difference as far as success and closing down. It will really come down to your ability to pull together the working capital your company needs swiftly. Acknowledging that the cash flow to make good on that unexpected bill will be in your hand in a couple of weeks makes all the difference.

So, where does the working capital come from? From your credit card terminal, actually. All those moments your business ran a payment through your machine, you were actually contributing to your reputation. While you might not have thought of the possibility, there are many companies give establishments like yours factoring agreements when asked.

A factoring agreement as opposed to a restaurant loan involves you selling anticipated processing sales to the factoring company in exchange for capital handed over today. Once you have established a steady flow of credit card sales over the last several months, you are able to apply. We aren’t talking about a few dollars, either; agreements run from $5,000 to $1,000,000 per location.

Small business factoring requires a great deal more than luck and can be managed without needing to kiss up to the big shot at your traditional. Look closely at what your credit card broker can offer to help your establishment through. You might want to consider shopping around before the crucial need arises. This way you will know what to expect as far as documentation. Normally 4 months of merchant account statements and a 1 page application are a must. Your company can normally obtain 100% – 150% of your monthly average volume.

For many years, Daniel Samoohi has served as a reputable source of information regarding a restaurant loan. For dependable answers and advice on a restaurant loan visit him at Merchant Cash Finder.

Author: Daniel Samoohi
Article Source: EzineArticles.com
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There are many ways to finance an existing enterprise. When it comes to restaurant loans, banks are always hesitant to extend much by way of capital. This shoes that for the budding restaurateur, securing cash flow for cash flow is very hard. Worse yet, if something requires capital down the road, it can be even more difficult to come by.

Under ideal instances a bank will want you to come up with a minimum of 25-30% of the initial cash for start up costs. If your company need more money later on, say for a repair or expansion, there is boat loads of paperwork to get together. More accurately, the bank will need to see that you have been in business for a number of years and have collateral prior to letting you out the door with their money.

Credit card processing companies and factoring companies are more flexible as far as their guidelines. They already know that your establishment is taking in a decent transactions based upon the credit card receipts they see each day. While they will base what they offer you on those sales, they may also alter repayment terms to match those sales on a monthly basis. That means you will never feel overextended to pay back your balance.

Of course, there are other ways who provide restaurant loans as well. Family, friends and coworkers may be willing to lend you some funds, but it is really bad to mix your personal life with your business life if you can avoid it. A resourceful, professional establishment is your best bet if you are not going to apply at the bank.

You will pay more with a factoring company than you would at a typical bank. However, the trade off of being able to qualify with a factoring agreement to that of a bank loan is substantial. After all, 6% of nothing is zero. You could have your working capital in 7 – 10 days. You would be lucky to receive an answer from the bank by then, let alone capital in your account. In addition, assuming everything goes well with your initial advance you will qualify for more advances. This form of working capital can serve as a real cash flow solution in today’s market.

Since early 2008 Daniel Samoohi has helped thousands of business owners in finding reputable providers in order to compare quotes for restaurant loans. By making lenders compete with each other, Daniel helps businesses in finding great deals for restaurant loans.

Author: Daniel Samoohi
Article Source: EzineArticles.com
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While there’s no denying that debt can fuel the startup and growth of a restaurant, there is a point when more is definitely not better.

Cash flow is the key. Can your business afford to make the payments each month from the cash that is left over after all other bills are paid? Bankers call this “debt coverage” — a fancy term to describe the cash coming in to the amount needed to “cover” the loan payments.

Although different banks will require different “debt coverage”, most bankers agree — If loan repayments consume more than half of your cash flow, you may be in for trouble: One bad month could mean a missed payment, and those kinds of problems tend to multiply. Don’t let a banker sell you a bigger loan than you can handle… and likewise, don’t plan for a restaurant that requires more debt than you can afford.

Jimmy Katopovis, owner of Steele Creek Caf in Charlotte, NC, says that he figures his fast food restaurant will spin off profits of about 10% of sales each month. When he decided to borrow the money he needed for expansion, he knew that his monthly loan payment could not exceed 10% of his expected sales. That set a pretty tight cap on how much he could afford to borrow, he says.

Leslie Kohn, of Nextaurant, Inc. in San Francisco warns that each restaurant, and each owner, will have a different appetite for loans. “There is no one-size-fits-all solution,” she says. The best advice is to get good advice. Make use of a CPA or financial consultant to determine how much is too much.

If a CPA is not in your budget, a simple XL spreadsheet can give you a glimpse into the future. Download a simple “loan amortization” table (available at numerous websites) and calculate your likely loan payments. Its safe to figure a 20 year term for a building loan, but for other debt 5 years may be the longest available term.

Doing this exercise on paper not only helps with planning the size and scope of your restaurant, it may help you craft a more financially sound business plan… before it’s too late.

David Worrell is a successful serial entrepreneur and an advisor to businesses of all sizes. He now sits on the board of directors of both private and public companies, and offers free business advice at http://www.dworrell.com. At his website, business owners will find a variety of free tips and tools for improving the cash flow and profitability of their companies. The resources are free, and so is membership. Join today and receive a free report, “The Colors of Money” — 27 pages chock full of ideas for funding your growing business. http://www.dworrell.com

Author: David Worrell
Article Source: EzineArticles.com
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There isn’t much out of the ordinary about a merchant coming across unforeseen operating expenditures. In the restaurant industry, Restaurant Loans assist in keeping the restaurant open while giving the necessary working capital for improvements, new supplies or growth, without the difficulty of trying to get a conventional bank loan.

Normal bank loans simply do not quench the desires of every merchant. For young businesses, entrepreneurs with less than excellent credit marks and those merchants that require a quick approval and payout, conventional bank loans aren’t the most suitable options. In the times subsequent to the sub-prime home loan collapse, few lending institutions are eager to loan working to any merchants, even if they are perfect candidates for a loan. Fortunately, restaurant finance providers are stepping in to bridge the gap left by normal lenders.

Restaurant finance isn’t really a loan in the least bit. Rather, it is a type of credit card factoring, where one business owner gives a piece of their future credit card revenues in exchange for fast access to funds. As long as the merchant can verify a history of several months where they transact a reasonable sum of credit card revenues – typically between $2000 and $2500 per month at the very minimum – a credit card factoring contract can be reached.

The funding company is likely to request the merchant to replace their credit card terminals so they can track revenues, but that is a little burden when compared to the capacity to get necessary cash fast. It is advisable that the merchant make sure that the provider with which he does business with adheres to “best practices” guidelines prior to getting into contract. A large number of working capital agents have appeared recently in response to the present financial situation so it is best to be sure you do not work with those that are simply in the market to take advantage of an expanding business.

Restaurant finance from a merchant account can be utilized to fund any item an entrepreneur requires. It is speedily obtained and with a loose payback schedule it can make the difference between meeting your goals and closing your business for good.

Since early 2008 Daniel Samoohi has helped thousands of business owners in finding reputable providers in order to compare quotes for restaurant finance. By making lenders compete with each other, Daniel helps businesses in finding great deals for restaurant finance.

Author: Daniel Samoohi
Article Source: EzineArticles.com
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Commercial loan underwriting guidelines come down to cash flow ( DCR), loan to value (LTV), credit worthiness and property analysis. Although the process to evaluate a potential commercial mortgage is basically the same from one bank the next, their various appetite for both risk and minimum rates of return are what separates one bank from the next.

Underwriting Commercial Loan Cash Flow

Cash flow is paramount to underwriting commercial loans. Within the industry the cashflow analysis is refereed to as the Debt Coverage Ratio ( DCR). For both owner occupied and investment transactions underwriters normally want to see ratio’s above a 1.20. In other words, for every $1 of mortgage debt the property or business has to have $1.20 of net income to meet the mortgage payments.

Debt coverage ratio minimums vary from one lender to the next, property type and occupancy (investment or owner occ). “Riskier” property types such as hotels or car washes will be required to have higher cash flow levels, ie DCR at or above 1.3.

Credit Worthiness

The borrowers personal and business credit worthiness is also important and will be heavily scrutinized. Personal credit scores have become a bigger issues as the acceptance of the three bureau have become widespread. D & B’s as well as other measures are normally used to asses the creditworthiness of businesses that are involved.

Property Analysis Commercial Underwriting
Fair market rent and fair market value is heavily measured. Condition, age, appearance, town population, market trends as well as other more property type specifics are examined.

Commercial Underwriting – Loan to Value

Loan to value is simply the value of the subject property vs the loan amount. I.e if the property is worth $2,000,000 and the loan amount is $1,500,000 the LTV is 75%. This is a huge issue within commercial loan underwriting and a big separator between lending institutions. Some lenders will get very aggressive with this while other will be very conservative.

The property type has a major influence on loan to values that are offered on commercial loans. For example restaurant loans will normally be capped at 65% while more general purpose properties such as retail will be limited to 75%.

Commercial underwriters will give more leeway to buildings that are owner occupied vs. investment properties. Loan to value on purchase can go as high as 90% on owner occupants vs 75% on investments, for example.

Author: Jeff Rauth
Article Source: EzineArticles.com
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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
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