Start a Restaurant

Up until recently restaurant financing, was burdensome and very limiting. Not only are there only a few lenders interested in restaurant financing, refinancing for this type of business is very difficult to obtain. If you are already in the restaurant business or are planning to open a restaurant, you really do have only a handful of lenders to choose from and even they remain overly cautious with very conservative guidelines.

Thankfully, in the past few years there have been a few more lenders decide to offer restaurant financing, and a few more options. For example, no you can look at stated income loans or loans that are amortized over 30 years. The main reason for the conservative lending patterns is that the restaurant industry has almost twice as many bankruptcies as any other industry. Plus this industry has a lot of seller financing which makes it riskier and more complicated for financial institutes.

When a restaurant loan is underwritten, it focuses more on the debt coverage ratios, loan to value ratios, your credit worthiness, and other more traditional requirements. The debt coverage ratio is the most important and is usually quite conservative around 1:1.3 meaning that for every $1.30 of net income the mortgage payment can’t be over $1.00.

Stated income loans are relatively new for restaurant financing, and they’ve come to be because of the cash nature of the restaurant business. It’s an excellent option for you if your net income isn’t enough for a traditional loan.

The restrictions on most loan to value ratios usually tops out at 60% except in some high leverage loans where it might be as high as 90%. All of these numbers really are dependent on both the lender and your personal situation. Restaurant financing is one type of lending that doesn’t have a cut and dry set of requirements. Your personal credit score will almost always come into play with restaurant financing, with a credit score of 640 being about the lowest credit score that lenders will look at.

Restaurant financing may be a little more difficult than other types of business financing, but you should never let that stand in your way. Online lenders are much more flexible than traditional lending institutes like the banks, so do your research, and explore all your options.

Above all, never give up on your dreams. If owning a restaurant is your dream, then keep at it until you find restaurant financing that works for you!

Author: Gordon Petten
Article Source: EzineArticles.com
Panasonic Lumix G2

Many traditional lenders have unofficially removed bar and restaurant properties from their short list of business loan candidates. Other lenders will restrict their restaurant lending to a handful of restaurant businesses with a long track record. There are two dominant reasons for these actions by traditional lenders:

(1) Bars and restaurants will usually have the highest failure rate among new businesses. Traditional banks have discovered that an infallible strategy for avoiding such business loan failures is to avoid making these kinds of loans in the first place.

(2) Commercial mortgages for bars and restaurants will involve special financing requirements for liquor licenses and items generally categorized as FF&E (furniture, fixtures and equipment). As a result, there will be a perceived intermingling of various assets looked upon as collateral by the traditional banks, and this extra level of complexity discourages many traditional lenders from actively making commercial real estate loans to bar and restaurant owners.

BUSINESS LOAN SOLUTIONS FOR RESTAURANTS AND BARS

(1) I believe that one of the primary underlying reasons for a high failure rate among bars and restaurants is directly due to the commercial borrower being forced into short-term financing when long-term financing is essential to the health of the business investment. Businesses (and especially restaurant and bar properties) should not be financed with short-term funds. It is essential to obtain long-term commercial financing of at least 15-20 years (and longer is even better).

(2) Seller seconds and other variations of subordinate financing should be considered. This will permit the most aggressive commercial financing for bar and restaurant commercial mortgages, up to 90% of the property value. This is important if you are the buyer because it will provide another financial tool to help with financing. It is important to the seller because it might enable someone to buy the property who could not otherwise do so. Subordinate financing (including seller seconds) is not permitted by many/most traditional banks.

(3) For bar and restaurant loans under $1 million, a Stated Income commercial mortgage should be actively considered. This form of commercial financing will not require income tax returns or other income verification. This especially benefits self-employed bar/restaurant borrowers who frequently have income that is erratic and difficult to document properly. Stated Income commercial real estate loans are not provided by many/most traditional banks.

(4) Finally, restaurants and bars will frequently benefit from using credit card receivables to convert future cash flow into immediate working capital via a business cash advance up to $300,000.

Copyright 2005-2006 AEX Commercial Financing Group, LLC. All Rights Reserved.

Author: Stephen Bush
Article Source: EzineArticles.com
Panasonic Lumix G2