Borrowing From Banks

A traditional bank business loan is difficult to obtain for a start-up restaurant, but it is a good place to start. Banks are less likely to grant a start-up business loan for a restaurant because the track record for success in the food service industry is poor. The statistics state that 75 to 80 percent of start-up restaurants fail within their first year. As a result, banks are hesitant to offer restaurant loans.

Despite their being reluctance to offer credit, don’t rule out banks since their application process will prepare you for other funding sources. The bank loan officer can serve as your first point of contact for critique and objective view about your business plan.

It can be easier to get business loans for restaurants from banks if you are financing the expansion of an existing restaurant or purchase of a new or existing franchise. With a history of success, the bank’s risk is reduced. But you will still need the experience, credit and plan to apply.

The Small Business Administration

The federal government’s Small Business Administration makes dollars available for lending through thousands of commercial banks nationwide. A significant percentage of each loan is guaranteed by the government, which means the bank’s risk is reduced. However, just as with commercial banks, the SBA has an extensive application and vetting process for business loans for restaurant loans. In fact, the documentation required tends to be more expansive than would be required with a traditional, non-government-backed loan bank loan. Business Cash Advance

The upside of a SBA loan includes market interest rates and slightly less stringent loan terms.  SBA loans offer a longer payback period, which can mean lower payments. On the downside, you  must have been declined for a traditional restaurant loan in order to apply for an SBA loan and you must be borrowing for an operating business, not a start-up company.

Non-Traditional Lenders

Purchasing a franchise operation or obtaining a license to build one can be an easier way to get business loans for restaurants. Franchise operations will have lending programs to get you into the business. As with all business loans for restaurants, you will have to demonstrate good credit. However, a lack of experience might not hold you back with non-traditional lenders. Good franchise operations train their new owners and managers.  The biggest drawback of restaurant business loans is the franchise fee.  The fee must be paid in cash in order to pursue construction or start-up financing.

Owner or Individual Financing

Many business loans for restaurants come from the existing owner of an enterprise selling out to new owners or financing additional locations.  Typically, this method of financing means less paperwork, competitive rates and less credit requirements. The business owner knows you and believes you can run the business successfully. Many “handshake” deals can go wrong when the details are vague. Be certain you and the lender agree and understand all important terms. Business cash advance

Borrowing from an individual, such as a friend or family member, is another common lending source.  Many times, even these lenders will want to see a business plan and to be convinced of your ability to successfully run a restaurant.

Factoring Lenders

Finally, another non-traditional source of business loans for restaurants are factoring or accounts receivable lenders. These sometimes are called “business cash advance“  or “merchant cash advance” lenders. If you have a business that is generating good cash flow and need money for expansion or capital equipment, a factoring lender will advance you cash against your uncollected receipts. Typically these will be uncollected credit card sales, also called discounting. You sell your uncollected receipts for a little less than their actual value. The factoring company then has the risk of collecting them and earns the difference between the total value of the credit card receivables and the lesser amount they paid you.

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You don’t want your loyal customers to know of the financial difficulties that plague your business, so you wear a mask, like the children who will soon be eagerly walking from house to house, anticipating what types of candies will fall into their bags next. However, unlike these children, you don’t take your mask off at the end of the night. It stays on until you’re finally able to secure the business cash you need, or, your business outgrows itself and begins to fall apart right before your eyes – and at the rate you’ve been going, you’re thinking it might be the latter.

But there is another option, a business loan method that can save your restaurant from the doom you once thought was inevitable – the restaurant loan.

A restaurant loan is a merchant cash advance for restaurant owners. It allows restaurant owners to use their daily credit card sales as a means of securing up to $500,000 in business funds. Providers will review your business’s current monthly credit card sales and based on those numbers, they can advance you cash against your business’s future credit card sales.

You can use these funds to expand your restaurant in order to keep up with a growing clientele and to reach out to additional customers. In fact, there are no restrictions on how restaurant loans can be used, so you can use the cash however you choose.

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There is very little collateral or equipment for banks to attach in order to protect themselves, it is an industry with very high turn over and very few survive beyond 5 years.  As a result, bankers require the restaurant owner to personally guarantee any loan and will often require assets equivalent to double or triple the business loan amount – wouldn’t you?

If that does not seem attractive as a business owner, then you begin to understand why business cash advance (based on future credit card sales) also known as merchant cash advance is an attractive alternative for owners looking for a restaurant loan or working capital.  It should also help to understand why the cost of capital is greater for these types of funding programs as they do not require any collateral or personal guarantee.

In any business loan transaction the cost of business capital is typically dictated by who is accepting the risk.  Business owners know that a business cash advance (merchant cash advance) shifts 100% of the financial risk to the funding company and in this economic environment that is exactly where most restaurant entrepreneurs want it…even if it cost a few dollars more.

More over obtaining a business loan has become much easier with fixed rate and terms for short term restaurant loans. These restaurant loans provide much needed cash to restuarant owners where traditional banks won’t lend restaruant loans .

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The merchant cash advance industry is growing at an astonishing clip.  This growth is because traditional banks are not meeting the needs of small businesses. The merchant cash advance product is unique - it’s a purchase of an asset, not a loan.  We provide merchants with a lump sum cash advance up front. In exchange, merchants agree to pay back the advance, by systematically sending an agreed percentage of their credit card sales until their balance is zero. This percentage is based on what the business can afford, and the payback frame is typically 5-12 months.

Getting cash from traditional financing institutions can be difficult for some businesses, particularly retail, restaurant, franchisees or seasonal businesses. These merchants most heavily use credit card processing, so merchant cash advance programs offer a number of benefits.  A typical business loan would require a written loan proposal, business and personal financials and is time consuming and very restrictive.  It could take weeks to get approved, if at all, through traditional bank lenders.  Moreover, you would personally guarantee the loan and will have to follow a strict monthly schedule of repayment irrespective of your monthly business revenue flow. 

The cash is available quicker than it is with traditional business loans.  This product appeals especially to retail and restaurant merchants not only because these types of businesses can rarely get traditional funding, but also because of the immediate liquidity a merchant cash advance offers.

Unlike a loan with a fixed rate of interest, amount due and set due date each month, with merchant cash advances the money is paid back as credit card receivables come in.  We work with the business, so it is cash flow friendly, especially during seasonally slow periods.  Traditional loans require a set payment every month, whether the business has made a sale or not.

Because payments are calculated as a percentage of sales, if sales are growing, the amortization could be quicker, but if the proprietor experiences some interruption or downturn in business, the payments will be lower.  In most cases, business owners put up no personal collateral and make no personal guarantee.

If the merchant’s business is doing well and sales are up, we would collect the money sooner.  If sales are sluggish, the payback will take longer. Since there is no time limit on paying back the advance, the effective annual rate decreases as the payments are extended over time, although we typically collect the advance in less than a year.

The merchants interested in a program like this may have a distressed credit history. Things like past tax issues, a list of delinquencies, collection matters, liens or judgments would be an automatic red flag for a conventional bank.  The merchant cash advance industry caters to businesses that can’t get traditional funding.  There is a risk to merchant cash advance providers, but we use sophisticated models to determine the future likely credit card purchases.  We also offer the cash with relatively short payback periods to help mitigate risk.

Seasonal businesses that need cash to carry them through lean seasons or merchants who have an unexpected downturn in business (say because of road construction, building repairs or extended illness) might find a need for a merchant cash advance until business picks up again.  However, ailing businesses are not the only merchants interested in this kind of program.  Many types of businesses are often underserved by traditional funding institutions.  For example, a particular restaurant could be a very successful business, but a traditional bank wants to see tangible assets.  Perishable foods or used restaurant equipment just won’t make the cut, even if that restaurant is packed every night. 

There are many examples of times when owners of healthy small businesses could use cash to help build their businesses but can’t get the traditional funding necessary.  These include franchisees who have exhausted their savings to purchase their first franchise and want to open a second one; merchants whose competitors have closed and have the chance to buy their competitor’s old inventory or move into a new location; expansions; buyouts; or simply the desire to move quickly on a perceived new opportunity.

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By adding CapVance (CAPVANCE)’s unique Merchant Cash Advanceto your sales portfolio, you’ll find many benefits which can include:

• Differentiated offer creating a new value proposition to present to your customer base
• A new reason to speak with your customer base, creating a cross-sell opportunity
• Increasing customer retention and extending customer’s life-cycle
• Stimulating new customer acquisitions
• Deepen existing relationships
• Additional commissions/revenue streams for you

Few things are more attractive to your clients than getting approved for business capital. When money talks, people always listen – making CAPVANCE’s Merchant Cash Advance product an offering that clients are eager to discover.

In CAPVANCE’s funding, your clients will find:

• A quick approval process, with funding in as little as 10 business days
• Up to $150,000 per location
• Funding opportunities for businesses with business owner FICO scores ranging from the low 400s to the mid-800s
• Opportunities for over 500 SIC codes, with over 100 premiere franchise concepts already served

By increasing your clients’ professional opportunities, you’ll strengthen existing relationships. Doors will open. Perhaps best of all, your earning potential can grow tremendously.

merchant cash advance

Each merchant is locked into processing for the life of the funding, earning you ongoing commissions. This product was designed for small businesses and 3 out of 4 eligible clients return for additional funding opportunities – driving your own residual commission opportunities.

Click here to discover more of the benefits in partnering with CAPVANCE. merchant cash advance

Join the Industry Leader

CAPVANCE has funded over 20,000 businesses in all 50 states. CAPVANCE’s National Sales Team works in partnership with processors, brokers and ISOs, helping small business owners secure working capital to stabilize and grow their businesses.

merchant cash advance

The right product makes it easy to do what you do best.

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If you have done any research on the internet regarding restaurant financing you have probably read this statement often… “restaurant financing is hard to come by”. We flat out don’t agree, but surprisingly many, many restaurant loan websites still make this claim. The fact is restaurant loan financing is just like any other business loan. Well that is how the company we recommend approaches it. Basically, if you have done your homework, your due diligence and present a professional case there is a good chance you will be approved. That sounds like any other new business that needs capital to get off the ground doesn’t it? So, why is there this negative bias surrounding restaurant financing? Honestly, we don’t know, we don’t understand it ourselves, but it defiantly doesn’t feel right. None of that is important though, because the company we work with takes a half glass full approach. They look upon your restaurant loan request with open eyes and true positivity. They take the time to see your vision, understand it and then work the numbers. Your opportunity and their opportunity are intertwined. The latter is possibly what many have forgotten.

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As a small business owner, your most difficult task is finding the money to operate your business. Taking the necessary steps to prepare for a small business loan can minimize the difficulty. Learn what you need to know to clinch the loan deal.

Banks and other lending institutions cite risk factors as their main reason for turning down small business loan requests from startup businesses. Yet, you can still get a loan for your business by proper preparation.

Avoid the common error of thinking you can start with grants from the government and community agencies. It is even more unlikely than getting the money from your own savings, family, friends, or a bank.

The main requirements of attaining a small business loan are your personal credit history, business plan, experience, education, and feasibility of the business you are starting or expanding.

The most important task to obtain a small business loan is preparing a business plan. The business plan needs to show the lender that providing you with a small business loan is a low-risk proposition. Your business plan must answer the questions a lending institution would ask. These questions usually are:

How much money do you need?

If you are starting a business, this should be included at least in the start-up capital estimate. Accuracy is important, so request enough money to invest wisely.

What are you going to do with the money?

You will have to provide, in detail, the designated use of every dollar requested. A small business loan is often needed for: operations (new employees, marketing, etc.), assets (equipment, real estate, etc.), or to pay off business debts.

When will you repay the small business loan?

Explain in detail how this small business loan will serve as a stepping-stone for your business. You will need to convince the lender (with your financial statements and cash flow projections) that you are able to repay the loan through the expected long-term profitability of your business.

What will you do if you don’t get the loan?

Let lenders know that rejection will not discourage you from starting or growing your business. You want to portray a confident and determined personality and you will try lender after lender until you receive the money you need to get your business moving.

As a small business owner, you will need a certain degree of fortitude. Be confident and proud of your venture. Let lenders know you are in control and know what’s best for you and your business. Understand that lending institutions need to make loans. But if you don’t get one, don’t get discouraged. Ask the lender why you didn’t get the small business loan. Learn from the answer, move on, and try other lenders.

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One of the main aspects that make obtaining a restaurant loan difficult is the eligibility requirements. Restaurants are considered a risky venture by bank standards, so they set high standards for approval for a restaurant loan. Obtaining financing can be very difficult, and there is the possibility of rejection. Most restaurants fail within the first three years of doing business, so the specific requirements for a restaurant loan are very understandable. Lenders are only looking at whether or not the applicant is worth the financing and if the business plan is practical.

Usually, lenders have a minimum and a maximum loan amount. Regardless of how much you are looking to restaurant finance, you will most likely have to enter the loan with a minimum of a ten percent down payment, which you can borrow from another source if you do not have the funds readily available. With a down payment that is relatively low, however, the lender most likely will require collateral in the form of real estate. Collateral gives you an extra edge when financing. Most lenders will give you a loan to value ratio of up to ninety percent when you have real estate collateral.

When looking to approve a borrower, lenders require a detailed business plan. If you haven’t done enough research, then lenders will most likely send you away. Usually, lenders look at every aspect of the business plan to make sure that it fits with industry standards, and avoids trends wherever possible. If your plan is weak in one area, then there is the possibility for it to be weak in another. When researching for your business plan, make sure to account for potential profits from every angle, and also make sure that those figures are accurate and actually probable. Even if you come with enough funds for a down payment, amazing credit, and a well-researched business plan, other factors, such as a poor location choice or estimated menu prices, may actually end up leaving you rejected.

If not consider a merchant cash advance

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I’m hearing certain merchant cash advance provider’s funding levels are down by as much as 40% from this time last year.

2009 was a very challenging year for many merchant cash advance providers – many losing their credit lines / funding sources. Some had to scale back considerably, others had to scale back 100% – meaning they shut down, layed off a large % of their staff, etc.

As I indicated in the middle of the year, many of these merchant cash advance providers could not sustain the huge losses they took by funding unqualified applicants in 2007/2008 or “crushed their cashflow” with too high of a withholding % to retrieve the future credit card receivables purchased.

One of the things I believe is needed to “jump start” demand for alternative financing products like a merchant cash advance from business owners in 2010 is the obvious – the economy needs to improve which will improve business owner confidence. The unemployment rate needs to decrease so consumers are spending more at their local businesses, hence giving local business owners a reason why they want to expand, buy more inventory, advertise/market, etc.

With all that said, there are a few good merchant cash advance providers still standing (no where near the number that there used to be) that make up 90% of the market. I still think 1 or 2 more will fall in 2010.

It will certainly be a interesting time in 2010 and I look forward to being one of the remaining industry leaders left in the merchant cash advance space.

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If you are seeking debt relief or looking for an unsecured business loan or small business loan, you have located a useful source to assist you. We know just how frustrating it is to search for money in today’s economy. Fortunately, in the past year alone, our clients have received hundreds of millions of dollars in loan approvals and debt relief through debt negotiation.

Since 1999 over 3 million Americans have trusted their financial challenges. By utilizing unsecured business loan or debt settlement services you will benefit from our knowledge of today’s most active lending sources and debt management experts.

We welcome the opportunity to show you how we are at helping our clients with their financial goals. Our professional staff is waiting to speak to you. Please get started by clicking the debt or unsecured business loan product.

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