YOU’RE LOOKING FOR A RESTAURANT LOAN!
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Financing & Cash flow are the most significant issues facing business today.
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
Restaurant financing option choices in Canada often come with a significant amount of stress and drama. Why do loans for restaurants in as thriving a sector as Hospitality in Canada come with a significant amount of ' angst' for the borrower? Can those stress factors for restaurant owners be successfully eliminated? Let's dig in.
ALL TYPES OF RESTAURANTS CAN BE FINANCED, INCLUDING FRANCHISES
Probably no business segment in Canada is as attractive and appealing as the restaurant sector. That might be either an independently owned operation, or it might also be a part of a successful franchising chain. By the way, we think it’s pretty clear that simply being part of a franchise program is not a greater guarantee of success in financing in the hospitality area because the majority of the criteria for lending and business success are, in fact, the same. That's our story, and we're sticking to it!
One major factor in restaurant loans is the need for the owner/entrepreneur to have ' financial savvy, ‘with a strong knowledge of costs, profit generation, and managing assets.
WHAT STAGE IS THE RESTAURANT IN?
Restaurants often go through various financing needs in stages. Initially, there is that start-up/turnkey financing that allows for the acquisition of a business. In some cases, this can be the purchase of an existing location - with some rebranding or other management skills needed.
BALANCING PERSONAL EQUITY AND DEBT IN YOUR RESTAURANT PURCHASE
As the business starts and grows, some level of operating financing is needed. This again becomes a challenge because traditional lenders such as banks view the business as an ' all-cash ' business. So why would ' all-cash ' businesses require financing? Arguably it’s not the same level of financing required as many other businesses, but there is still an investment in inventory, vendor payables, payroll, and fixed costs. All of these in a fluctuating or seasonal sales environment!
DO BANKS FINANCE RESTAURANTS?
In certain aspects of the economy, some business segments are constantly somewhat out of favour. This often pertains to restaurant loans, franchise or independent. Banks will focus significantly on the personal credit history and financial bench strength of the owner. Making matters more complicated is that lenders place significant emphasis on ' experience, ‘so if the purchaser has little or no experience in hospitality finance and operations, that becomes an immediate negative.
WHAT ARE THE REQUIREMENTS FOR A LOAN APPLICATION FOR A RESTAURANT?
Restaurant financing options require the same basics in any loan application. That includes a strong executive summary or business plan, owner bio, and industry issues that are properly covered, such as location, revenue potential, etc. A reasonable profit and loss and cash flow is absolutely required. 7 Park Avenue Financial business plans meet and exceed the requirements of banks and commercial lenders.
CAN THE GOVERNMENT OF CANADA SMALL BUSINESS FINANCING PROGRAM FUND A RESTAURANT?
Actual financing options include the Government small business loan, which can be properly tailored to build a new restaurant or acquire an existing one. That loan typically maxes out at 350k, but recent amendments to the program suggest higher limits possible. Specialty franchise finance firms can provide a total solution if the owner is part of a franchise system. This loan, commonly called an ' sbl loan ' is the equivalent of the U.S. sba loan which is under the small business administration in the states.
OTHER FINANCING OPTIONS FOR FUNDING RESTAURANTS
Other options include equipment leasing/equipment financing, working capital term loans, and merchant cash advance financing - the latter being popular but expensive. In the long term, a line of credit is an important requirement for funding day to day operations, paying suppliers, etc. A business line of credit will help smooth out the ebb and flow of cash inflows and outflows in the daily business of a restaurant. Business owners should be able to demonstrate a good personal credit history and credit score to achieve a bank line of credit or be successful in accessing small business loans.
Many small businesses use a business credit card for some of their purchases and you might want to assess that option for certain purchases.
EQUIPMENT LEASING
For restaurant equipment itself and the loan amount, you require equipment financing is absolutely the best financing option. Make sure that both new equipment and used equipment options are reviewed, as both are financeable. Funding options available from lessors offer different lease terms and structures. For used equipment, you will need to provide a quote from a commercial seller for the new restaurant.
MATCHING SHORT TERM AND LONG TERM NEEDS IN BUSINESS CAPITAL
Note that it is necessary to distinguish between short term loans and long term funding needs in assessing loans for restaurants. Interest rates will vary greatly, depending on what type of business funding you are looking for. You want to consider a financing option that makes the most sense as part of your application process to secure the restaurant.
CONCLUSION
If you are looking to eliminate drama and stress involved in a business loan for a restaurant, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can ensure all options are ' on the table'!.. when it comes to small business owners and getting into the restaurant business.
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Stan Prokop
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