The New Face of Restaurant Funding – When Banks Won’t Lend

by Rebecca P. Watkins, Chief Executive Member

National Restaurant Funding LLC

October 8, 2009

Today’s restaurant owner is restricted to just a handful of funding products to meet the demands of cash flow. Since the credit markets began their crunch in earnest in the fall of 2008, the choices an existing busy restaurant owner has for funding his or her restaurant has become downright satirical. The once reliable sources of credit cards, small commercial business loans, even once guaranteed merchant cash advances have all become increasingly more difficult to obtain and have since put the fledgling restaurant owner in a daily position of fighting for his or her business life.

The need for worthwhile, best-rate funding is being bemoaned on all levels, from the vendor who cannot get the next great piece of equipment to the merchant because of funding constraints, or the marketing firm that continues to provide services to the restaurant owner despite being owed for previous campaigns, or to the restaurant owner, himself. The current band-aid approach to funding does not necessarily serve the long-term interest of the restaurant owner, but is the current state of affairs as banks continue to cherry pick their deals.

However, restaurant owners, at the least, can expect to be subject to higher rates and lower payback terms, thereby spreading the risk to all parties involved in a funding transaction. The funders are no longer willing to overlook a weak credit score and stated income. Those days are long gone. Moreover, independent restaurant owners no longer stand alone in the quest for much-needed funding. Franchisees, who had always fallen back on their corporation for support in lean times have fallen prey to the credit crisis, as well.

What’s a strapped restaurant owner to do? Piece-milling funding has become the new wave as more financial institutions seem less interested in traveling down a long, arduous path to payback terms than in years past. Restaurant owners who are fortunate enough to get the doors open do have some limited choices available for funding as long as they get some time under their belt. With less than a year in business a restaurant owner can expect to be confined to equipment leasing, to some vendor credit extensions, and to some forms of merchant cash advances. ┬áThese three options are a fair trade when considered that seven out of every ten restaurants fail within the first three years of business. After a benchmark year in business, a restaurant owner can then expect to utilize his business as collateral and then be considered for some short term loan products, as well. Again, keeping in mind that credit score does play a critical role in approval.

Still, there is no one magic bullet for funding. The government has launched SBA programs that lenders are just not participating in, and while the funding institutions are taking a wait and see approach, restaurant owners are struggling with quick-fix, high rate funding products simply because there is nothing else available. The days of long term commercial funding for restaurants has come to a screeching halt. So, as the credit markets continue to freeze out viable business owners, those cottage funding sources such as merchant cash advance companies, equipment leasing companies, and short term loan funders can be seen as the only funding sources that currently serve the busy restaurant owner.

Contact Information:
Rebecca Watkins