When Banks Aren’t Lending to Restaurants – What’s the Next, Best Option?

June 7, 2010

The Fork & Spoon, Atlanta, GA

Anyone can attest that lending to small business, especially restaurants, has been a virtual nightmare since the upheaval of the credit markets, over 16 months ago. Recently, an Atlanta area restaurant owner asked the sixty-four thousand dollar question, “when is it going to get better?” Shrugs abound. Well, sort-of. There’s still plenty of money available to lend to restaurant owners, it’s just that lenders and private equity groups are looking for any excuse to say “no.” Expectations are high on both ends of the spectrum, so much so, that bringing both the borrower and the lender together, even on the same planet, is often an enormous challenge.

“What we have found,” says Rebecca P. Watkins, CEM of National Restaurant Funding, “is that with ever-tightening guidelines on what is expected in order to get funding, small business owners still have a strong belief that the same rules that were in place in 2007 for borrowing exists today.”

However, those rules of very lax guidelines and “stated income” are no longer the norm. Even bridge loan funders insist on seeing a history of at least 3 years of financials. There must be 100% collateral in place for most loans, barring the SBA Express loans and Merchant Cash Advances. It is not a new way of lending, rather a systematic, less risky method of vetting a deal from all angles.

When loans are absolutely out of the question, a restaurant owner is limited on how he or she can infuse a business with working capital. There just isn’t a magic, fairy godmother lender out there that will swoop down from the heavens and bestow a credit-challenged, earning-declined restaurant with a working capital loan at prime-plus rate and no collateral. Most restaurants are under capitalized, at any given moment, by 2% to 20% and most launched their operations with a deficit in cash and struggle for years, if the location can stay open, to rebound.

“A viable alternative,” says Watkins, “is a merchant cash advance, and we’re still getting those done with relative ease and minimal paperwork requirements.”

While most small business owners have faced a nationwide trend drop in sales of 20% in the last year and a half, some restaurant owners have been able to increase cash flow by thinking smart and shedding unnecessary expenses. Sometimes scaling back isn’t enough to kick the business into high gear, though. That is where the injection of working capital, thought out intelligently, and factored in with a growth goal in mind, comes to the rescue of limping, often ailing businesses.

Funding sources, such as National Restaurant Funding provide professional analysis and expert advice to help restaurant owners get the funding they need. Watkins insists that businesses are still being funded, everyday, it just involves patience on the part of both the borrower and the lender to grasp the bigger picture.

“If a deal makes sense we can get it done,” says Watkins.

Contact: National Restaurant Funding – www.nationalrestaurantfunding.com