Finance Your Restaurant Enterprise With Somebody Else's Credit ...

If you are inside the restaurant company, you surely will not require me to let you know how tough it might be financially.

While you will be developing up the reputation of your establishment, money is usually tight and 1 negative night can mean an unprofitable week. As for cash flow ? properly, the money surely flows, doesn?t it You just wish that more of it was flowing in than out. And what about those slow periods What do you do if they final longer than you anticipated How do you receive the funds you will need to get your restaurant business more than that hump.

OK, I am painting a negative image here, but funding will be an issue for even probably the most profitable restaurant, specifically in case you wish to expand speedily. The question remains: what is the very best solution to get financing for your restaurant

LOANS

A loan may be an obvious strategy to raise finance for the restaurant enterprise, but check out it from the point of view from the lender.

The 2004 Restaurant Industry Operations Report published by Deloitte & Touche LLP indicates that average pre-tax profit margins range from 4-7%. This means that, from the lender?s point of view, even a profitable restaurant is a big risk. The bigger the risk, the bigger the interest payments ? that is, when you even get approved for a loan at all. High interest rates, of course, can bring their own problems, particularly for a very low margin enterprise such as the restaurant trade.

Lenders will, admittedly, look additional favorably on you should you also own your premises. However, you?ll need to be aware that funding your small business using real estate as collateral means that it is definitely the potential resale value from the property that lenders are looking at. The purpose with the property itself could actually reduce its resale value as there would be a smaller pool of potential purchasers. Thus, many lenders set very high minimum loan amounts, which may not be suitable for the particular circumstances.

If you do decide to go the loan route, then speaking to a specialist lender with expertise in the restaurant market is essential.

ACCOUNTS RECEIVABLE FACTORING

Factoring is a form of commercial finance where a company can accelerate its cashflow by selling its accounts receivable at a discount. This means that the organization doesn?t have to wait for outstanding invoices to be paid in order to receive the cash necessary to finance the business enterprise moving forward.

For many service based companies, accounts receivable factoring is an extremely good way of speedily accessing cash. However, restaurants rarely have much small business of this kind.

What they do have, however, is a high volume of credit card transactions. By leveraging these, budding restauranters can ? literally ? fund their restaurants with other people?s credit cards.

CREDIT CARD CARD FACTORING

Essentially, restaurants can sell their future credit card transactions and receive an advance on that dollars ? usually up to around $120,000. The cash might be used for any purpose ? from expanding premises to buying new equipment or whatever you want. This isn?t a loan, so there is no personal guarantee needed. It?s simply an advance against future credit card settlements.

The company purchasing takes a small, fixed percentage of future credit card transactions until the advance is repaid.

The advance cash can normally be made available within 14 days, so ? for the restaurant business enterprise that is in need of a quick injection of funds ? this is a good option. Of course, there are restrictions on who can apply. Generally speaking, a restaurant would have to be running for over 1 year, take more than $5,000 per month in Visa/Mastercard transactions and have more than 1 year left on their lease to qualify.

For the restaurant that has been in existence extra than one year, this represents the most effective method of further growing your enterprise at minimum professional or personal risk.

COMPANIES PROVIDING RESTAURANT FINANCING

There are a number of companies out there offering financing of this kind to restaurants. The main points to watch out for when selecting such a company are as follows :

i) Application Fee ? Companies charging an application fee should really be avoided. To be honest, there isn?t much paperwork involved in this process, so an application fee is unnecessary.

ii) Closing Costs ? Again, companies charging ?closing costs? are most effective avoided. There are enough companies out there competing for the business.

For the young or established restaurant business, credit card factoring will be the most effective way of getting the funds you will need to expand your business enterprise. So, fund your restaurant using an individual else?s credit card !

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