Finance Your Restaurant Small business With A person Else's ...

In case you are in the restaurant small business, you certainly won?t need to have me to tell you how hard it could be financially.

Although that you are creating up the reputation of one?s establishment, income is normally tight and one particular bad night can mean an unprofitable week. As for money flow ? well, the cash certainly flows, doesn?t it You just wish that a lot more of it was flowing in than out. And what about these slow periods What do you do if they last longer than you anticipated How do you get the funds you?ll need to obtain your restaurant enterprise over that hump.

OK, I?m painting an unfavorable picture here, but funding could be a problem for even one of the most thriving restaurant, in particular for those who wish to expand easily. The query remains: what?s the ideal method to get financing for the restaurant

LOANS

A loan may possibly be an apparent solution to raise finance for the restaurant small business, but take a look at it from the point of view with the lender.

The 2004 Restaurant Business 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, if 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 small business such as the restaurant trade.

Lenders will, admittedly, appear much more favorably on you when you also own your premises. However, you will need to be aware that funding your business using real estate as collateral means that it will be the potential resale value on the property that lenders are looking at. The purpose of your property itself may well 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 could not be suitable for your particular circumstances.

Should you do decide to go the loan route, then speaking to a specialist lender with expertise within the restaurant sector is essential.

ACCOUNTS RECEIVABLE FACTORING

Factoring is a form of commercial finance where an organization can accelerate its cashflow by selling its accounts receivable at a discount. This means that the business enterprise does not have to wait for outstanding invoices to be paid in order to receive the money necessary to finance the company moving forward.

For many service based corporations, accounts receivable factoring is an extremely good way of easily accessing money. However, restaurants rarely have much company 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 money ? usually up to around $120,000. The income will 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 frequently be made available within 14 days, so ? for the restaurant company that is in want 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 more than 1 year, take over $5,000 per month in Visa/Mastercard transactions and have a lot more than 1 year left on their lease to qualify.

For the restaurant that has been in existence much more than 1 year, this represents the most beneficial method of further growing your small business 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 must 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 very best avoided. There are enough companies out there competing for your enterprise.

For the young or established restaurant organization, credit card factoring could be the most effective way of acquiring the funds you need to expand your company. So, fund your restaurant using somebody else?s credit card !

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