Congratulations! We think. So you actually really do want to open or purchase a restaurant? We always admire clients who have decided on this business decision given the amount or risk and work that is often involved. Our comments and info on financing your restaurant business pertain specifically to a franchise business loan, but to be honest being think they are 100% applicable to financing any non franchise restaurant.
First the key good news, there are a number of options available to finance a restaurant. Although it’s a non financial reason, the reality is that you will be more successful in your financing if you can demonstrate previous experience in owning, managing, or working in the industry – that’s only common sense. The type of passion and your enthusiasm about your business usually transcends into one of the key positives in your lender or lenders assessing your application.
You will noticed we used the term lender or lenders… that is because in the current economic environment of 2010, where we have just come through a global recession that affected every industry it has been necessary in many cases to cobble together your financing through a number of sources.
The next question always comes very quickly from our clients – What are those sources, who is financing restaurants. Well the goods news is that the government is! What do we mean by that? Simply that one of the most popular programs out there is the federal government BIL/CSBF program which finances the majority of franchise restaurants in Canada. Who knew! The program is very attractive, and in our opinion quite frankly is the best program for financing a restaurant, franchise or non franchise, in Canada. Basic terms of the program are a lending cap of $ 350,000.00 and rates and terms in the 5-6% range currently with 5 to 7 year amortizations.
What most prospective restaurant entrepreneurs don’t realize is that the government sponsors and guarantees the program, but your friendly banker runs it. In our experience many bankers are ill equipped to process this loan, so the golden jewel in restaurant financing in Canada, in our humble opinion, is the ability to source a business financing advisor who can successfully, ( and quickly ) get you approved. Naturally as with any business financing there are some basic criteria that need to be met, but it you have got the fundamentals you are well on your way to financing your restaurant business.
The fundamentals we referred to include a responsible down payment by yourself – we call this your owner equity. You know the next question our clients ask already – ‘how much down? The reality is that it depends, but we can say safely that your down payment should be commensurate with your financing loan total amount request.
Many restaurants in Canada are financed by the seller, i.e. the franchisor, or the current franchisee who is selling. What do we mean by that? Simply that if a creative structure is required the franchisor or the current owner can offer to hold a vendor take back, allowing you to replay that amount later at some agreed upon interest rate. This simply minimizes the amount you have to borrow and qualify for.
Other methods of financing your restaurant include lease equipment financing for all or a portion of the hard assets. This type of financing is easier to get approved, as it primarily focuses on the hard assets being financing. Again, this also has the ability to lower the amount you need to finance from bank perspective.
Restaurant owners love the ‘ bottom line’ which hopefully is profit. Our bottom line in our information is simply that franchise business loans and financing your restaurant business are achievable, and you do have options. Search out an expert and get ready to open those doors to your customers after you have successfully completing the financing of your restaurant venture.