Restaurant Business Loans
One of the greatest challenges facing restaurant owners from getting the business loans they need is bad credit. The fact is restaurant owners took a massive hit from the economic downturn from several years back. From the significant drop in customers dining out, increased transportation costs and the rise in food costs; restaurant owners find themselves struggling to thrive in a poor economy.
The downturn caused them to resort to taking funds out of their own pockets and racking up credit card debt just to keep their businesses afloat. As a result many owners ended up damaging their personal credit and hurting their overall financial stability.
Today, restaurant owners can’t get the business loans they need due to those bad credit issues from the past. Other factors that contribute to such high rates of rejection are excessive debt, lack of collateral, and a back-breaking approval process.
Let’s face it, growing and maintaining a restaurant is costly. Getting the cash needed when it comes time to expand, hire new staff or purchase equipment is crucial, yet getting restaurant business loans with bad credit is nearly impossible when dealing with banks.
In fact, a business loan is one of the hardest to get and requires a substantial amount of collateral, piles of paperwork, and an almost perfect credit score. Even if a restaurant has a healthy cash flow, an owner’s bad personal credit rating can prevent them from qualifying for a loan.
However, the good news is there are options for the un-bankable restaurant owner. It’s important to review your loan options so you can determine which type of program best fits your personal and business needs. Interest rates and loan terms will vary with each program with some being better for your restaurant than others.
Two popular programs for getting restaurant business loans with bad credit are the merchant cash advance and revenue based loans. Both of these programs are simple and straightforward because they focus more on the strength of your business (credit card sales/bank deposits) than personal credit scores.
First, there is the all too familiar merchant cash advance. Basically this program lets you leverage your future credit card sales to secure funding. There is no collateral required and funding is fast.
Repayment on this program is based on a fixed percentage and is taken automatically each time you batch, until the advance is paid off. Keep in mind this is a pricier option since this is a riskier loan so it’s essential to understand the terms and interest rates of the agreement.
Second, let’s talk about the revenue based loan also known as the cash flow based loan. This program is different from a merchant cash advance because it’s based on your restaurant’s bank account deposits not credit card sales. Repayment on this program is made in small increments on a daily basis via ACH. To get funding for this program you need a minimum FICO® score of 550 with monthly deposits of at least $12k.
Despite the tough times, know that the economy is coming back, even if it’s coming back slow and steady. The good news is that the National Restaurant Association says that 33% of adults want to dine out more often once they feel that the economy is picking up again. As the economy continues to climb; stay focused and know that you’ll not only survive but thrive.
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About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in ‘Fox Small Business’,’American Express Small Business’, ‘Business Week’, ‘The Washington Post’, ‘The New York Times’, ‘The San Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’.