Finance Your Restaurant Business With Someone Else's Credit Card

For anyone who is within the restaurant business, you undoubtedly will not have to have me to let you know how challenging it may be financially.

Though you?re building up the reputation of the establishment, revenue is frequently tight and one poor night can mean an unprofitable week. As for money flow ? nicely, the money undoubtedly flows, does not it You just wish that additional of it was flowing in than out. And what about those slow periods What do you do if they last longer than you anticipated How do you receive the funds you will need to acquire your restaurant small business over that hump.

OK, I am painting a negative picture right here, but funding is often a problem for even the most effective restaurant, particularly in the event you wish to expand rapidly. The question remains: what exactly is the best strategy to get financing for the restaurant

LOANS

A loan may perhaps be an obvious method to raise finance for your restaurant business, but examine it from the point of view of your lender.

The 2004 Restaurant Sector 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, should 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 business such as the restaurant trade.

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

When you do decide to go the loan route, then speaking to a specialist lender with expertise inside the restaurant business is essential.

ACCOUNTS RECEIVABLE FACTORING

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

For many service based businesses, accounts receivable factoring is an extremely good way of rapidly accessing cash. However, restaurants rarely have much organization 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 funds ? usually up to around $120,000. The revenue may 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 money can typically be made available within 14 days, so ? for the restaurant organization that is in will 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 over $5,000 per month in Visa/Mastercard transactions and have additional than 1 year left on their lease to qualify.

For the restaurant that has been in existence far more than one particular year, this represents the very best method of further growing your 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 need to 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 ideal avoided. There are enough companies out there competing for your small business.

For the young or established restaurant small business, credit card factoring is definitely the most effective way of receiving the funds you?ll need to expand your organization. So, fund your restaurant using a person else?s credit card !

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