Restaurant Loan Options
Owners looking for a restaurant loan have limited options and the credit crisis is giving a "beating" on all special purpose properties; such as restaurants.
Although borrowers still have three main sources for financing, including conventional bank loans, CMBS lenders and SBA programs, borrowers are encourage to take a hard look at the SBA programs first due to their reliability of closing and strong benefits.
SBA 7a loan has many benefits on both purchase AND refinances, despite the notorious reputation it has with some borrowers.
Most of these earlierissues have been ironed out in the last 5 years though borrowers should be careful who they work with, as bank that are inexperiencedwith the SBA can quickly complicate the process.
Examples of the benefits include 85% financing and low rates at prime + 1-2% for most borrowers.
Right now Prime is at 5%.
An effective rate of 6% from a historical stand point on a special use property such as a restaurant is exceptional.
In addition, most 7a loans are amortized over 25 years helping the borrower spread out their loan and thereby increasing cash flow as compared to most traditional bank loans of 15 or 20 year amortizations.
Working lines of credit, equipment, and construction/renovation loans can easily be tied into the loan.
One of the other huge benefits is the flexibility this program has for cash flow analysis aka debt coverage ratios.
Most sources want to see a 1.
3 on this type of building while the SBA 7a loan only needs a 1.
1.
In other words, the business needs to show that for every $1.
of proposed mortgage payments that the restaurant has $1.
30 of net income to cover the proposed loan.
So after all expenses have been paid including the mortgage the restaurant should have $.
30 left over.
With the 7a it would only have to be $.
10 left over which can be a big difference for most business that have tight cash flow.
Further, the borrower is allowed to use future business projections as well, to supplement any existing short falls in cash flow.
This is not possible with 99% of the other options out there as they will only look at historical statements like your tax returns, balance sheet or profit and loss statements.
The negative with the 7a loan is that the rate typically floats and the SBA has a guarantee fee of 2.
75% of 75% of the loan balance.
However this is not always the case.
For example, we have a source that offers this as a 5 year fixed, 25 year amortization loan.
And there are banks out there that will absorb or pay for the guarantee fee themselves.
The short of it is if you're looking for a restaurant loan keep you eye on the 7a loan.
Although borrowers still have three main sources for financing, including conventional bank loans, CMBS lenders and SBA programs, borrowers are encourage to take a hard look at the SBA programs first due to their reliability of closing and strong benefits.
SBA 7a loan has many benefits on both purchase AND refinances, despite the notorious reputation it has with some borrowers.
Most of these earlierissues have been ironed out in the last 5 years though borrowers should be careful who they work with, as bank that are inexperiencedwith the SBA can quickly complicate the process.
Examples of the benefits include 85% financing and low rates at prime + 1-2% for most borrowers.
Right now Prime is at 5%.
An effective rate of 6% from a historical stand point on a special use property such as a restaurant is exceptional.
In addition, most 7a loans are amortized over 25 years helping the borrower spread out their loan and thereby increasing cash flow as compared to most traditional bank loans of 15 or 20 year amortizations.
Working lines of credit, equipment, and construction/renovation loans can easily be tied into the loan.
One of the other huge benefits is the flexibility this program has for cash flow analysis aka debt coverage ratios.
Most sources want to see a 1.
3 on this type of building while the SBA 7a loan only needs a 1.
1.
In other words, the business needs to show that for every $1.
of proposed mortgage payments that the restaurant has $1.
30 of net income to cover the proposed loan.
So after all expenses have been paid including the mortgage the restaurant should have $.
30 left over.
With the 7a it would only have to be $.
10 left over which can be a big difference for most business that have tight cash flow.
Further, the borrower is allowed to use future business projections as well, to supplement any existing short falls in cash flow.
This is not possible with 99% of the other options out there as they will only look at historical statements like your tax returns, balance sheet or profit and loss statements.
The negative with the 7a loan is that the rate typically floats and the SBA has a guarantee fee of 2.
75% of 75% of the loan balance.
However this is not always the case.
For example, we have a source that offers this as a 5 year fixed, 25 year amortization loan.
And there are banks out there that will absorb or pay for the guarantee fee themselves.
The short of it is if you're looking for a restaurant loan keep you eye on the 7a loan.