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Creative finance options for smaller restaurant companies

4 minutes Read

smaller-restaurantsOperators in need of working capital turn to a variety of funding options.

Independent restaurateurs and small chains seeking capital for operations, updates or expansion learn quickly that creativity in this business doesn’t stop at the menu.

Managing cash flow, reinvesting in their restaurants and making payroll when dollars are lean, are just a few of the financial challenges they face. As a result, they often need a cash injection from the outside to fill gaps during revenue shortfalls or in good times to grow their businesses.

Raising money, however, is not always that simple. Some traditional finance companies view restaurants as being a risky investment, and, not surprisingly, getting loans from the U.S. Small Business Administration can be challenging and time consuming.

Fortunately, there are a variety of alternatives for acquiring working capital, including lines of credit, equipment loans, Merchant Cash Advances and friends and family, to name a few.

Restaurant operators who have exercised these options say they’re as necessary to making payroll in a pinch as they are for updates like resurfacing a parking lot or adding patio seating.

Ken Seiger, franchisee of five Subway restaurants, says that in the past, when working capital got tight, he could turn to banks with which he’d enjoyed established business relationships.

“But especially lately, that has become extremely difficult,” says Seiger. Getting funds fast, he adds, is also a challenge. “I need help when I need help. (Banks) want you to prove that you don’t need the money before they will work with you. To me that’s counterproductive.”

Seiger turned to a Merchant Cash Advance source to fund his short-term liquid needs, as well as longer-term needs such as store remodels.

“We are on a fairly regular remodel cycle; it’s nice to have the funding available so we don’t have to dip into our cash reserves,” Seiger says. “At this point, I’m looking at a couple of acquisitions, and we’ll be able to do that as well.”

“Another alternative source for working capital is the TrakLoan available through CAN Capital”, says Jason Rockman, Vice President of brand marketing at CAN Capital, Inc. CAN Capital serves a variety of small business, many of which are restaurants. Companies like CAN Capital provide access to the working capital small businesses need to continue to grow and build their businesses. The TrakLoan product, only available through CAN Capital, is a flexible loan with a cash-flow friendly repayment feature. The payment amounts adjust based on the business’s daily payment card sales. The restaurateur is better equipped to manage cash flow with this level of flexibility.

“It’s a simple and fast way to bypass the traditional lending model to get the cash an operator needs to make upgrades to their equipment, expand their restaurant or just cover payroll in a slow season,” Rockman says. CAN Capital members using this option repay a fixed percentage of their daily payment card sales, but Rockman says some operators chose a predetermined dollar amount. “Some prefer to do that instead and within a fixed term via a different loan product that we provide access to,” he says. “Our goal is to provide access to financial products that are right for the business owners’ situation and need.”

Rockman says alternative finance companies like CAN Capital find viable restaurants and other businesses by examining “their overall operating health over an extended period, not just the FICO score of its owner. It’s not about looking at a business plan, it’s about examining bank statements and things that let us know how you run your business.”

Fortunately, he adds, that process is easier than ever as more operators use electronic bookkeeping software and automated POS systems that allow that information to be transferred immediately.

“That really makes the whole due diligence process much faster than ever before,” he says.

Mike Cunningham started a yogurt and sandwich shop two decades ago with a $55,000 investment from two friends who became his business partners. Since then he’s grown the business into a 15-unit upscale-casual restaurant company generating $50 million in annual revenue. Yet, like many small restaurateurs, the chief executive of Indianapolis-based Cunningham Restaurant Group continues to use outside funds to keep his business growing.

“We’ve got a pretty healthy line of credit that we draw on as we need funds for whatever is required,” Cunningham says. That includes everything operationally from new equipment purchases to opening multimillion-dollar properties. “We’re doing close to $1 million a week in sales, so that money goes right back to reducing what we owe on that line of credit,” he says. “Those funds are always there working for us.”

Not every operator takes a traditional route toward raising capital, though. Glenn Gross, chief executive and pit master of four-unit Fat Jack’s BBQ in Philadelphia, says he has managed to raise funds by working with people he does business with. After a failed partnership dissolved his first barbecue concept, a building owner and fan of his food helped him start over by charging him no rent at the outset and providing him with start-up cash. Gross accepted gratefully, and got the business going and growing.

Later, when Gross needed cash to purchase opening food inventory for a new restaurant, a local food distributor offered him a deal for Fat Jack’s exclusivity — the distributor would supply food at no cost until each store was open six weeks. “After that, he added on $200 per invoice, and he comes to us about three times a week,” Gross says. “That’s a $600 no-interest loan for new stores.”

However, that method is not for everybody. To arrange such deals, Gross advises, “You have to have a great relationship with the people you’re doing business with.”


Photo credit: baranq/