Finance Your Restaurant Business With Someone Else's Credit Card

Should you be within the restaurant business, you undoubtedly will not need me to let you know how challenging it may be financially.

Even though you?re building up the reputation of your establishment, income is frequently tight and one negative night can imply an unprofitable week. As for money flow ? properly, the money surely flows, doesn?t it? You just wish that a lot more of it was flowing in than out. And what about these slow periods? What do you do if they final longer than you anticipated? How do you get the funds you will need to have your restaurant company more than that hump.

OK, I?m painting a negative image right here, but funding could be a problem for even probably the most effective restaurant, particularly in the event you wish to expand quickly. The query remains: what is the greatest strategy to get financing for the restaurant?

LOANS

A loan may be an obvious method to raise finance for your restaurant enterprise, but have a look at it from the point of view with the lender.

The 2004 Restaurant Market 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, if 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, appear more favorably on you if you also own your premises. However, you?ll need to be aware that funding your enterprise using real estate as collateral means that it is the potential resale value from the property that lenders are looking at. The purpose of the property itself may possibly 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 might not be suitable for the particular circumstances.

In case you do decide to go the loan route, then speaking to a specialist lender with expertise within the restaurant sector is essential.

ACCOUNTS RECEIVABLE FACTORING

Factoring is a form of commercial finance where a company can accelerate its cashflow by selling its accounts receivable at a discount. This means that the business doesn?t have to wait for outstanding invoices to be paid in order to receive the money necessary to finance the business moving forward.

For many service based companies, accounts receivable factoring is an extremely good way of quickly accessing money. However, restaurants rarely have much enterprise 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 income ? usually up to around $120,000. The cash might 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 usually be made available within 14 days, so ? for the restaurant organization that is in 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 more than $5,000 per month in Visa/Mastercard transactions and have a lot more than 1 year left on their lease to qualify.

For the restaurant that has been in existence far more than 1 year, this represents the best method of further growing your enterprise 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 must 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 very best avoided. There are enough companies out there competing for the organization.

For the young or established restaurant business, credit card factoring could be the most effective way of obtaining the funds you?ll need to expand your enterprise. So, fund your restaurant using a person else?s credit card !

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Source: http://lmaureen.com/finance-your-restaurant-business-with-someone-elses-credit-card/

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