What Type Of Restaurant Business Financing Is Available To Buy A Restaurant?

Comments & Replies: 1     Views: 11316     Posted By: Peter Siegel MBA  Peter Siegel MBA: Business Purchase Financing Advisor

In this Discussion, we define financing options available to potential restaurant buyers when purchasing a small to mid-sized restaurant business (with or without real estate). When it comes to financing a restaurant purchase, potential restaurant buyers have several options to choose from.

Topics: Business Purchase Financing, Buying A Business     Tags: buying a business, financing, non SBA loans, SBA loans, seller notes



When I chat with potential restaurant buyers in the BizBen ProBuy Program and look at the financing portion and (pre-qualification process) I like to cover these 5 areas in detail. Usually with the right combination of these five financing tools we can get the right type of business purchase financing secured for restaurant (with or without real estate) purchases.

1. Seller Financing - The vast majority of small business for sale transactions contain some amount of seller financing. So this route is definitely an option for you if you are looking to buy a restaurant. Seller financing provides buyers with several benefits. Borrowing from the seller allows for more negotiating room for the buyer than they would have with a bank. For example, a buyer may be able to stretch out their payments over longer periods or negotiate earn-outs. The seller will also benefit by offering financing through lower taxes associated with the sale as sale proceeds are deferred across multiple years.

2. Borrowing from a 401(k), IRA, Or Retirement Account - This potential option may sound scary to you. But, if you look at it as just a different type of investment, one with the potential for greater returns than a traditional 401k (or retirement account), it might not sound as scary after all. The way it works is; buyers roll their retirement funds into stock for a new business without incurring any tax or early withdrawal penalties. The benefit is it's your money so there are no prequalification concerns or loan payments to make on that portion of the payment (most people who use their 401k - or retirement funds - use it to finance only part of the purchase - possible the down payment portion). The downside is, it's your money. If you fail, you risk losing a part of your retirement savings.

3. SBA-Backed Loans - Many banks remain hesitant funding business purchases, even when dealing with qualified business buyers. So business and restaurant buyers often rely on SBA-backed loans to fund some other portion of the sale of a restaurant or business.

The Small Business Administration (SBA) does not give out loans directly. They guarantee a portion of the loan from an approved SBA lender. This guarantee makes banks feel more comfortable issuing loans for a small business purchase. There are however conditions attached to these loans. You are required to put down between 10%-25% in most cases, you must have good to excellent credit (usually have a credit score of over 650), and the business you are looking to purchase must have a verifiable cash flow (supported from tax returns) to support repayment of the loan. There are approximately 24 key factors that financial institutions look at when evaluating both buyer and seller of a restaurant business.

4. Non SBA Financing - This would include asset-based lending, hard money loans and other niche oriented financing tools. Interest rates can be high with this type of financing - but many would be restaurant buyers would be willing to pay ten to twenty-five percent annual interest to achieve their dream of buying a small to mid-sized restaurant.

5. Family And Friends - Believe it or not one of the most common ways to finance a restaurant purchase is by asking family and or friends for the money. To some people, this may seem like a bad idea. Borrowing from friends or family can put a strain on relationships. The key is to treat the loan like you would if it were acquired from a traditional bank. Set terms and stick to them. Also, make sure to borrow from a friend or family member who is is a position to make the loan. This can help you avoid issues with your relationships.

As you can see there are many options when it comes to finding the financing to purchase your restaurant. Most would be restaurant entrepreneurs use a combination of these options to fund the purchase of their restaurant business. With so many options it's important that would be restaurant buyers (and restaurant sellers) get pre-approved with a professional advisor and financing expert who specializes in business purchase financing and who has a long history of success of obtaining financing for business purchases.

Replies To This Comment
Sweat Equity is another way in which an individual can be a co-owner of a business. In the restaurant business an investor may be interested in either converting or opening up a restaurant but lacks the expertise in the food style, such as Sushi. The investor may partner up with a former chef who lacks the financial funds, but brings experience in the restaurant business. It's a lucrative proposition, because one person who doesn't have money can obtain ownership, and the other person who finances the operation is not burdened by the time commitment of being present to run the business.



  Helpful Resources To Assist In Selling And Buying California Businesses
Janet Carrera: Escrow & Bulk Sale Service - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Helen Yoo, New Century Escrow - Escrow Services In Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.

William F. Ziprick, Attorney: Legal Services For Buyers And Sellers

Through creative problem solving, attention to detail, accessibility, & understanding that unnecessary delay is often a deal killer, I work closely with my clients and other professionals to consistently achieve a high rate of closings. Office: 909-255-8353, Cell: 509-951-7230.

Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Shalonda Chappel: Escrow & Bulk Sale Services - Southern California

Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Absentee Run Small Businesses - Is That Really A Possibility For Buyers?

Is buying a absentee run small business really a possibility? Peter Siegel (BizBen ProBuy Director) gets asked this question a lot in his consulting sessions with business buyers. Read more about what other Advisors and Intermediaries feel about this topic on this popular BizBen Discussion!

Unreported Income Cash Claims By The Seller-What Should A Business Buyer Do?

One of the most difficult challenges when purchasing a California small business is expressed by a prospective buyer of a liquor store who is told by the owner/seller that there is more money being made than shows up on the books. Should this buyer accept that statement and go ahead with the deal?

Tips For Faster SBA Loan Approvals For California Small Business Purchases

In this article on BizBen, business purchase financing advisor and SBA loan broker, consultant Peter Siegel (Business Purchase Financing Expert/Advisor & the ProBuy Program Director at BizBen) at 925-785-3118 shares his views of getting SBA loan financing faster for business purchase financing.

How To Determine Whether The Buyer For Your Business For Sale Is Sincere

A problem owners encounter when offering a CA business for sale is that not all so-called business buyers are qualified to make the purchase. It's frustrating and costly to waste time showing non-qualified buyers the business. Here are ways to identify time wasters so the focus is on real buyers.

Unreported Income: Should Sellers Disclose Unreported Cash To Buyers?

Should owners who offer a business for sale reveal to prospective buyers any income that is not recorded in the books? This is a controversial topic with arguments both for and against. Most business sales intermediaries believe if you don't pay tax on it, you can't claim it. Some sellers disagree.

Key Tax Considerations In A Deal: Deciding Between An Asset vs A Stock Sale

There are a number of the critical tax-related factors which should be reviewed by a party with their legal and tax advisers in determining the best structure for a sale transaction, i.e., whether it should be an Asset Sale or a Stock Sale. Attorney William Ziprick, Esq covers this topic.

Business Purchase Financing - 3 Things You Need To Know Now For Success

Looking to buy a small business? There is good news regarding business purchase financing. More financial institutions are coming back into the market with business purchase financing. After years of being selective many lenders are more open to financing deals. Peter Siegel, MBA covers this topic.

Financing A Business Purchase With Limited Or No Real Estate Collateral

In my experience working with the "right banks and financial institutions" repayment ability sometimes overrules collateral pledged by someone needing financing for a business purchase or a down payment. Peter Siegel, MBA (Business Purchase Financing Expert) at 925-785-3118 shares his experience.


Escrow Services Diane Boudreau-Tschetter
Jim Thomas Broker Consultant Fitness
Orange County IT Small Business Selling
Veld Group Business Brokerage Los Angeles County
Facebook
Twitter
Linkedin
Vlogs and Podcasts
BizBen ProBuy Program
Advertise On BizBen
New Postings Reports On BizBen Sign Up
California Educational Events Buying And Selling Businesses
BizBen ProSell Program


BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2020, All Rights Reserved



Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
How Many Months Should I List My Business With A Business Broker?
Read More News
Buying A Cheap Small Business For Sale: How To Find? What To Watch Out F...
Read More News