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Why Don't Banks Want to Make Restaurant Loans?

by on
in The Wrong Question

Look at this photo, consider these facts and then consider lending YOUR money to a restaurant owner.

1)      The SBA loan program covered losses on $2.1 Billion of bad small business loans in 2008.

2)      Over 2,586 restaurant loans were charged off in the past two years totaling  $235 million.

3)      150 loans to Quiznos owners were charged off at a loss of $15.5 million.



Better Question:  Why would a bank ever make a restaurant loan?

There is very little collateral or equipment for banks to attach in order to protect themselves, it is an industry with very high turn over and very few survive beyond 5 years.  As a result, bankers require the restaurant owner to personally guarantee any loan and will often require assets equivalent to double or triple the loan amount – wouldn’t you?

If that does not seem attractive as a business owner, then you begin to understand why business cash advance (based on future credit card sales) is an attractive alternative for owners looking for a restaurant loan or working capital.  It should also help to understand why the cost of capital is greater for these types of funding programs as they do not require any collateral or personal guarantee.

In any business transaction the cost of business capital is typically dictated by who is accepting the risk.  Business owners know that a business cash advance (merchant cash advance) shifts 100% of the financial risk to the funding company and in this economic environment that is exactly where most restaurant entrepreneurs want it…even if it cost a few dollars more.

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{ 1 comment… read it below or add one }

Randy November 24, 2009 at 1:36 am

Banks simply don’t loan to restaurants, but merchant cash advance companies do. You can find a list of them at http://www.mcadirectory.com

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