The recent economic struggles have given rise to a host of financing opportunities, and you should consider them all when buying your restaurant.
It’s no surprise that you can go to a bank to finance a restaurant purchase, but which bank and what are your options? These are hard questions.
Traditional financing is usually the least costly, but it’s also often the hardest to get. Still, if a bank will finance the purchase, use it! Aside from the lower cost, the other advantage is sophistication. A traditional lender will put themselves in your place and make sure it’s really a decent deal. If a traditional bank won’t touch your purchase, it’s often time to consider if it’s really worth going forward. If it is, keep reading.
The next best source of financing is seller financing. This means that the seller has agreed to take a part of the purchase price over time. Prior to the recent recession, this was not very common. In recent times, though, sellers are often forced to consider financing their own sale. This is because they often need money to pay off their own debts or retirement is looming.
Bringing On A Partner
The other classic restaurant (and real estate) play in Texas is for the operator to find a person with ready cash looking to invest. They form a partnership. The operator contributes his or her effort and the other partner contributes cash. Consider this, but also consider that the person with cash generally retains control.
Leveraging Your Own Resources
The last option to consider is to leverage your own assets. I don’t recommend it, but I’ve seen many people leverage their homes, cars, and retirement accounts to buy a restaurant. If this is absolutely necessary, it’s an option, but it’s a risky option. This is because you could lose these leveraged assets if the restaurant doesn’t succeed. Many restaurants don’t succeed, which further adds to the risk. Additionally, those who leverage their own assets generally fail to really analyze the purchase of the restaurant, and the worse decisions are the ones made with little or no thought into the business risks of a restaurant.
Consider the following possibilities when financing your restaurant:
- Traditional financing;
- Seller financing;
- Bringing on a partner; and
- Leveraging your own assets (but that’s not recommended).
How did you finance your restaurant? Give us your thoughts!
About the author: Matthew Sanderson is a restaurant lawyer in Texas. “Good service with a smile” is his motto. Click here to find out more about Matthew Sanderson’s legal practice and how he can help you today. Follow him on Twitter @dealattorney.