Restaurant Loans - Credit Crisis

As you may have guessed restaurant loans are taking a serious beating in the current credit crisis. A year ago, and even 6 months ago there were many options. In fact, 30 year fixed programs on restaurant loans where an option, stated income commercial loans where available, borrowers with very low and or no net income could still get decent restaurant loans. Even borrowers with other issues like bad credit could find restaurant loans.

Now almost all of these creative options have frozen up and or are simply gone. What's left are traditional loans. Primarily SBA commercial loans and a few, scattered, and only for very strong borrowers, conventional commercial mortgages. With these types of options, restaurant owners are going to have to start planning for the future and be more conscious of playing the traditional game. In other words, you've got to show some income! If you don't show any income on your tax returns you're not going to get a loan.

If for example you know you have a loan ballooning soon or if you're in the process of expanding locations you've got to tell your CPA now to start showing some income. Yes you might increase the amount of tax you will have to pay but the alternative could be much more expensive.

We get calls all the time from borrowers that have had a restaurant loan balloon, and have now simply not been able to secure a new loan. They go to multiple banks and lenders and all say the same thing "you don't prove that you make any money, sorry". Their existing lender starts the foreclosure process and the borrower continues to shop with no luck. The existing bank hikes up their rates in an effort to further "motivate" them to find another bank and to cover their risk. It goes on and on and gets uglier for all involved.

Bottom line, despite restaurant owners enjoying cash related business; you're going to have to start playing the game to secure traditional SBA loans and conventional financing. In addition most banks will want to see a debt coverage ratio of a 1.3 on restaurant loans, so you'll have to show a decent amount of cash flow.