Negotiating
the Financial Divide
Despite the Tighter Credit
Market, Options Exist to Find
Financing Today
By Michael Harrelson
IN
the
Obtaining credit has always been difficult for operators in
hospitality industry, a sector where as many as three in five
businesses close or change ownership within the first three years
of operation, according to a recent study by Ohio State University
Professor H.G. Parsa. Normally, getting as far as a loan closing
meant having a letter of credit from a reputable bank that said the
borrower had assets to cover the amount of the loan being sought.
And more often than not, it required the owner to have experience
as an owner or manager in the hospitality field, plus a real estate
component that could be liquidated in the event of foreclosure.
In these sobering economic times,
however, more and more operators find
themselves without the financial wherewithal they once counted on to grow,
prosper or simply operate, thanks to banks
and other lenders not lending or requiring
operators to have a lot more skin in the
game. Today, that aforementioned degree
of financial vetting — letter of credit and
assurance of experience — might seem to
many like the good old days.
The Buck Stops Here
Just ask Mike Kermode, a stockbroker
and commercial mortgage consultant at
Maximum Financial Inc. in Dillon, Colo.,
whose firm helps hospitality owners and
entrepreneurs put together business
plans and negotiate today’s much tighter
credit and financial markets. “I don’t
know of any lenders who are touching
bars and nightclubs and lounges without
an SBA guarantee,” Kermode says, referring to the Small Business Administration’s backing of loans to entrepreneurs
(more on that to come).
