Typically, Kermode says, banks now require a credit score of at least 660 by the
loan applicant, in addition to other credit
prerequisites such as a good cash flow
and at least two years of experience in
the food-and-beverage trade as an owner
or manager.
For start-up businesses, the borrower
should expect to put down 30 percent
with a 70 percent max loan-to-value ratio,
he explains, adding, “A strong business
plan is necessary on start-ups, along with
a strong résumé.”
With traditional business lending all but
cut off by bankers unwilling to put their
money on the street for anything less
than a completely solid deal, the new
financial reality for the retail channel portends some significant changes ahead.
Since the beginning of 2009, hospitality
lending specialists at San Mateo, Calif.’s
Advance Restaurant Finance (ARF) have
charted a major shift in the nature of new
credit applications by bar, club and restaurant entrepreneurs seeking to remodel
or expand their collective businesses.
“We are still lending,” says Kelly
Payne, vice president of marketing at
ARF. “But we are seeing a lot more
delinquent mortgage payments and late
business rent payments. And those two
things for us are disqualifiers.”
On the affirmative side, however,
Payne adds that those qualified borrowers who might normally have gone to
their local banks for loans are instead
coming to ARF. The company makes
up to $1 million in financing available to
hospitality ventures that have solid cash
flows and have been in business for at
least 30 days.
“All together, we are seeing about the
same number of applications as we did
prior to the credit crunch. The difference now is that we are seeing a certain
segment of the bar, club and restaurant
industry that we never saw before.”
Payne says geography also is a factor
in determining whether a would-be borrower is accepted or turned down for
financing in today’s tighter credit market.
Specifically, he says, applicants in
regions where the housing market is in
significant decline have a much steeper
curve to climb now in getting an unsecured ARF line of credit. “In places such
as Nevada, parts of California and in
Florida, we are more careful with lending
because a lot of an applicant’s equity may
be tied up in their home. It is a barometer
of the economic state of the region.”
Conversely, Payne adds, other areas
of the country are fairing much better.
“Texas is very strong. New York is good,
and in California, Los Angeles is pretty
solid.”
Staying Alive
Despite an undeniable mindset among
many banking institutions to avoid higher-risk ventures in making lending decisions,
veteran operator Thom Greco, the owner
of Sky Bar, Oyster Restaurant & Bar and
The Mines nightclub concepts in Wilkes-Barre, Pa., says owners and operators
still have options for securing the funds
they need without getting burned and/or
loan sharked.
Having utilized a range of financing
alternatives to build a Greco Holdings Co.
operation that now employs 100 people
and enjoys a net worth of approximately
$50 million, Greco says one piece of
good news to emerge from the current
tight money situation is that government at all levels is stepping in to fill the
financial void.
“Whether it’s the federal government
through the Small Business Administration or an individual state agency, loans
and grants to venture businessmen are
part of everyone’s game plan to turn the
economy around,” he says.
For those with a sound business
plan and the requisite “skin” to entice
a banker in the form of assets and/or
venture capital, preferably raised among
the borrower’s family and friends, Greco
says the first step to getting an SBA loan
is to get turned down by a traditional
bank or other private lender. “Generally,
the SBA does not pick up until a bank
turns you down. And that is not hard in
this business.”
A University of Scranton (Pa.)
graduate who propelled his career in
hospitality with further studies at the
Wharton School of the University of
Pennsylvania and the Culinary Institute
of America in Hyde Park, N. Y., Greco
says the borrower eventually ends up
back at the banks again because of the
SBA’s policy of working with approved
To build Greco Holdings Co., which includes Oyster
Restaurant & Bar [above], Thom Greco used a variety of financing alternatives. Even today, he says,
funding options are still available.
