Monday, April 6, 2009

Advise From A Business Banker About Securing Pizza Shop Financing

When I was writing How to Open a Successful Pizza and Sub Shop, I talked with a local business banker that I've dealt with over the years. I've always been a firm believer that people need a solid and thorough plan before beginning any project - that is even more important when getting ready to open a business and especially when the person needs to secure a loan. This is the advise he offered - I think it will be beneficial to you.

Commnents From A Professional -

In order for a bank to even consider financing for a business loan such as a pizza restaurant, the first step is to have good personal credit. If you have previous credit issues that have lowered your credit scores, make sure you are prepared to either hear, “No,” or “Please explain this (these) credit mark(s).” If you have not demonstrated the ability to manage your own personal finances then most likely you will not have the opportunity to manage the financing from a bank for a business. When you make the initial contact with a bank, ask to speak to a commercial loan officer. Other types of loan officers include consumer (think car loans) and mortgage (think home purchases and home equity loans). The commercial loan officer will be able to provide a list of things you will need to give him/her in order to consider the restaurant financing. Information required for a new business most likely will include the following:

  • Personal financial statement (Assets – Liabilities = Net Worth)
  • Personal tax returns (two years)
  • Business Plan
  • If leasing property, copy of the lease agreement
  • If purchasing property, copy of the sales contract
  • Personal History / Resume (may not be required but is very helpful)

If an existing business, add the following to the list above:

  • Business tax returns (two years)
  • Copy of State Corporation Commission Certificate
  • Copy of Federal Tax Identification Number or Employer Identification Number (EIN)
  • Copy of Articles of Incorporation (if corporation)
  • Copy of Operating Agreement (if partnership)

One common mistake a new business owner often makes, with regard to financing, is that one loan will cover all the financing needs. This is typically not the case and can lead to cash flow problems that could result in default on the loan, which is not what the lender or borrower want. In most cases, either two or sometimes three separate loans would be appropriate. For instance, if one is purchasing real estate then a long-term mortgage loan would be appropriate to finance that purchase. However, the pizza restaurant may need to purchase equipment and have cash available monthly to meet payroll and purchase rolling inventory. An equipment loan could take the form of a five or seven year loan with a fixed monthly payment much like a car loan. A line of credit, on which one would pay interest monthly on the outstanding balance, may be prudent for short-term cash flow purposes. All three should be addressed in the business plan and discussed with the commercial loan officer..