Finding new soruces of capital is an ever continuing pursuit of the small business. Here is some expert advice from a restaurant consultant who decades of experience helping dozens of restaurant owners and managers fund their businesses.

By Lloyd M. Gordon, restaurant consultant

In the July 1997 issue of Food Industry News, I wrote an article "Why Plan For a Good Business Plan?". I pointed out that the major importance of the business plan is to give the creator of the business an objective tool for evaluating all of the factors involved in getting this business open and running successfully. A well constructed business plan is an essential component of any strategy for adequately funding a new venture or upgrading an existing one. A low cost business plan prepared by a neo-professional could seem a bargain but in reality it could cost you your chance at entreprenueralship or growing your business.

How much money can a restaurant borrow using an exceptionally great business plan? There are two basic sources of funding for restaurants today. First is the government backed funding of the S.B.A. (Small Business Administration). The second is the private non-governmental sources. We will confine our investigation to funding through the SBA. The business plan is looked upon by the SBA as essential for securing a loan. Nothing is as important to the successful launch or growth of a small business than the development of a realistic and measurable business plan.

A business plan is a test of how well you have thought out your idea. It is an act of looking realistically ahead of both the potentials and problems of your business. it will give you direction and help prevent mistakes. But developing such a plan is easier said than done as I detailed in the July 1997 article.

 Lending the SBA Way - How it works

SBA guarantees up to 90% of a loan made by a lender. The Lender checks with SBA prior to formal application for "ballpark" feasibility of project. Then the Lender submits a letter of intent to the SBA if interim financing is to be supplied prior to formal consideration of the loan request.

Now the Lender forwards the application and deals directly with SBA officers. The completed applications are processed by SBA in 20 or fewer working days. In addition, a
Guaranty fee of 2% is paid by the lender and may be passed on to the borrower. The length of the loan may be from five to ten years for working capital and up to 25 years for real estate or equipment.

The interest rate charged may be either fixed or variable rates. The rate pegged to the lowest prime rate as listed in the Wall Street Journal. It can be pegged at up to 2.25 percent over the lowest prime rate loans of less than seven years. Also, it may be pegged at up to 2.75 percent over the lowest prime rate for loans of seven years or longer.

Qualifications are that yours is an independently owned and operated for-profit business not dominant inyour field. Also, you qualify if you are a business unable to obtain private financing on reasonable terms, but with a good chance of succeeding.

The stated loan purposed of the loan can be:

• To expand or renovate facilities
• To purchase machinery, equipment, fixtures and leasehold improvements
• To finance increased receivables and augment working capital
• To refinance existing debt for compelling credit reason of benefit to borrower
• To provide seasonal lines of credit
• To construct new commercial buildings
• To purchase existing land or buildings

The conditions of the loans may include guarantie(s) totaling a maximum of $750,000. More than one loan is possible. A 90% guaranty for loans up to $155,000. An 85% guaranty for loans of $155,000 and over. A schedule is made of monthly install-ments of principal and interest. There are no balloons, no penalty for prepayment, no application fee, no points allowed. The borrower may delay the first principle payment up to six months. For a loan the SBA will take all collateral available: this may include personal property.

In guarantying a loan the SBA looks for -

Management ability and experience in the field. They want a feasible business plan. They require adequate investment (generally 20% to 30% equity) by the owner in new business starts. They want assurance of the borrower's ability to repay the loan from the projected cash flow and profits.

 What the Applicant needs to take to the Lender -

• Purpose of the loan
• History of the business
• Financial statements for three years (balance sheet and income statements) for existing business
• Schedule of term debts (for existing businesses)
• Aging of accounts receivable and payable (for existing businesses)
• Lease details (if available)
• Amount of investment in the business by the owner
• Projections of income, expenses and cash flow
• Signed personal financial statements
• Personal resumes

For a certified and preferred lender because the most active and expert lenders qualify for SBA's streamlined lending programs. Lenders are delegated partial or full authority, which results in faster service. Certified lenders are given a three day turnaround on their applications.

Section 7(a)(2) of the Small business Act authorizes SBA, with respect to guaranteed business loans, to delegate to certain lending institutions the authority to determine eligibility, creditworthiness, loan structuring, loan monitoring, loan collection/servicing and loan liquidation actions, and to make necessary decisions at each stage of the procedure without, in most instances, SBA's prior review or consent. Preferred loans have a maximum SBA guaranty of 80%.

Thus, preferred lenders enjoy a full delegation of authority and may decide unilaterally to guarantee an application, but they receive a lower guarantee percentage. Preferred loans are about 14% of all business loan guarantees. Preferred lenders may use certified or regular processing when necessary. There are 156 preferred lenders nationwide.

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