With all the lending products out there, it can be difficult to determine which one best fits your needs. How do you know if the product your loan officer or broker is pushing is the best for your business or the highest commission for them? One way is to let your business financing needs be your guide. For instance, if you have an ROI generating project in mind or are looking for bridge financing, would a regular amortizing loan with equal payments be best? Probably not. In this case, you may want to consider interest only business loans with lower payments during the initial payback and an option to roll any unpaid principal into a regularly amortizing loan.

Project Financing
Many borrowers look for money to finish a build out, expand, or increase marketing. In this situation, you may not expect to generate increased revenues initially. But once the expansion is complete or the marketing gains traction, you do expect revenues to increase. Instead of carrying the financing costs equally over the term of a business loan, you may be better off using interest only financing.

You will likely appreciate the lower, interest only payments while you finish out your new location or launch your marketing programs. By the time the principal is due, the locations are open or the marketing is generating new business, providing additional cash flow to repay the business loans.

Bridge Financing
Other borrowers may use interest only loans as bridge financing. These operators may have permanent financing in the works, but with approval times increasing, the interest only money is used to keep projects on track while the borrower navigates the permanent financing maze. Once the permanent financing comes through, the business owner pays off the principal on the interest only business loans.

Alternative Lenders Filling the Gap
While the newspapers and talking heads continually obsess about the credit crunch, tightening lending standards, and lack of creative financing options, many companies are quietly expanding their funding offerings. Advance Restaurant Finance, LLC (ARF), is one such lender that has added interest only business loans to its portfolio of financial solutions.

ARF’s interest only loans typically range from $100,000 to $1,000,000. Each loan has an interest only period of 6 months. At 6 months, the borrower can pay off all, some, or none of the principal. Any unpaid principal can be rolled into a regular amortizing business loan at rates previously locked in.

Another unique feature of ARF’s interest only loan is the collateral. ARF doesn’t require any. These are unsecured small business loans, guaranteed only by the borrower. In addition, these loans are low documentation and quick to fund. Approvals can be had in as little as 2 business days with funding occurring as quickly as 48 hours later.

© 2008 Advance Restaurant Finance, all rights reserved

The Small Business Administration’s flagship government-backed 7(a) or Express Loan program isn’t the credit source to entrepreneurs and other business owners that it once was. Volume and bank participation are down, while credit requirements and processing time are both up. Not a good trend.

Banks are bailing on the SBA’s 7(a) loan program
Banks are bailing on the Small Business Administration’s government backed 7(a) loan program. For Q1 2008, volume for 7(a) loans was down about 20%. For rural entrepreneurs it was worse - down almost 30%. Business Week, The Squeeze is On, June/July (2008).

Why? One reason is bank participation. Bank of America - the leading 7(a) lender in 2007 - made 44% less loans in Q1 2008. Capital One Financial - the number three lender in 2007 - made less than half the number of loans it normally would over the same period. Adding to the problem, almost 400 banks have left the program in the last 2 years.

Processing times and credit requirements increase
With banks loaning less, one would think that processing times for these government backed loans would decrease, as well. Unfortunately, the opposite is true. Take the experience of Wendy Kobler of Huntsville, Alabama. Although “advertised” loan review time was 72 hours, actual review time was two weeks. Then, the loan officer scrutinized three years’ worth of her personal and business finances and asked a lot of questions about her net worth, including the value of her home. “The loan officer was looking at anything he felt could pay back the loan,” she said. (Business Week, The Squeeze is On). Her experience is not unusual. According to the Federal Reserve, in April of this year, 55% of domestic banks reported tightening credit standards for commercial loans, up from 30% in January.

With a key government-backed loan program designed to kick in during an economic downturn on the ropes, business owners need options when seeking $50,000, $250,000 or more to grow their businesses. Luckily, the private sector provides alternatives.

Alternatives to the SBA 7(a) loan program
Private lenders, such as Advance Restaurant Finance, LLC stand ready to fill the void left when banks stop lending through the SBA’s government backed loan programs. In addition, unlike the time consuming, document intensive government backed loan process, ARF’s loan process is streamlined and quick.

After ARF’s underwriters review a few key documents, such as bank statements, a typical applicant will have an answer in 72 hours or less. Once approved, ARF’s borrowers usually have the money in 5-7 days. From $5,000 to $1,000,000, restaurateurs and other retailers are increasingly turning to ARF for their business loan needs. Loaning money since 2001, ARF has helped tens of thousands of borrowers who either have been turned down by their banks or who are simply weary of the government backed loan process. In addition, more than 95% of the loans ARF makes are unsecured, requiring no collateral.

© 2008 Advance Restaurant Finance, all rights reserved

We hear about it every day. It’s on television; it’s in the newspapers; it’s in the magazines we read. A Credit Crunch is enveloping our economy. Credit Crunch Moves Beyond Mortgages, Individuals See Higher Rates, Harsher Terms (Wall Street Journal, Aug 22, 2007); Credit Crunch Strangling Small Business? Entrepreneurs …may no longer be able to get funding (CNNMoney, Aug 30, 2007).

No matter how well you run your business, regardless of the previous relationship you have established with your bank, the time may come when you need cash fast and your traditional sources of funding are no longer available. That is why every business needs a back up plan. Smart business people across the nation are establishing lines of credit well before the need arises…just in case. Many are also looking at alternative sources of funding because their traditional sources are tightening their credit standards, raising their rates and in many cases, denying previously extended credit.

Take the case of Doug Eddings, a 35 year old small business owner in Portland, Oregon. Three of his previously reliable financing sources “all took steps in recent weeks to tighten his credit, either by raising his interest rate, halving his available credit or freezing his accounts.” Credit Crunch Moves Beyond Mortgages (WSJ, Aug 22, 2007). According to Mr. Eddings, when he called to inquire, “they didn’t have an answer for [him], but said it was something in [his] credit file.”

Don’t let the Credit Crunch catch you flat footed. Consider putting a line of credit in place today before the need arises. Business loan providers such as Advance Restaurant Finance, LLC who specialize in the restaurant industry, provide lines of credit to restaurateurs every day, with no application, maintenance, or access fees. Why wait? Establish a line of credit today.

© 2008 Advance Restaurant Finance, all rights reserved

During the good times, everybody makes money: well run businesses make a lot of money and poorly run businesses make some money. During more challenging economic times, well run businesses still make money, but poorly run businesses go under. Whether you call it a shakeout, Economic Darwinism or something else, we all know it happens. Something else happens, as well. When the economy rebounds, the consumers serviced by those marginal competitors will be looking for a new supplier – market share will be up for grabs – and the operator that has invested in his business during the downturn will be better positioned to capture it.

Remember the 1981-1982 recession? According to a McGraw-Hill study of 600 companies covering 16 different SIC industries from 1980 through 1985, firms that maintained or increased advertising expenditures during the 1981-1982 recession averaged significantly higher sales growth, both during and after the recession. By 1985, sales of companies that were aggressive recession advertisers had risen 256% over those that didn’t keep up their advertising.

A series of six studies conducted by the research firm of Meldrum & Fewsmith showed conclusively that advertising aggressively during recessions not only increases sales but increases profits. This fact has held true for all post-World War II recessions studied by American Business Press starting in 1949.

Investing in your business during slow times is not limited to marketing. Labor is cheaper, materials are less expensive, and build outs can be completed more quickly. That prime location that was out of reach when times were good…maybe within your grasp when times are leaner.

Finally, think about personnel. Since weaker competitors can make the mistake of firing during a recession, the labor pool of good talent increases. In addition, it is easier to invest training time in new hires during slower growth periods that can translate into long term success.

There is no question that your stronger competitors are investing in their businesses during the current economic slowdown. The only question is whether you are positioning yourself to capture your piece of the market share newly up for grabs. If capital is tight, consider a business loan. The time to invest is NOW. According to the National Bureau of Economic Research, over the last 50 years, recessions in the United States have averaged only 11 months. You can’t afford to wait.

© 2008 Advance Restaurant Finance, all rights reserved