The Credit You Deserve

Comparing Financing Options for Restaurateurs and Small Business Owners

As a restaurant or small business owner, you understand that having quick access to working capital can be vital to your success. You also know that you typically have more than one choice when you need financing.

This presentation may help you put some structure to your financing decision by comparing common financing options:

1. Bank loans

2. Unsecured working capital loans

3. Credit card factoring advances (MCAs)

4. Taking on an investor or equity partner

To facilitate an orderly decision making process, these 4 alternatives are compared across these 6 key criteria:

1. Need for collateral

2. Speed

3. Cost

4. Flexibility

5. Cash flow diversion or interruption

6. Document requirements

The chart below summarizes these 4 alternatives across those 6 key criteria with a discussion to follow.

Collateral

• The only financing alternative that requires collateral is the bank loan.

• Both the working capital loan and the merchant cash advance are unsecured.

• Depending on the terms of the equity investment or partnership agreement, taking on a partner may require collateral. It will almost certainly require an assignment of a share of your profits.

Speed

• Both the working capital loan and the merchant cash advance are fast, typically taking less than 2 weeks.

• The MCA takes a bit longer than the working capital loan because that alternative generally requires changing credit card processors or setting up a lockbox, which can delay the funding process by a week or more.

• A bank loan will take the longest, with a funding decision taking a minimum of 3 months and often as much as 6 months or more.

• Depending on the complexity of the investment in your business, taking on a partner or an investor may take a minimum of 1 month and in many cases much longer.

• Another factor bearing on “speed” is document requirements.

• The clock starts ticking after you have submitted all of the lender’s or financier’s required documents as part of its application process. This issue is discussed later in more detail, but should be considered if time is of the essence in your financing decision.

Speed (continued)

• A bank loan is most likely the least expensive funding alternative.

• The next lowest cost alternative is an unsecured working capital loan, with an MCA and taking on a partner being the most expensive.

• A bank loan and an unsecured working capital loan have the added advantage of allowing you to deduct the interest expense for tax purposes which further lowers your overall financing costs.

Cost

• Since the bank loan and the working capital loan both have fixed payments, terms and rates, you can calculate the financing costs beforehand and the costs don’t change over the term of the loan.

• The same cannot be said for an MCA or taking on a partner.

• MCAs involve taking a percentage of a business’s daily credit card receipts, the payment increases as the business’s credit card receipts increase.

• If a merchant’s overall business improves over the term of the MCA, the merchant will pay back the MCA more quickly which increases the cost of funds.

Cost (continued)

• Both the bank loan and the working capital loan provide maximum flexibility.

• Both give you abundant options for the term of your loan and both allow you to pay off early and only pay for the time you used the money.

• On the other hand, an MCA and taking on a partner severely limit your flexibility once you sign the deal.

• The moment you sign, you are committed to the full amount of financing costs.

Flexibility

Flexibility (continued)

• Likewise, taking on a partner typically requires not only giving up a share of profits, but can also involve giving up a share of decision making authority. Removing a partner can be complicated and expensive.

• Both the bank loan and the working capital loan are straightforward financing options that do not involve diversion of a business’s cash flow.

• An MCA will require diverting the merchant’s credit card receipts through a credit card processor with an arrangement with the funder (change in credit card process typically required) or through a lockbox.

• This alternative will involve a delay in the business receiving its credit card revenue.

• Likewise, taking on a partner or investor may result in a diversion of cash flow depending on the terms of the partnership or investment agreement.

Cash Flow Diversion

• Document requirements can also be a significant consideration.

• The more time you spend gathering documents for financing that may or may not come through is time taken away from running your business.

• Both the working capital loan and the MCA typically have relatively modest document requirements – an application and some period of monthly credit card and bank statements.

• Determine in advance what documents will be required and the burden to collect them and factor that into your decision to pursue any particular financing.

Document Requirements

• If a restaurateur or small business owner has unencumbered collateral he/she is willing to pledge, time is not a critical factor, and is willing and able to comply with the bank’s documentation requirements, a bank loan is most likely the best alternative.

• If a restaurateur or small business owner does not have unencumbered collateral, time and/or document requirements are a factor and total financing costs are also important, an unsecured working capital loan is clearly the best alternative.

Summary

• In the event the restaurateur or small business owner cannot obtain a bank loan or an unsecured working capital loan and cannot defer the cash needs until he/she can obtain one of the better two alternatives, an MCA or taking on a partner or investor may be the only choice.

Summary (continued)

Take Your Business To The Next LevelAt Advance Restaurant Finance, we understand how frustrating it is to borrow in today’s economic environment. Fortunately, with our working capital loans and lines of credit, we’ve helped thousands of clients receive hundreds of millions in loan approvals. Our working capital loan is an unsecured debt, requiring no collateral unlike traditional bank loans.

Features:

• Simple application process and quick fundings (5-7 business days)

• Approvals with less than perfect credit

• Fixed payments made via ACH (automated clearing house)

• Terms up to 18 months

• Interest you pay is tax deductible

• No need to change credit card processors

Contact me and I’ll work hard to get you the financing you need.

Laurie FordAccount Manager - Southern Region

(678) 618-5216 Direct(888) 404-8015 Faxlford@arfcash.com Emailwww.advancerestaurantfinance.com/laurie