Commercial Financing for Restaurants and Bars
Many traditional lenders have unofficially removed bar and restaurant properties from their short list of commercial real estate loan candidates. Other lenders will restrict their restaurant lending to a handful of restaurant businesses with a long track record.
There are two dominant reasons for these actions by traditional lenders:
(1) Bars and restaurants will usually have the highest failure rate among new businesses. Traditional banks have discovered that an infallible strategy for avoiding such commercial loan failures is to avoid making these kinds of loans in the first place. As noted elsewhere on our websites, AEX Commercial Financing Group believes that a significant portion of the failure rate is directly due to the commercial borrower being forced into short-term financing when long-term financing is essential.
(2) Commercial mortgages for bars and restaurants will involve special financing requirements for liquor licenses and items generally categorized as FF&E (furniture, fixtures and equipment). As a result, there will be a perceived intermingling of various assets looked upon as collateral by the traditional banks, and this extra level of complexity discourages many traditional lenders from actively making commercial real estate loans to bar and restaurant owners.
Recommended Financing Strategies for Restaurants and Bars
Commercial mortgage borrowers for bar and restaurant properties should seek out lenders who can advise on all levels of financing required. Many of the suggestions below apply to both purchasing and refinancing situations involving bar and restaurant properties.
AEX Commercial Financing Group believes that one of the primary underlying reasons for a high failure rate among bars and restaurants is directly due to the commercial borrower being forced into short-term financing when long-term financing is essential to the health of the business investment. As we stated elsewhere on our websites: Businesses (and especially restaurant and bar properties) should not be financed with short-term funds. It is essential to obtain long-term financing of at least 15-20 years (and longer is even better).
The supplemental financing needed for assets such as liquor licenses and equipment can be addressed in several ways. From the viewpoint of the borrower, AEX Commercial Financing Group believes that the best approach is to obtain unsecured financing that is separate from the commercial mortgage for the bar and restaurant. This should result in the best overall terms for the commercial borrower.
Seller seconds and other variations of subordinate financing should be considered. This will permit the most aggressive Combined-Loan-to-Value (CLTV) for bar and restaurant commercial mortgages, up to 90% of the property value. This is important if you are the buyer because it will provide another financial tool to help with financing. It is important to the seller because it might enable someone to buy the property who could not otherwise do so.
Subordinate financing (including seller seconds) is not permitted by many/most traditional banks.
For bar and restaurant loans under $1 million, a Stated Income Commercial Mortgage should be actively considered. This form of commercial financing will not require income tax returns or other income verification. Stated Income commercial real estate loans are not provided by many/most traditional banks.
Restaurants and bars will frequently benefit from using credit card receivables to convert future cash flow into immediate working capital.
Business Cash Advances
Suggested Websites for More Information
Special Purpose Commercial Mortgages
Avoiding Commercial Mortgage Problems
Contact Information
AEX Commercial Financing Group
Stephen Bush
Chief Executive Officer
Phone: (937) 780-4030
bush@aexllc.com
PO Box 353, Leesburg OH 45135-0353 USA
AEX Commercial Financing Group specializes in quick closings for difficult commercial real estate loans from $100,000 to $25 million and business cash advances up to $300,000 throughout the United States.
About AEX Commercial Financing Group
