Restaurant financing in Canada. Let’s talk about some common sense financial approaches to getting the right hospitality loan finance in place for your chosen restaurant business. Oh, and by the way, that might be a franchise business, or it might be your own unique concept; there are advantages to both.
We use the term ‘ financial approach . We can almost see our clients grimace when we use the term as it conjures up things like accounting, financial statements, etc. The reality is though that many entrepreneurs we meet in the hospitality industry are running on a bit too much emotion and ego and a need a little more of a financial approach to simple basics around a restaurant such as cash flow, profits, return on investment, etc.
It’s really the cash flow potential of a restaurant that will determine a common sense price for you, and down the road that same metric will be a key driver in the valuation when you want to sell the business .
Getting a solid handle on the cash flow around your business allows you to be successful in several areas. Those areas include refinancing, selling your businesses, and, as we said determining if your initial investment in the business is reasonable when it comes to total return to yourself. That total return is usually viewed by the entrepreneur in two ways, the salary that he or she can take from the business, as well as the equity that the restaurant is hopefully building up in terms of valuation.
Quite frankly getting a good handle on the cash flow of the restaurant, independent or franchise… allows you to make a proper choice when it comes down to several businesses that you might be looking at .
When a lender, or yourself looks at the financial projection, or the actual financials of the restaurant they are looking to get a sense around normalizing the cash flows, as many restaurant owners take out a salary that might be higher, or lower, than the industry norm.
Be carefull in your projections, or analysis of an existing restaurant that items such as personal vehicles, salaries to family members, and advances to owners dont distort the true profit and loss of the business.
The ability to service lease and loan debt is critical in restaurant financing. Real care must be taken to ensure you are capturing all the debt of the business and that you feel comfortable with the overall cash flow.
The amount you are required to finance a restaurant in Canada varies, and typically its anywhere from 10-50% from a viewpoint of owner equity.
Due to the higher risk surrounding perceptions of hospitality loan finance care must be taken to source the proper financing. Typical financing programs that best suit Canadian restaurant finance are the SBL Government business loan, aka the ‘CSBF’ loan, as well as lease and equpment financing that can be easily accomplished via an independent lease finance firm.
Typical payback scenarios are 3-5 years, sometimes longer, depending on the size of the business and the loan. Leaseholds are best financed under our aforementioned SBL program.
Take a practical, not an emotional approach to your restaurant financing challenge – it will pay off in the long run. For specialized assistance speak to a trusted, credible and experienced Canadian business financing advisor for your hospitality loan finance needs.