The kinds of questions that a lender will ask depends heavily on the nature of the business of the borrower. Restaurants, just like any other business, have their own peculiarities. A lender’s job is to get paid back with the least hassles and when deciding whether a restaurant should get a loan, his task is no different. What is different is what data he looks for when discussing the loan with the borrower.
An excerpt from the book “Money Money Everywhere” explains some of the questions a lender may ask:
For a restaurant, one matrix could be the average size of the check for the lunch crowd, and is it growing or shrinking? For dinner, is your customer’s alcohol consumption up, or down? How many special events do you have planned for next month? What percentage of your sales comes from catering? What are your gross margins on the new buffet you introduced?
As you can see, the questions are industry-specific. Lenders are impressed when borrowers have these figures on the top of their head; they can recite them instantly. They know the average bill of their customer; they know if it’s trending up or down. And even better- they know why. If you’re in the restaurant business, you know there are a multitude of factors why this might be – new competition, trends in terms of demographics in the neighborhood, menu changes, etc.
The book also points out the difference between perception and reality as far as restaurant loans:
One of the great disconnects in the small business lending industry is the fact that we all see the failure rates for restaurants are staggering yet restaurants continue to be the number one receiver of small business loans.
Lending still has an emotional and qualitative dimension. Sure with online lenders, much of the restaurant loan application has become numerical or mathematical. But even with such lenders, they will often follow-up an online application with a phone call to inquire further, often wanting to know information about the business specific to it and specific to the industry it operates in. In this qualitative dimension, some lenders may operate on the bias or mistaken assumption that restaurants fail at a disproportionate rate so it’s important to be able to explain the financial strength of your business with real data. Generally, citing data from a one-year old balance statement won’t cut it. Most lenders want to see that the borrower is on top of their current financials. When going through the loan application phase, it’s not a bad idea to keep a cheat sheet of your key financial indicators to refer to when talking with lenders.
To summarize from “Money, Money Everywhere”:
Bankers aren’t stupid and they know the risks that come with restaurants, but they still do it. If you want to be one of those restaurant small-business borrowers, you need to first convince yourself that the business is viable and then convince the Old Man sitting behind the desk.
Being prepared to discuss your restaurant’s financials will put you in the best position to be approved for the restaurant small business loan, whether you apply to an online lender or a traditional one.