Restaurant Finance Key Terms

Understanding common words used in restaurant financing

When it comes time to secure restaurant funding, it's easy to become confused by the terms lenders use--whether they be commercial banks, individuals or venture capitalist companies. No one expects a restaurant owner to be fully versed in financing terms, but you should understand the common words used by restaurant lenders.

You may break down restaurant finance key terms into three broad categories. Take some time to familiarize yourself with each, and you'll impress lenders with your business knowledge--thereby increasing your chances of obtaining restaurant financing. These categories are:

1. Terms used by restaurant lending companies for Small Business Administration loans,

2. Terms used by venture capitalists for restaurant loans,

3. And general loan terms you may hear when funding a restaurant.

Understand Small Business Administration loan resources for restaurants

The Small Business Administration (SBA) uses a number of loan terms specific to their organization. These include "SBA loan" (when banks give loans but the SBA guaranties a certain percent of the principal will be repaid), "7(a) Loan Guaranty Program" (the most popular type of SBA loan), "CDC/504 loan" (an SBA loan that offers long-term, fixed-rate financing for assets like buildings) and "microloan" (a small SBA loan for start-up businesses).
Small Business Administration website offers details about each type of loan they offer, most of which are appropriate for restaurant financing. Excel National Bank includes a glossary of loan terms, including those specific to the SBA.

Learn about terms venture capitalists use when financing a restaurant

Sometimes venture capitalists are the best source of funds for your restaurant. Venture capital companies use many words and phrases you may not hear elsewhere; these include "angel financing" (money from wealthy investors raised for a business), "burn rate" (how quickly a business expends net cash over a specific period), "capital call" (when a venture capital company approaches its investors so it can make a "capital call" for funds) and "limited partner" or "LP" (an investor who has no voice in the management of the business).
500 Group has an extensive glossary of venture capitalist terms, while FundingPost has a shorter, but still informative, glossary.

Familiarize yourself with general restaurant loan terms

When you're financing your restaurant, there are many general loan terms you may run across, such as "combi-deals" (when a combination of different financing sources are used for financing), "construction loan" (a short-term loan for the building of commercial buildings), "personal guarantee" (wherein the primary owner takes on personal responsibility for paying the loan if the business fails) and "secured loan" (wherein collateral may be used to satisfy an unpaid loan).

• Whenever you're seeking restaurant financing services, ask for explanations for any terms you do not understand. Understanding any contracts you enter into is vital.

Copyright © 2013 Business.com, Inc. All Rights Reserved.

---