Financing Flexibility: What's Available?

Trey Brown

PICK AND CHOOSE: Combining two types of standard financing options can produce your ideal financial solution.

For many restaurant owners, growing their business means making difficult decisions. In order to secure the financing to implement your business plan, you must analyze all available options. Before deciding on your fiscal path, take a look at your current financial situation and analyze your long-term growth plan. Many factors are involved in obtaining a loan to increase growth capital, and while the current state of the market plays a role in decision-making, it's not the only factor affecting available financing. It is important to know there always are sources of funding for operators who possess solid balance sheets, business practices and growth strategies.

Research is a key differentiator in choosing the most appropriate type of financing. Consult with your lender and analyze the business objectives you want to achieve through financing. Traditional avenues for financing are still open, but a customized plan may be a better fit for your restaurant.

With so many financial options at your fingertips, first explore the most popular forms of lending. Refinancing, acquisition loans and facilities and equipment loans are some of the most common options. Refinancing lowers interest rates, reduces costs and often provides you with some breathing room. Acquiring additional properties capitalizes on current market opportunities and can augment revenues and boost profits. Facilities and equipment loans are an appealing option for restaurateurs looking to update current properties and elevate their overall look and feel, while increasing efficiency and revenue.

For many restaurant owners, however, standard financing options do not offer exactly what you need. Inform your lender of all the considerations you're making so that more informed and flexible financing options can be made available to you.

Flexibility is key when using a combination of standard financing options as a way to create a deal that best fits your objectives. Combining a refinance with an acquisition loan, a term loan with a development line of credit or a revolver with an equity investment can be a perfect financial path for many restaurant owners.

The combination of financial options isn't the only set of financial alternatives available. Sale-leasebacks, an alternative to cash flow-based lending, often are a very effective means of growth, as well. Sale-leasebacks are structured to unlock the equity kept in assets. The sellers of the property are able to unlock the value of the real estate while they control the property and operate the business. Often times, sale-leasebacks are long-term, triple-net leases allowing business owners to embrace the tax benefits of leasing rather than owning. Using a sale-leaseback in conjunction with other financing options allows you to create different financial vehicles to fit your business objectives.

Deferring capital gains taxes on the exchange of like-kind properties may also be a choice for many owners. Section 1031 of the U.S. Internal Revenue Code, if properly complied with, can offer a unique financing option that postpones or eliminates taxes on capital gains from the sale of properties, freeing up cash. In a 1031 transaction, you enjoy the freedom to reinvest more of your gains in real estate. Consult with a tax or accounting professional to determine if this option fits your operation's growth strategy.

Flexible financing options are available for businesses even in fluctuating market times. The key is to develop a relationship with a lender who encourages your business plan and helps achieve your objectives.

Trey Brown is senior managing director and commercial leader for GE Capital Solutions, Franchise Finance.