Bank Loan

We have been working with our CPA, have our corporation registered (mostly family), own the business property free and clear, two family members will continue their current full time jobs, there are approximately 4000 people in our delivery area and the nearest pizza shop is 20 miles away. We are perfectly located on a paved road, the bulk of the population is on the shore of a lake which wraps around land - sort of like a reverse peninsula, and we have great credit. We just got turned down for a bank loan because the loan committee didn’t think people would be interested in delivery!!! Many of the residents know of our intentions and - always - their first question is whether they are in our delivery area. Granted, this bank was not located closest to us, but it boggled our mind that we had everything most people ask for and STILL got turned down for what we think is a bogus reason. Our CPA calculated our break even point at $14,000 a month and estimated our gross sales at $21,000. Does this seem unreasonable? I didn’t mention that we make great food and one of the best pizzas you’ve ever tasted. We would have sampled the bank but didn’t get a chance to do so!!! We have great marketing ideas and enthusiasm that won’t quit. No, we don’t intend to stop trying, but :cry: Where did we go wrong???

Mortgage the property?

The bank. Sounds to me like you have all of your ducks in a row and it should be a slam dunk. Are you using a local bank or a big corporate bank? There is a big difference between the two in how they operate. Small local banks are better sometimes, but others are bad because they are very conservative and the old farts on the loan committe probably think that paying for delivered food is stupid.

Sounds to me like they didn’t understand your business at all, and that they probably don’t know anything about Pizza or fast food businesses. They probably fail to realize that Pizza is the largest share of the restaurant business which is BILLIONS every year and growing at an amazing rate.

I would immediately shop another bank (or two). Make sure you talk to a VP level person, not a loan salesman who has no idea about how the loan committee operates. Make sure they have done loans like this before so that you know they have a track record of saying “yes”, and so you don’t need to sell them on the principle first, and you second. YOU should be first! I would be willing to bet that your bank has not financed an operation like this before, and that their loan committee is out of touch with the community.

I hate banks. Bank of America loaned Michael Jackson $500,000,000 and he hasn’t made a payment in years, but they let him slide waiting for a resolution. I try to borrow $20,000 and they crawl up my a** with a flashlight. Boggles the mind!

I agree with Heather, the easy way would be to mortgage the property since you own it free and clear. The bank should not really care what you are using it for since they have the property for collateral.

Contact Kamron Karrington. Pizza Partner can help you

Pizza Partner com

Stacey Zoumas

I would imagine the problem here is that the property is only sufficient value to be used as the collateral portion of the whole BIG loan to build the building and open the stop?

“Borrow a dollar, and the bank owns you, borrow a million, and you own the bank”

You need to understand your lender, and THEIR requirements. They look at the 3 c’s
Cash
Credit
Collateral

Cash- Do you have some on hand, and will your business generate enough. You say this is what sunk your loan, but I think this is the least likely as well as the least used, unless your plan was WAY out of whack with reality. As it is not an existing business, your estimates are just wishful thinking, and they know it. You need to find similar businesses with similar demographics to show that your figures are based on more than just educated guesses.

I once had a loan approved, and when I came into the bank to work out some final details, they informed me the loan was now denied. Turns out that that week a similar place (which they held the note on) had filed bankruptcy. They had just taken a huge hit, and suddenly were unwilling to take the risk with my place. (which is across the street from this bank, and still going 5 years later)

Credit- This is an important factor. Do you KNOW that everyone on your deal has good credit? Is there 1 person that may have a questionable history? Take that person off, and you may get the loan approved.

Collateral- Cash can offset bad credit, good credit can offset cash, but you cannot ignore collateral. 99% of your loan approval is based on this. If you borrow $10,000 the bank usually wants $12,000 in collateral. Collateral is NOT based on the purchase price of your equipment, but the resale value. Usually not too good in the pizza business! And they base it on the value of the assets they can roll out the door. Goodwill does not count unless you are buying an existing business with an established brand, and even then it counts for less than you think. If you are building a new shop with $100k in equipment and leasehold improvements, your “loan value” is probably only about $50K.

To get over the collateral hurdle, you may need to put you house on the line (if you have equity in it). You may need to work with alternative lenders like leasing companies that charge more, but are willing to take the risk. Oh, and your bank doesn’t really have a choice on the collateral question. They get audited by the FDIC yearly and if they can’t show sufficient collateral on each loan, they’ve got problems!

You may also be able to get around the issue by negotiating with the landlord to have HIM finance the leaseholds in exchange for higher rent, and all you need to finance is the equipment.

Good luck!

Driverx hit the nail right on the head. The “3 C’s” are a banking industry term. However, in agreement with Driverx’s post, they don’t have a 33 1/3% equal share in the banks decision to lend money. In my experience, no matter what the credit rating (good or bad, actually) collateral weighs the heaviest in the banks decision to grant or decline a loan. Good credit, the majority of the time, will only affect the interest rate.

Keep that in mind when you go to your next (and preferrably local) banker to present your business plan. Structure it so that the banker sees there is not much risk because everything is collateralized. Also, don’t be frustrated because bank #1 declined your loan. They simply might not be in a good financial position to take on a new restaurant venture. It doesn’t mean your plan isn’t solid. It simply means bank #1 was not interested.

You’ll find that most of us have been to one, two, three… ten banks before someone finally said “yes”. Stay focused and stay on course. Don’t get frustrated and lose sight of your dream. Hope this helps. -J_r0kk

We own the property free and clear (1 1/2 acres and the building only needs about $10,000 to finish it). We were only asking for $50,000. We’re only doing a delco and don’t have a huge amount of space, but enough! The sad part is they didn’t even get to an appraisal nor look at our credit - it’s all good,but we don’t have any big items because we’ve spent all our spare cash to get where we are (which is nowhere)- Ha! Our house is not free and clear, but with the way prices have gone up, we should have some equity in it. We sort of thought we might have to include that, but initially the bank (boo) said they were only interested in a first mortgage - which our business property would give them.

I appreciate everyone’s opinions and suspect each of you is probably partly right. We aren’t going to quit - just took a breather to regroup and will start back in January. We weren’t crazy about opening in January but if we had gotten the money we would have done it anyway. This way, IF all goes well we will probably be able to open in March or April. Probably a better time of year. Thanks again for all your input!

The restaurant business has one of the highest failure rates out there. Banks don’t WANT your collateral, they want you to repay the loan. I’d suggest trying another bank, and if that doesn’t work, look at an SBA loan. The interest is a little higher but banks like the “insurance”.