Business loans for pizza restaurants are largely available and dependent upon the specific loan request that is being made. Pizza restaurant operators typically rely on banks and lenders for conventional loans, SBA loans and asset based loans to fund their existing business or for the start-up of a restaurant. There are various loan purposes to consider as a borrower depending on whether the pizza shop owner is looking to purchase an existing business, obtain start-up financing for a new location, seek leasehold improvements, remodel, or acquire real estate. When it comes to pizza restaurant loans, operators will face several decisions in regard to loan product and lenders to choose from.
Which Loan Product Is Right For My Business?
There are several loan and funding programs that have been used to finance pizza restaurants. Traditionally pizza shops have received fairly competitive loan rates and terms, with current interest rates generally ranging between 4.25 and 8.75 percent across most types of financing and structured as fixed, variable or fixed-to-float. There are quick close products, like a merchant cash advance that have higher effective interest rates. The term and amortization of a pizza restaurant loan is often structured anywhere between five and twenty-five years, depending on the assets being financed with the loan. Financing for hard assets, such as real estate generally receive terms between fifteen and twenty-five years, while a loan for working capital or inventory could have a term of one to ten years. There are several loan products that borrowers should consider for pizza restaurant financing, including:
Pizza Restaurant Loan Products
Conventional loans are typically made by community, regional and national banks and some non-bank lenders. These loans are not guaranteed by any third party and the bank or lenders assume the full risk of the loan. Therefore, credit standards are usually highest for conventional loans. Terms and pricing can be more flexible for conventional loans as lenders can price lower for stronger loan requests.
The Small Business Administration's (SBA) 504 and 7(a) loan programs are both popular alternatives to traditional financing options. A percentage, typically 75% of the full loan, is backed by the SBA so banks and lenders assume less balance sheet risk on the loan. However, all lenders utilizing SBA loan programs have to adhere to stringent loan eligibility requirements and SBA Standard Operating Procedures for loan underwriting including the pricing and terms for the loan. For the SBA 7a product, loan pricing can be priced using the Prime lending index plus a maximum spread of 2.75% - which is maximum allowable rate. Lenders may use variable rate pricing so as the Prime rate goes up or down the interest rate on the loan will move up or down as well. Terms are structured based on the assets being financed.
Asset Based Lines of Credit
Pizza restaurants operators may use asset based lines of credit for an array of business uses. Asset based financing for pizza restaurants can be either revolving or term loans secured by assets such as accounts receivable, or real estate.
Unsecured Business Line of Credit
Unsecured credit refers to loans or lines of credit where there is no collateral to back the loan. Although this type of lending is possible for a pizza bar it is considered risky for lenders. The borrower's personal financial strength as well as the business cash flow needs to be strong in order to qualify for an unsecured line or loan.
Merchant Cash Advance
The merchant cash advance product is financing based on credit card receivables where the merchant cash provider will advance a loan based on historical credit card sales. This financing can only work for pizza restaurants that accept credit card payment. Merchant cash is considered short-term financing and can be funded quickly for businesses.
Seller Carry Financing
For buyers of an existing pizza shop it may be possible to negotiate financing with the seller. Instead of receiving the full purchase amount, the seller may be willing to finance all or part of the purchase price. In this scenario the buyer and seller negotiate the terms and interest rate of the loan. Typically sellers want to get paid out on the note within five years of the sale. One benefit of seller carry financing is that the seller will be supportive of the transition and should offer proper training to ensure that the buyer is successful taking the business operations over.
Credit Parameters for Pizza Shop Loans
Credit parameters can vary across financial institutions depending on their appetite for a particular loan request. Many lending institutions look at Loan to Value (LTV) which is a measure of available collateral to back the loan. Lenders may establish the loan amount as low as 55% to 90% or more of the available collateral. Debt Service Coverage Ratio (DSCR) is a measure of the available cash-flow from the business to cover loan payments. Lenders typically like to see a minimum ratio of 1.25X or 1.35X available cash to the annual requested loan payments. The higher the ratio the better, as lenders like to have a larger cash cushion should a business see a dip in sales. The personal financial strength of the borrowers or business owners will also be analyzed by the lender. Lenders want to make sure that borrowers have enough liquid cash to both inject into the deal as well as for any problems that might arise in the future. The personal credit of a borrower and how they have managed debt will be looked at by the lender through a credit report.
Pizza is often referred to as the nation's number one meal choice as approximately 93% of Americans eat at least one pizza per month. Although the recent recession has affected most restaurant and retail businesses the low cost of pizza has allowed families to continue to eat and enjoy the great tasting cheese, break and sauce combo (as well as other ingredients).
Pizza restaurants represent over 17% of all restaurants in the United States and produce revenues of over $40 billion dollars. Within the franchising industry alone there are over 65,000 pizza shops in the country.
Pizza restaurants endure the same competitive pressures as most other restaurants. However, because pizza is limited to three main ingredients: wheat for dough, cheese and tomato's for sauce, pizza business owners are more susceptible to swings in the prices of these ingredients when compared to other restaurant operators who can substitute menu items. During the recent recession the cost of cheese and wheat went up, creating the perfect storm as less people decided to dine out. Pizza business operators were forced to pass some of the cost on to their customers but also used coupons and discounts to sell more pizza's to survive. These same operators turned to the internet and social media outlets to promote their brands and drive more customers to their restaurants.
Apply for a Pizza Restaurant Loan
Acquiring pizza restaurant loans depends largely upon the scale and purpose of the loan, but all such loans require comprehensive information on the business and the borrower which include a loan application and checklist of supporting documents. Lenders require financial and tax records for the business, a detailed business plan, projections of expected earnings, personal financial and tax records, as well as resumes for all owners of the business
Why LVRG for Pizza Shop Loans?
You can apply for a pizza shop loan with one of the 5,000 lenders in our lender network. A single loan request through LVRG is the most efficient way to seek a pizza restaurant loan. Many banks or lenders can start the loan process, but LVRG helps pizza shop owners by creating lender competition for their business, presenting an array of funding options, pricing and terms. Ready to grow your pizza business? Call LVRG today! (855) 998-5874.