With access to capital limited, the result of tight credit markets and the recent government shutdown, which prevented the processing of SBA loans, restaurant owners are looking for alternative ways to fund their capital expense and growth plans.
According to the National Restaurant Association’s Restaurant Performance Index (RPI), “a majority of restaurant owners are planning for capital expenditures in the months ahead.” In fact, the report states that 52% of operators plan equipment, expansion, or remodeling as part of these capital expenditures.
This figure is up from the 45% reported the previous month—and despite restaurant owners’ largely uncertain economic expectations. The NRA suggests that the government shutdown and debt ceiling debates may have weighed on owners’ minds when the data were being gathered, dampening the overall outlook. Why might restaurant operators be planning expansions when customer traffic and same-store sales are soft, and have been for the past four months? And, perhaps more importantly, how might restaurant owners fund these initiatives?
Restaurant Owners Need New Ways to Compete in Today’s Economy
The short answer: Restaurant owners must find new and innovative ways to compete. The longer answer is nearly as simple: Improving business processes and costs, as well as attracting more and new customers, remain imperatives in today’s slowly recovering economy. Although the answers are relatively simple, implementing them isn’t so easy.
With access to capital limited, the result of tight credit markets and the recent government shutdown, which prevented the processing of SBA loans, restaurant owners are looking for alternative ways to fund their capital expense and growth plans. One industry analyst cites improved cost structures as one means to this end—largely through lower gas prices, which would boost discretionary spending, and an improved weather outlook. That is, major weather events, such as Hurricane Sandy, can hurt restaurant sales when they strike.
Reducing costs alone isn’t a sufficient strategy for funding expansion, remodeling, or equipment expenditures, however. Many restaurant owners are turning to alternative financing options, such as merchant cash advances and even crowdfunding. Crowdfunding, though growing more popular, has its risks and drawbacks, and doesn’t guarantee that restaurant operators will be able to gain access to cash quickly—or at all. Some projects may never gain the attention or interest needed to achieve funding.
Merchant cash advances, however, do offer a quick and relatively simple cash infusion process. With credit decisions made in a matter of days, restaurant owners can receive the cash they need to invest in equipment, marketing, remodeling, and other growth initiatives. For more information about how to solve cash flow issues, check out our October post entitled Serve Up a Great Meal and a Strong Financial Plan, which digs into the topic of diversifying financial strategies.