Small Business Administration loan experiences?

May 27, 2004 12:56 PM

Can you tell me about your experiences getting a loan through the Small Business Administration please? [more inside]

I'm taking the entrepreneurial plunge! My last day at my current job will be tomorrow then I will be working full-time on my dream of opening a restaraunt. I'm told this is one of the industries the SBA frowns upon helping because of high failure rate, so I would especially be interested in hearing about loans specifically designed for that type of business. (But any experiences you care to relate would be welcome!)

I have some of my own capital and potentially another investor, but I will clearly need to borrow some money from a financial institution.

Thank you all in advance.

posted by vito90 to work & money (8 comments total)

Vito -

I googled quickly and found a few links.

http://experts.about.com/q/1454/1167342.htm
http://www.restaurant.org/rusa/magArticle.cfm?ArticleID=14
http://www.restaurant.org/rusa/magArticle.cfm?ArticleID=628

Unforutnately, the SBA is right -- the failure rate for small restaurant businesses is astronomical. My dad once told me that if I ever decide to open a restaurant, I should instead take half of my money out of the bank and burn it; I'll come out ahead. I have a friend that recently lost half a million on a restaurant venture. I also spent a year managing the student restaurant on my campus; we barely broke even, even though we had practically no overhead and the management/menu development was done by volunteers and student interns.

Out of curiousity, what tack are you taking on your restaurant? What's your niche? What kind of experience do you have personally with running a restaurant?
posted by SpecialK at 1:08 PM on May 27, 2004

Thanks SpecialK - I had found plenty of stuff on the net but wanted to hear from the community. And the high failure rate is not going to dissuade me...I'm stubborn that way. I also play alot of baseball, so I'm used to failure.

On the Operations side, I was the GM of all retail operations for Redhook Brewery in Portsmouth, NH for a couple years...from start-up to break-even was my tenure there. I was responsible for all facets, which included kitchen, bar, special events such as banquets, gift shop and tours. I had to hire and train about 60 ppl to start...it was a very valuable experience. Before that I worked and managed at RH's small pub in Fremont called the Trolleyman. The only experience I lack is actually working the line in a kitchen, but have plenty of experience designing menus. Also did lots of marketing.

On the business side I have both a Bachelors and a Masters in business - I figure they will be helpful in getting the loan since I'll be dealing with banker types, as well as qualifying me to do most if not all of my own bookkeeping.

I'm not planning on doing anything revolutionary...just a simple alehouse that serves classic cocktails only, small, smoke free, good food and service but not four-star at a reasonable price. It's a proven model here in Seattle as evidenced by the success of places like the Hilltop Ale House and the Virginia Inn. I'm just going to focus on finding the right location for it.

I really don't want to turn this into a thread on the merits of the plan, though. I'm definitely going through with it and want to focus on real horror stories of dealing with the SBA or other lending institutions. I'm sure the merits of the plan will get closely scrutized by the committee deciding on the loan, and that's a bridge I will cross at the appropriate time.
posted by vito90 at 1:23 PM on May 27, 2004

SpecialK - thank you for those links. There was very good info in them.
posted by vito90 at 1:29 PM on May 27, 2004

Also, these people in Seattle are worth talking to. I found them helpful when I was getting a business license to do consulting: Seattle Score.
posted by jessamyn at 1:41 PM on May 27, 2004

True, but the application process itself is relatively simple and straightforward. (Relative to brain surgery, but still... once you pick the program, it can't be more complex than a What you should be preparing for are the holes they'll poke in your plan, and how to counter/answer them. That kind of preparation needs to happen now, as it's the only real hairy part of the application process. From what I've read and asked (I emailed a friend of mine who is an instructor at the local culinary institute), having answers ready every time they haul out a howitzer and blow your plan back to last tuesday is just about the only way you can show that you're a low-risk loan unless you already have a restaurant open. Better yet is to have all possible questions/answers already taken care of in the business plan.

FYI, I'm graduating in two weeks with a bachelor's in business. My two concentrations are Supply and Logistics and Food Industry Management. As my senior internship/practicum, I did all of the financial management and helped with the sourcing and menu development for a student-run organic/sustainable restaurant on campus. I'm starting a consulting business in the next few weeks with one of my instructors.

You're right that the small alehouse model works great. There's at least thirty within a five minute's walk of my condo in downtown Portland. Of course, half of those are McMenamins or Rogue. And McMenamins is very active in the Seattle area, as well. How are you going to make yourself different? One lesson I learned with the student cafe is that it's not really profitable to constantly have to attract 'street' traffic -- you need regulars.

Are you planning on brewing your own ale on site, a'la Rock Bottom or New Old Lompoc? What's your goal -- to build the one restaurant into a chain, or is it just to have a job?
posted by SpecialK at 2:09 PM on May 27, 2004

Well, if you own a house, (and you should) you are better off using equity from that source vs. an SBA loan. The reasons are 1. they won't loan to an unproven business 2. even if they did it the loan will be at 8 or 9 percent vs. 3.x for your equity. 3. you will have to provide collateral ANYHOW for an SBA loan. ie. a house. Why pay 5 % more just to somehow think you have not risked what you have risked - namely, everything. Me, I took an equity line vs. SBA, even though I went thru the ENTIRE process of writing an SBA business plan. Good luck.
posted by BrodieShadeTree at 3:10 PM on May 27, 2004

vito90 -- Open the place on North Beacon Hill, please? Pretty please? Our food choices here are pretty sparse, though the new restaurant next to Java Love is good.
posted by litlnemo at 1:57 AM on May 28, 2004

litlnemo - I know almost nothing about North Beacon Hill! Although my mom has a beauty shop on Barton place, not far from Rainier Beach High School. What's it like down there?

I live way up north, near Kenmore/Bothell - so I'm inclined to do it up here. Are you far from Columbia City? There is a GREAT alehouse there...
posted by vito90 at 5:46 AM on May 28, 2004