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Thread: Maximum LTV - Restaurant financing

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    Default Maximum LTV - Restaurant financing

    What is the maximum LTV I can get for a franchised restaurant acquisition? I would be a first time owner and this deal would not involve real estate.

    Thanks

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    Don't look solely at loan to value (LTV). Value isn't fixed. This business may be worth 200K to you but I might be willing to only pay 100K - show me what the real value is. The big real estate crash back in 2007/2008 was driven by lenders, mostly in the subprime loans, betting that values will keep increasing. Guess what, prices peaked and came crashing back down.

    You'll be better suited to using DCR (debt coverage ratio) to see if the payment is affordable. Figure out what the free cash is, add back owner benefits outside of a bare minimum salary, use around 30% (maybe less if your more risk adverse) as a multiplier, and do the math.
    Brad Miedema
    Fulcrum Saw & Tool

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    Thanks, but I was wondering more about the financing aspect, what is the lowest amount I could put down when financing an existing franchise restaurant as a first time owner, with no real estate involved.

    Thanks

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    40-50% is a safe assumption with the remainder financed for no longer than 5 years (fully amortizing with no balloon).
    Brad Miedema
    Fulcrum Saw & Tool

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    If you need to get the max loan possible to get a restaurant off the ground, DON'T DO IT. Find a different way that doesn't evolve going so highly in to debt. Restaurants are already a hard business to start, don't put yourself into a competitive disadvantage by burdening the business with a high debt load.
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    What is your credit situation? Are you applying with an EIN or SSN?

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    Quote Originally Posted by nealrm View Post
    If you need to get the max loan possible to get a restaurant off the ground, DON'T DO IT. Find a different way that doesn't evolve going so highly in to debt. Restaurants are already a hard business to start, don't put yourself into a competitive disadvantage by burdening the business with a high debt load.
    Let me second that opinion!!!! Restaurants are the worst to start up under financed unless the franchise is an established successful business that can immediately support finance costs. DON'T ever start a new restaurant, even a big name franchise, under financed. Actually the good franchisers won't let you.

    Which franchise is it?

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