Financial Crisis Severely Affecting Small Business Financing

CHICAGO (Blue MauMau) - The financial sector's meltdown, with its attendant current insolvency of major American banks and financing institutes, will have a profound impact on small business, according to an analyst and consulting firm for the restaurant industry. The firm anticipates restaurant entrepreneurs to have a more difficult time in financing a new franchise or in starting a restaurant franchise chain as banks become much more selective in lending.

Executive Vice President Darren Tristano at Technomic, Inc., a consulting and research firm for the restaurant industry, explains to Blue MauMau readers, “The financial meltdown will make the cost of financing higher and the qualifications [for obtaining a loan] more difficult. Restaurants that are already in trouble will find it more difficult to borrow against their business. Owners will have to personally guarantee more to leverage additional credit. For those restaurants headed for trouble financially, it will be far from a walk in the park. Landlords and creditors will be keeping a more watchful eye on their tenants and customers.”

Tristano sees the lending environment becoming tough as bankers become extremely conservative in whom they lend to. Tristano continues, "With the increase in foreclosures and bankruptcy, the standards will be raised for credit seekers. In addition, loan officers will be held more accountable for verifications. This will make it much more difficult for those looking to franchise. Restaurant chains may have to provide capital and take greater risks to expand their business."

Abundance of Distressed Properties for Sale at Bargain Prices

"The good news is that there are quite a few restaurant properties now available due to the recent closures, and securing these properties will be less difficult since landlords are looking to gain new tenants," says Tristano. 

He is also bullish on restaurant stock purchases. Tristano states, "Restaurant company stocks have been hit pretty hard in the past year, making their investment possibilities more attractive. Because many are at or near 52 week lows, this may represent a good buying opportunity for investors."