Expanding Your Business Without Having the Funds

We will be posting some deals we have come across from business owners and allow the readers to decide if they think the business owner should take the deal.

Todays deal comes from a business owner who currently owns a deli, and is possibly looking to expand their family business.  They have an opportunity to possibly lease the space next to their deli. Their current business seats 40 customers, and by increasing the size of their deli they should be able to seat another 20 customers and increase their bottom line. Here are some numbers on their business:

Currently the business grosses $800 to $1,200 a day, and monthly they gross $30,000.  The business owner believes by increasing the deli, he will be able to house his customers during the rush hour and by having enough seating it should increase his daily gross revenue by $500 to $800.  Currently his customers are placing to-go orders since there is not enough seating. If they can keep the customers there, they tend to spend a little more money on drinks or desserts which will also increase their daily revenue.  The lease on the added space will increase his monthly rent another $4,000.  The tenant improvement for this space will be approximately $25,000 and new furnishings and upgrades will be approximately another $8,000. So their total investment will be approximately $33,000 plus an increase to their existing lease by another $4,000 a month.  So in a nutshell a $28,000 investment will possibly generate approximately $15,000 in additional monthly income to their deli.  Even with the additional expense in rent of $4,000 they will also need to hire another server for another $2,000 a month. But that will still leave them $9,000 in additional income!  So all the numbers look like they work out, however there’s a slight dilemma.  They have no cash reserves for the improvement for the added space, and they also have less than perfect credit.  Going to their local bank will not be an option due to their blemished credit history.  However they have a family member who is willing to provide the funding in exchange for some ownership in the deli. The relative will loan the deli $36,000 zero interest but in return they want 10% ownership of the business, and the loan must be paid back in 8 months, and there will be NO payments for the first two months allowing for construction time. The extra $8,000 will be used to cover the rent during the two months it’ll take to complete the tenant improvement.  The monthly payments will start on month three and end on month eight in the amount of $6,000 per month.  I think this would be an easy decision if the relative wasn’t asking for partial ownership of the business. It might be in the best interest for the business owners to find another way to get the funding for their business expansion.  Maybe even ask if the relative would consider collecting interest on this loan versus becoming a partner.

This is a good example where our business cash advance program or working capital loan would work perfectly with this business owner.  For a working capital loan, lenders typically will take the annual gross income and will loan out about 10% of the gross sales.  So what that means to this business owner, they would qualify for approximately $36,000 and the repayment term would be more favorable as well.

Some of benefits to using First Capital Business Finance for their loan:
·       Will not have to give up ownership to their family business
·       Will not have to borrow money from a relative, this could lead to problems
·       Interest paid on the loan is a tax deduction
·       Less than perfect credit is accepted by First Capital Business Finance
·       Funds can be in their business account as soon as 5 business days

Either way this business owner will get his funding for his business, it’ll be up to the owners discretion on which is best for their business.  If you’re interested in hearing more about our loan programs, please feel free to call First Capital Business Finance 888-565-6692 and one of our loan experts will be happy to answer any of your questions.



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