Even in a booming economy, raising money for the risky business of restaurants can be difficult. In today’s climate of government shutdowns, tight
credit and politically fueled fiscal crises, many independent
operators may feel like there’s no point in even trying. There
are options—bank/SBA loans, self-financing or taking on
investors that are passive or working for the business—but
no easy answers. “When self-funding, it can take a long
time to amass the money you need, and banks traditionally
hate restaurants, so the process can be challenging,” says
John Arena, the co-owner of Las Vegas-based Metro Pizza
( metropizza.com), which has five locations and two licensed
operations in Nevada.
When Keith Hayman, the co-owner of Music City Pizza
( musiccitypizza.com) in Nashville, Tennessee, was looking to
open his first location, he visited seven banks with no success.
“Even with a great business plan, great credit and an established
location, restaurants are the biggest fear for lenders,” he says.
“It’s a bit easier if you have proven cash flow, but, ultimately, I
had to go to friends and colleagues for fundraising, requiring a
lot of dialogue, business planning and a great product.”
This approach, also known as the “friends, family and fools”
strategy, paid off for Hayman in the long run; He raised
$800,000 to open his pizzeria last September. Meanwhile,
Drew French, founder of Your Pie Franchising ( yourpie.com),
based in Athens, Georgia, got a similar less-than-enthusiastic
reaction from banks when he presented a business plan for his
first unit just as the economy tanked. Luckily, a family member
FOLLOW THEMONEY By Tracy Morin
Looking to raise capital for expansion? Experts weigh in on
how to boost your chances with banks and private investors.
“You have to build a personal guarantee on any
money you borrow. And a lot of people will underestimate costs—you need working capital, not just
the money it takes to get a second location open.”
—Drew French, Your Pie Franchising