IE Investors: Please chime in

[IrishBoognish]

I was asked by a small town restaurant owner for a 5k loan.

What's industry standard for a 3 to 6 month personal loan?


What's standard for a longer investment of a year or year and a half?

Totally blind on these things. Thanks!

 

[zelezo vlk]

Look man I'm no expert, but I've always been told that restaurants don't make money. If you do this, consider it more a gift than a loan. Maybe others with more experience can chime in, but I worked in the industry for a while and there's a reason I got out. The money just ain't there.

Sent from my SAMSUNG-SM-G900A using Tapatalk

 

[NEIIrish]

You want to be in the futures game, specifically the frozen oj game

 

[Irish#1]

There's a saying in the restaurant business. "Want to make a million? Start with two!"

I have no experience in the restaurant business, but some observations.

1. Why do they need it?
2. How long have they been in business? If it is a short period of time, that's may be a sign they are struggling.
3. If they have been in business for several years, is their sales trending down, are they struggling?
4. Why won't their bank lend them the money?
5. Don't be afraid to ask for a look at the books.
6. If you agree to do this, get it in writing with a witness and be specific about when it will be paid back.
7. how much is your friendship worth?
8. Agree with Zeleo, consider it a gift as you probably won't see it again.

 

[Some Irish Bloke]

Irish #1 and Zelezo are on point. Banks don't lend to restaurants for a reason. Unless this local business owner is a good friend of yours, it's probably not a good idea unless you're feeling "charitable."

Most restaurants don't make it 2 years from opening, and the successful ones normally don't break even until at least 3. Tough industry to crack for sure, no matter where you live.

 

[MNIrishman]

Does your friend have accounts receivable? If so, you could have him sell some of that to you at a 20% discount. Now, it's effectively a loan but you have an independent way to collect.

 

[wizards8507]

Does your friend have accounts receivable? If so, you could have him sell some of that to you at a 20% discount. Now, it's effectively a loan but you have an independent way to collect.

Would would a restaurant owner have accounts receivable? Their order-to-cash lead time is about 45 minutes, not 45 days.

 

[FDNYIrish1]

5k seems like an awful small amount for a business to have to borrow from you. I'd be a little concerned that he can't find that kind of money without coming to you. You really don't provide enough details for the best assistance here, so you have to do some research of the business.

 

[IrishBoognish]

these are all very good points.

thanks a lot, I'm starting to lean in the direction of a polite refusal.

 

[IrishLax]

these are all very good points.

thanks a lot, I'm starting to lean in the direction of a polite refusal.

Probably smart, the bottom line is that a "short term personal loan" is a close cousin to a "payday loan." Unless you have some ability to ensure you get paid back like predatory lenders do with "payday loans," there is a lot of inherent risk that almost guarantees you won't see your money again. This is why the mob needs enforcers to help collect, etc. when they give out "personal loans."

So I would stay away from a personal loan unless:
1. There is some sort of collateral they can put up, like a car or other property.
2. This is some very specific cash flow anomaly you're solving and they show you their books, and even then it's most likely you will never see your money again even if you really trust this person.

 

[calvegas04]

what type of food?

 

[Bluto]

I would refer them to the Small Business Administration (SBA). They used to partner with local development agencies to offer small loan amounts (under $10,000) with minimal paperwork. Case in point there was a program in the Bay Area that had a three page application for loans under 10k.

 

[DONTH8]

Was a small loan officer at a local bank here. We were taught to stay away from the food industry, treated it like the plague. Even people with a proven business model in the food truck business, or something similar for example. Too much risk and perishables. On top of that, personal loans I've seen others do are almost always messy.

You know the situation better, but go in with the thought that the likelihood of you receiving the money back is slim to none. Collateral would definitely be something to consider, but I've seen that most people feel uncomfortable requesting such from a friend/puts a damper on the relationship.

I vote no. And sorry if this is a repeat of something above

 

[PraetorianND]

Giving loans is almost always a bad idea, particularly to family and friends.

If the goal is to make money then you should consider investing that money elsewhere.

If your goal is to help the business/person out, then buy a piece of the business instead. If you aren't willing to buy a piece of the business then you shouldn't be willing to loan it money either.

 

[IrishBoognish]

what type of food?

it's a upstart brewery in a really small town in Oregon.

They're doing a really good job at filling the hole for a place with good beer, food, and relaxed atmosphere that's also safe for people who arent absolutely insane and/or felons.

the rest of the bars in town are out of bounds for anyone who works at a place that requires their employees to be a little stand up in the community. if you go, chances of fighting reach 100% really quick.


it also serves pretty good food that is an upgrade to the normal bar fare or obvious Mexican cuisine that's pretty much the norm here. Theres really good mussels, pork sliders, Ossu Bucco, charcuterie plates, and they're introducing the populace to aioli.

It's good without being pretentious which would fail miserably here. Although I love a pretentious restaurant now and then, this ain't the community for it ...

It's a good place that's serving a need, but the opinions in this thread mirrored my own. Investing in a restaurant is almost always a bad idea and a small loan like this is sketchy.

I wish I had the cash to just loan it to him and not worry about the return, but my line of work isnt known for producing philanthropists.

 

[Some Irish Bloke]

Was a small loan officer at a local bank here. We were taught to stay away from the food industry, treated it like the plague. Even people with a proven business model in the food truck business, or something similar for example. Too much risk and perishables. On top of that, personal loans I've seen others do are almost always messy.

You know the situation better, but go in with the thought that the likelihood of you receiving the money back is slim to none. Collateral would definitely be something to consider, but I've seen that most people feel uncomfortable requesting such from a friend/puts a damper on the relationship.

I vote no. And sorry if this is a repeat of something above

Therein lies the problem with the restaurant biz; There is no A/R to lend against, no inventory (perishable/can't resell) and even the real estate is limited unless the building is a multi-use property. Otherwise it will be an expensive renovation to re-purpose, or you are trying to sell the building to another restaurant entrepreneur who knows that the previous one failed...not exactly good for bargaining. Cash flow lending is typically the riskiest form.

I have a grocery store customer in the middle market space, and even when they have good years, they are reviewed quarterly per the borrowing agreement to make sure they have enough working capital to repay us in a doomsday scenario. They are a very good customer and I enjoy banking them, just the nature of the industry.

 

[Irish#1]

I think you're being smart in declining. Small brewery/restaurants are popping up everywhere and closing everywhere.

Given you aren't loaded, this loan will likely put a bigger strain on your friendship then just saying no.

 

[Irish2015]

On collateral, if the owner is unwilling to put up his car / home, would they be willing to put up certain items that may have value in the restaurant i.e. the freezers, POS systems, fryers? It wouldn't be ideal, but you could potentially then sell those items to others in the industry if the loan goes really south.

 

[ND87]

You obviously eat/drink there ... you know the crowd. Or lack thereof.

WHY does he need $5k? For how long?
Have a look at the books. Is it a long slow bleed, or a capital improvement?

If it’s a short-term thing, and you feel/see upward growth, maybe instead of loaning, you prepurchase gift cards... whatever your investment, you get that + X% in card value? Assuming it feels Ike the place is going to survive.

You can use some yourself, gift some away, donate some to charity, sell off others to recoup your investment....

 

[yankeehater]

I used to work in an industry where restaurants/bars were part of our customer base. We had a statistic where something like 70% of restaurants close within the first 5 years. Needless to say, our credit department provided a very short leash.

I would find better things to invest my money.

 

[NDBoiler]

I would suggest not lending money to friends or family, simply because it could put a tremendous strain on, or even ruin the relationship.

An alternative would be to kindly suggest that the restaurantuer save up money for what is needed instead of borrowing. It’s a much better habit to get into in business instead of operating with debt. In reality, it’s probably even a more helpful thing to do than lend the money.

 

[Veritate Duce Progredi]

If you really like the person and you want to give them the money, consider it that - a gift.

If you really hate the person, loan them the money and expect a return. If they fail, you can hate them forever and go after them under law.

 

[MNIrishman]

Would would a restaurant owner have accounts receivable? Their order-to-cash lead time is about 45 minutes, not 45 days.

Of course. However, there's always the possibility that this restaurant also has a catering service, or brews and sells beer. That would give it AR. That's why I suggested it with the caveat.