Advice for Buying a Restaurant and Selling a Restaurant

Buying a Restaurant Using Retirement Money

Posted by Robin Gagnon on Jan 19, 2012 10:25:00 PM

Using 401K for Buying a RestaurantThe tight credit environment created over the past few years has forced those interested in buying a restaurant to seek more creative approaches to their funding challenge.  One option that’s gaining traction with many buyers is a 401K conversion option.  The Employee Retirement Income Security Act (otherwise known as ERISA) passed in 1974 created the opportunity when it essentially passed the responsibility of retirement saving from the employer to the employee. So while buying a restaurant using these funds is not a new idea, it is one that is growing in popularity.  A combination of tight lending practices and low stock market performances created by the weak economy make this a more attractive option than it would have been a few years ago. 

Investing your existing IRA or 401(k) funds into launching a business of your own is a straightforward and tax free process.  You don't have to take a taxable distribution, because you are buying stock, as an investment, in your new company. And you needn't apply for a loan, because you'll be using your own money, interest-free.

One benefit of buying a restaurant this way is the short time to close the transaction.  Most transactions can be completed in less than a month.  While it is quick, it’s not for the uninformed.  The process requires that you work with a specialized firm that has the legal and financial resources to fund your deal with your retirement savings.  Restaurant brokers helping you in buying a restaurant will have contacts for the best firms in the industry.  One of the largest and most reliable is Guidant Corporation.  They have funded over 7,000 businesses and assisted in transferring more than $3 billion in retirement assets.  Once you’ve contacted a specialist like Guidant, then buying a restaurant with your own 401(k) or IRA funds can be as simple as finding following the steps below.

STEP 1 | Form a Corporation
The rollover company will form this corporation or work with your attorney during the formation process.

STEP 2 | Corporation Sponsors a 401(k) Plan
The 401(k) Plan is designed to allow for investment into your corporation and should come with a favorable determination letter from the IRS.

STEP 3 | Rollover to new 401(k) Plan
The next step is moving your retirement funds from your previous employer or IRA into the new 401(k) Plan.

STEP 4 | 401(k) Plan Invests in the Corporation
Your new 401(k) Plan purchases stock in the corporation. This 401(k) Plan now holds stock in the corporation and the business is debt-free and cash-rich from the sale of the stock. At this point, the corporation will now be able to purchase your new business or franchise.

The advantages of the plan are that you are now buying a restaurant on a debt free basis.  You are able to invest directly in yourself and enjoy tax-deferred savings.  If you’re interested in buying a restaurant using your 401(k) savings, follow this link to Guidant Corporation for a review with one of their specialists.

Topics: buying a rstaurant, buying a restaurant, financing for restaurants

Restaurant for Sale Loans - SBA Lending and Buying a Restaurant

Posted by Robin Gagnon on Jan 5, 2012 4:16:00 PM

Do the terms “small business loan” and “buying a restaurant” belong in the same sentence? Yes, if you use an expert restaurant broker that does his work up front.

SBA Lending and Restaurant LoansIn the last three years there has been less access to capital than ever before for acquiring a small business like a restaurant for sale.  There are still options however and one source is the SBA loan program. The SBA is an independent federal agency created by congress in 1953.  They are mandated by Congress to aid growth and expansion of small business.  One element of that charter is the SBA loan program.  The SBA does not actually lend money itself. Instead, it insures against risk for banks in the event of a default.  They guarantee as much as 90% of a loan’s value for the lender. 

Here are a few of the items you should be aware of when it comes to an SBA secured loan. Most of this can be found online at  If the following conditions can be met, the loan for buying a restaurant has a strong possibility of being funded.

The SBA program requires a restaurant have no less than three years, thirty-six consecutive months, of profitable operation.

The minimum books and records required will include both the tax returns and profit and loss statements.

Restaurant buyer requirements for SBA secured programs include all of the following:

1. The SBA will not approve any loan unless the owner is committed to finance at least 10% of the purchase price. 

2. The SBA program requires that a restaurant buyer secure the loan with a second mortgage on your home. This is not negotiable in any circumstances we have seen. If you refuse to pledge your home for collateral on your business acquisition, don’t try this route for borrowing.

3. The SBA program also requires that they lien the furniture, fixtures, and equipment of the restaurant you are buying.

4. The SBA program requires a minimum amount of business experience.

6. The SBA requires that that net profit per month with add-backs divided by the loan payment per month must be 1.25 or higher.

7. Key person life insurance is usually required. This can take up to six weeks to obtain.

8. 9. Both the spouse and the applicant’s credit history will factor into the loan approval.

10. Lenders insist on the seller and buyer both signing IRS Form 4506-T to protect against fraud. Both the seller and buyer face IRS trouble if the tax forms are false.

11. A business plan will be required by the lender as part of the SBA process.

12. The applicant for the loan must be a legal resident of the United States.

13. The credit score of the applicant must normally be above 650 and the restaurant buyer cannot have an arrest record.

14. The applicant for the loan must have direct management experience to be approved in most instances.

The bad news is that the requirements for restaurant SBA lending are stringent.  The good news is that if an expert restaurant broker has already submitted the business for pre-approval, it’s almost a sure thing to get the loan as long as you meet the restaurant buyer’s criteria listed above.  Once you submit your paperwork to the bank, it’s a fast track to closing.

In short, when restaurant brokers advertises that a restaurant has already been pre-approved for lending you can be assured that it is an A+ listing with excellent records and profitability.  The “pre-approval” portion of the lender work will wean out any restaurants for sale that don’t meet strict financial criteria.

Here's a listing offered by We Sell Restaurants that is Pre Approved for SBA Lending

Topics: buying a restaurant, financing for restaurants, SBA Lending for Restaurants, restaurant for sale loans