Use Case Series: Jay’s Gourmet Kitchen Business Loan Option

Script: Jay’s Gourmet Cookery started out as a home-based business that rented a commercial kitchen for food preparation. The owner, Jay, was looking to expand so he could have his own private kitchen and expand his operations to a full-time operation.

SNAPSHOT

Location of the company: New Orleans, LA

Sales: $ 45,000 per year

Customer base: Commercial, business-to-business (80%), residential, business-to-consumer (20%) sales

Terms of sale:

• Commercial – Net 30 days

• Residential: 50% deposit, balance at the end of the event

Business structure: Limited Liability Company (LLC) with Jay and his spouse as sole shareholders.

Additional Information: Jay has been working full time and operating the kitchen on weekends and holidays. You intend to leave your full-time job to dedicate yourself to the full-time operation of your catering business. Jay’s wife works with him and will help him as much as possible, but she will not leave her full-time job where she works in a professional services company as a public accountant and earns $ 105,000 per year. They have a small mortgage and very little personal debt. Both Jay and his spouse have credit scores of 721 and 732 respectively.

EXPANSION PLANS

Jay plans to rent a private professional kitchen and take advantage of his current commercial customer base to host events during the week. You have already confirmed that your Business Customers are willing to provide you with more business when you can satisfy the need. Jay also wants to purchase a specialized panel truck to transport the food, replacing the family vehicle that has been used until now.

You will need financing for the purchase of the vehicle and will need to finance new equipment to be installed at the new job site. Additionally, Jay wants to advertise and promote to increase awareness of his business.

Jay and his spouse want to know what options are available to them.

FINANCING OPTIONS

The best options for Jay’s gourmet kitchen are as follows:

Unsecured Business Loan: Since Jay’s income has not been that substantial thus far, obtaining a Full-Doc business loan will not provide much liquidity to the business, so the best available option would be to take a business loan of declared income where income verification It will not be required and since their credit scores are above 720 and they have no delinquent accounts or bad credit history for the past several years, they would qualify for up to $ 50,000. These funds can be used for any business-related need, such as promotion, advertising, and general operating expenses.

Equipment leasing: As Jay’s spouse has been working for the past several years and will continue to work outside of the catering business, the income his spouse has been receiving will continue and he will be eligible to pay for the new kitchen equipment and panel truck.

Accounts receivable financing: A line of credit can also be issued to Jay’s business where all business sales (B2B) will be eligible to receive advances at a rate of approximately 85% of the face value of the invoices. Jay’s clients will pay the finance company directly, so there will be no servicing from this financing arrangement and the line of credit will grow as sales grow. In this way there will be financing available to cover the costs of the operation (rent, supplies, salaries …) until the B2B clients pay their invoices.

WRAP

The given scenario is a typical scenario for many startups pushing their “home business” limits and expanding to meet market needs.

These financing options are applicable to many different business structures and not only pertain to catering companies, but you can see how the solutions provided fit the business needs. Not all of the options presented need to be used for every business, but most business owners would agree: “Options are good!”

Note: The company information in this case is fictitious. This article is intended to illustrate the financing options available to growing businesses.