by Heidi Christian Rockwell

Created on: August 22, 2008

How to Purchase an Existing Restaurant

Purchasing an existing restaurant is all about the paperwork. Most commercial lenders will

want at least a 20% down payment, and they will require the financial statements of the

current owners with a current appraisal, as well as your financial statements. Even if your

credit is not A rated, generally the lender will require more of a down payment to

compensate for any dings on your credit. It is not advisable for anyone to buy a restaurant

without at least six months operating expenses in the bank. Some lenders will require three

to six months operating expenses as a prerequisite to giving you the loan. Believe it or not

it is easier for a Corporation to get credit than a Sole Proprietor. You may want to

investigate this option and make an informed decision.

To start with find a good lender. Most mortgage professionals use Scotsmans Guide. Its an

easy site that will allow you to enter your criteria and give you the appropriate lenders to

contact. Or just find a broker that specializes in commercial loans.

A good commercial real estate agent can also help you get the financing you need.

It is better to have an agent represent you because they will assume all contract liability,

at that point and their experience will get your offer accepted and close the deal. Its

important to have experienced professionals handling your business.

Everything is in place and now it is time to start looking at the possibilities.

It is advisable that you visit the chosen restaurants a few times, first without an agent,

then make an appointment and go back. Try to get a good idea of the kind of traffic the

restaurant generates, who they cater to and are they truly making a profit? Have others scout

for you as well if possible. What is the lunch crowd like? Does business seem to be slow and

what kind of a business plan do you have to change that?

There are a lot of factors to look at before you decide to buy an existing restaurant.

Will you keep the current management and employees? Will you keep the same menu?

Location? Do you plan on participating in the operation of the restaurant? How much

are you willing to pay? Can you afford it? What are the current owners generating after

expenses, is that an acceptable return on your investment?

A decision has been made and you wrote an offer and it was accepted. You are now in a legal

binding agreement, a closing date has been set. All that should be left at that point is for

an appraisal to be made and sent to the lender and any more documents that the lenders

underwriter would require. If it was done right there should be no more questions. With the

exception of showing prepaid insurance and having an inspection done if you are buying the

building as well as the business. Commercial loans generally take about 45 days, in some

instances it can be faster, but highly unlikely unless you are paying cash. In that case a few

Weeks.

There are a lot of good financing programs around. Lenders are aggressive and some even

may allow some seller financing or even 90% of the purchase price. Talk to more than one

lender, but not more than three. Do not let more than three run your credit. And while you

are in the process of obtaining financing, don't apply for any more credit anywhere else, it

will lower your credit score. Most important pay all of your bills on time, your credit will

be ran again right before the closing of your loan.

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