Use Case Series: Business Loan Option for Jay’s Gourmet Cookery
Script: Jay’s Gourmet Cookery began as a home-based business that rented out 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 into a full time operation.
SNAPSHOT
Location of the company: New Orleans, LA
Sales: $45,000 per year
Customer base: Commercial, Business to Business Sales (80%), Residential, Business to Consumer (20%)
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. He intends to quit his full-time job to pursue the full-time operation of his catering business. Jay’s wife works with him and will help him as much as possible, but she won’t leave his full-time job where he works at a professional services firm as a CPA 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 out a private professional kitchen and take advantage of her current commercial client base to host events throughout the week. He has already confirmed that his business clients are willing to provide him with more business when he can fill the need. Jay also wants to purchase a specialized panel truck for transporting food, replacing the family vehicle that has been used until now.
You will need financing for the purchase of the vehicle and you will need to finance new equipment to be installed at the new place of business. Also, Jay wants to do some advertising and promotions to increase awareness of the business for him.
Jay and her spouse want to know what options are available to them.
FINANCING OPTIONS
The best options for Jay’s Gourmet Cookery are as follows:
Unsecured business loan: Since Jay’s income has not been that substantial up to this point, getting a Full Business Loan will not provide much liquidity to the business, so the best option available would be to do a Reported Income Business Loan where income verification will not be required and since their credit scores are above 720 and they have no delinquent accounts or adverse credit history in recent years, they would qualify for up to $50,000. These funds can be used for any business need, such as promotion, advertising, and general operating expenses.
Equipment Leasing: Since Jay’s spouse has been working for the past several years and will continue to work outside of the catering business, the income that Jay’s spouse has been receiving will continue and be eligible to pay for the new kitchen equipment and panel truck.
Accounts Receivable Finance: A line of credit can also be issued to Jay’s company where all business (B2B) sales will be eligible to receive advances at a rate of around 85% of the face value of the invoices. Jay’s customers will pay the finance company directly, so there will be no servicing of this financing agreement and the credit line will grow as sales grow. In this way, financing will be available to cover the costs of the operation (rent, supplies, salaries…) until B2B customers pay their invoices.
WRAP
The given scenario is a typical scenario for many startups that push their “home business” boundaries and expand to meet the needs of the market.
These financing options are applicable to many different business structures and not only pertain to caterers, but you can see how the solutions provided fit business needs. Not every option presented is required 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.