Use Case Series: Business Loan Option For Jay’s Gourmet Cookery
Scenario: Jay’s Gourmet Cookery started out as a home based business which rented a commercial kitchen for its food preparation. The owner, Jay, was looking to expand so he can have his own private kitchen and expand his operations to a full time operation.
Business Location: 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 conclusion of event
Business Structure: Limited Liability Company (LLC) with both Jay and his spouse as the sole shareholders.
Additional information: Jay has been working full time and operating the Cookery on the weekends and holidays. He intends to leave his full time job to pursue the full time operation of his catering business. Jay’s spouse works with him and will be helping as much as possible but will not be leaving her full time job where she works at a Professional Services Company as a CPA and is making $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.
Jay plans to rent a private professional kitchen and leverage the Commercial Client base he currently has to carter events during the week. He has already confirmed that his Commercial Customers are willing to provide more business to him when he can fulfil the need. Jay also wants to acquire a specialized panel truck for transporting the food, replacing the family vehicle that has been used up to now.
He will need financing for the vehicle purchase and will need to finance new equipment that will be installed in the new place of business. Plus Jay wants to do some advertising and promotions to increase awareness of his business.
Jay and his spouse want to know what options are available to them.
The best options for Jay’s Gourmet Cookery are as follows:
Unsecured Business Loan: Since the income of Jay’s has not been that substantial to this point, getting a Full-Doc Business Loan will not provide much liquidity to the company so the best option available would be to do a Stated Income Business Loan where the income verification will not be required and since their credit scores are over 720 and have no delinquent accounts or adverse credit history over the last several years, they would be qualified 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 over the last years and is going to continue to work outside of the catering business, the income his spouse has been receiving will continue and will be eligible to service the payment for the new kitchen equipment and panel truck.
Accounts Receivable Finance: A line of credit may also be issued to Jay’s company where all commercial sales (B2B) will be eligible to receive advances at a rate of about 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 arrangement and the line of credit will grow as sales grows. This way there will be funding available to cover costs of the operation (rent, supplies, wages… ) until the B2B customers pay their invoices.
The scenario given is a typical scenario for many emerging companies that outgrow their “home-based business” boundaries and expand to meet the needs of the market.
These financing options are applicable to many different business structures and do not only pertain to catering businesses, but you can see how the solutions provided do fit the business need. It is not required that each option presented be used for each company, but most business owners would agree, “Options are good!”
Note: The company information in this case is fictional. This article is meant to illustrate financing options available for growing companies.