Script: Jay’s Gourmet Cookery began as a home-based business that rented out a commercial kitchen for food preparation. 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 Sales (80%), Residential, Business to Consumer (20%)

Terms of sale:

• Commercial – Net 30 days
• Residential: 50% deposit, balance due at end of 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 run his catering business full-time. 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 for a professional services firm as a CPA and makes $105,000 a 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 her current business client base to host events during the week. He has already confirmed that his business clients are willing to provide him with more business when he can meet the need. Jay also wants to purchase a specialized panel truck for transporting food, replacing the family vehicle that has been used so far.

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 raise 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 Cookery are the following:

Unsecured Business Loan: Since Jay’s income has not been that substantial up to this point, taking out a Full Business Loan will not provide much liquidity to the business, so the best option available would be to do a Stated 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 his spouse has been receiving will continue and will 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 business where all commercial (B2B) sales will be eligible to receive advances at a rate of around 85% of the face value of the invoices. Jay’s clients will pay directly to the finance company, so there will be no servicing of this finance agreement and the line of credit will grow as sales grow. In this way, financing will be available to cover the costs of the operation (rent, supplies, salaries…) until the B2B clients pay their invoices.

TO WRAP

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

These financing options are applicable to many different business structures and do not just pertain to catering businesses, but you can see how the solutions provided fit your business needs. Every option presented is not 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.