Use Case Series: Jay’s Gourmet Cookery’s Business Loan Alternative

Scenario: When Jay’s Gourmet Cookery first began, it was a home-based business that prepared food in a commercial kitchen that was rented. Owner Jay wanted to grow so he could have his own personal kitchen and turn his business into a full-time endeavor.

SNAPSHOT

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), owned solely by Jay and his spouse.

Additional information: On weekends and during holidays, Jay runs the Cookery in addition to his full-time job. He plans to resign from his full-time position in order to focus exclusively on running his catering company. While Jay’s spouse also works with him and will assist as much as she can, she will continue to work full-time as a CPA at a professional services firm where she earns $105,000 annually. They are barely in debt personally and have a modest mortgage. Jay and his spouse each have credit scores of 721 and 732.

EXPANSION PLANS

Jay wants to hire a private professional kitchen and use his current network of commercial clients to cater events throughout the week. He has already stated that when he can meet the demand, his commercial customers are willing to give him more business. Jay also plans to replace the family car that has been used to transport the food with a specialized panel truck.

He will require financing for both the car and the new equipment that will be installed in the new business location. Additionally, Jay wants to promote his company through some advertising.

Jay and his spouse are interested in learning about their options.

FINANCING OPTIONS

The following are the top choices for Jay’s Gourmet Cookery:

Unsecured Business Loan: The best option would be to do a Stated Income Business Loan, where the income verification will not be necessary, and since their credit scores are over 720 and they have no delinquent accounts or adverse credit history over the last several years, they would be eligible for up to $50,000. Jay’s income has not been that substantial up to this point, so getting a Full-Doc Business Loan will not provide much liquidity to the company. These funds may be applied to any business-related need, including marketing, advertising, and general operating costs.

Equipment Leasing: Jay’s spouse has been working over the past few years and will continue to work outside the catering industry, so the income she has been receiving will continue and be eligible to be used to pay for the new kitchen appliances and panel truck.

Finance for receivables: Additionally, Jay’s business may be granted a line of credit, under which all business-to-business sales are eligible to receive cash advances at a rate of about 85% of the invoices’ face value. There will be no servicing of this financing arrangement because Jay’s customers will pay the finance company directly, and the line of credit will increase as sales do. In this manner, money will be made available to cover operating expenses (rent, supplies, and salaries)… ) until the Payment for invoices is done by B2B clients.

WRAP-UP

The example provided is a typical scenario for many young businesses that outgrow their “home-based business” limitations and grow to serve the needs of the market.

You can see how the provided solutions do meet the business need even though these financing options are applicable to a wide range of organizational structures and are not just relevant to catering businesses. The majority of business owners concur that having options is a good thing, even though it is not necessary for each company to use every option.”

Reminder: The company details in this instance are hypothetical. The goal of this article is to demonstrate various financing options for expanding businesses.