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Lending is coming back. What should you do?

It’s not like restaurants haven’t wanted to grow over the last year. It’s just nobody wants to lend the money for it.

During a presentation to a full house at the Restaurant Leadership Conference, Todd S. Jones, managing director of GE Capital, Franchise Finance, said that situation is changing.

Money, for instance, is moving out of money market mutual funds toward higher risk investments, he said. In ’09 mutual funds saw $4 trillion in investments. That is down to $2.8 trillion now. Meanwhile, equity investments are up at least 80 percent over March 2010 lows.

And in 2007, he pointed out, $1 million in EBITDA could have garnered $3.7 million in lending. That same million would have only generated $2.6 million in ’09.

“In 2010 we’re back up to $3.2 million and still climbing.”

Jones then laid out three ways operators could take advantage of “a shaky but increasingly favorable environment.”

  1. Operational performance criteria. Investors want to see how stable your business is, how you adjusted to the recession. Did you manage your labor and food costs more effectively? Did you find unexpected savings in your P&L? “How can you tell your lender and investor what you did and what you learned?”
  2. Focus on financial metrics. Show that you are paying off your debts, that you still have money to reinvest in the restaurant, that you’ve got a positive ratio of cash flow to debt, and that lease costs aren’t going to bury you.
  3. Asset strategy. Be prepared to show your commitment to maintaining the brand, that you’ve made smart decisions on capital investments, and that you have a long-term plan for your restaurants based on their local markets.

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