Community banks may be pulling back on funding, but communities themselves aren’t.
Small-business owners and first-time restaurateurs facing unprecedented hurdles on the road to adequate funding are looking more at alternative financing sources, including their friends. The largest restaurant industry lenders, such as GE Capital, Bank of America and Wells Fargo, have retrenched amid the domestic recession, and Small Business Administration lending has slowed to a trickle, leaving many without typical financing sources.
In response, Washington, D.C.-based restaurateurs Jared Rager and Eli Hengst reportedly are asking the neighboring community to invest in their planned restaurant, Blue Ridge, to help fund the needed renovation costs. The duo told the Washington Business Journal that it hopes to get about two dozen members of the community to invest in units of $5,000 each, which would garner close to the needed $250,000 to $350,000.
“It’s a little unconventional, but we’ve gotten a good response,” Hengst told the Journal.
The investment units would earn a fixed return of 8 percent over four years, and people who participate would receive dining credits that reflect their level of investment, as well as some perks, like access to private events.
Similarly, restaurants from Vermont to California have been built, resurrected or saved from closing via financing and other support from community members.
Through the issuance of coupons good for future meals, or Community Sponsored Restaurant Certificates, patrons and fans of Bees Knees in Morrisville, Vt., raised $20,000 last year to keep the business going after its owner was no longer certain she could keep the restaurant open. Investors were entitled to $90 worth of meals each quarter.
In Louisville, Ky., a high-end restaurant was able to garner interest-free cash through the sale of slots in an expensive members-only dining club. Members contribute $25,000 in cash that grants them not only credit on $27,500 in food and drinks—the tally includes a bonus—it also allows such perks as preferred seating and a personalized wine box. The cash can then be used as an interest-free loan to help run the restaurant.
Katzinger’s, a popular deli in Columbus, Ohio, received help in the form of a community advisory board that helped the restaurant’s new owner, a recent divorcee, keep the business running. The board offered tips on hiring and utilizing a general manager, improving the look of the restaurant, and implementing marketing efforts. In return, board members received free meals.
“They [were] honest and said things that I needed to hear and had to hear,” restaurant owner Diane Warren told Nation’s Restaurant News last year. “But they did it in a supportive environment in which the only goal was not my best interest, but the survival of Katzinger’s.”
