Chapter 5 — Discussion Guide

1. Should a first-time restaurant owner ever sign an unlimited personal guarantee? What to listen for: students should get past "no, that's crazy" to the recognition that without it the loan does not exist, and without the loan most people who are not already wealthy do not open restaurants. Strong answers name what can be negotiated — caps, burn-off provisions, guarantees limited to ownership percentage, lease-specific limiting provisions — and note that asking costs nothing. The best answers connect it back to Chapter 1's uncomfortable question about who is allowed to try.

2. Bellwether's plan projects a DSCR of 3.76. Is that reassuring? What to listen for: the distinction between a projected and a measured ratio. A 3.76 on a start-up forecast is a claim about arithmetic, not about the world, and §5.4's own band chart says a ratio above 2.00 on a projection is a reason to audit the assumptions. Push toward which assumption you would test first — most students say revenue; the better answer is the labor line, because that is where the owners' own compensation hides.

3. The TI allowance, free rent, vendor equipment, and a family loan are all "cheap" money. Rank them by true cost, and defend the ranking. What to listen for: students should apply the chapter's four questions — cost, repayment, claim, requirement — rather than ranking by rate. Expect disagreement about family money, which has the lowest financial cost and the highest cost of the kind that does not appear in a spreadsheet. There is no single correct order; the reasoning is the assessment.

4. A close friend wants to invest their entire savings in your restaurant. What do you do? What to listen for: the refusal, and how it is delivered. Strong answers separate the financial question (can they afford total loss?) from the relational one (what happens to us if they cannot?), and land on declining as an act of respect rather than of caution. Push on the follow-up: what if they insist, and what if you genuinely need the money? Watch for students who solve it by structuring it as a smaller amount — that is the right instinct.

5. Restaurants are hard to finance because they are hard to collateralize. Is the SBA guaranty a good solution to that problem, or does it mostly move risk from institutions onto individuals? What to listen for: honest engagement with both. The program demonstrably expands access, and the mechanism by which it does so is personal liability. Some students will argue that a system requiring a line cook to pledge their house is not access at all. Others will argue that any alternative either prices restaurants out of credit entirely or asks taxpayers to absorb the losses. Both are serious. Refuse to resolve it for them.

6. Case Study 2 argues that crowdfunding raises money without financing a restaurant. Where is that argument weakest? What to listen for: the strongest counterarguments are that the no-guarantee feature is worth far more than the case allows, and that a campaign's marketing value is real revenue the case does not price. Push students to say what evidence would settle it — cost per cover acquired (Chapter 27), redemption rates on rewards, the actual proportion of a project a campaign closes. A student who answers "it depends on the size of the gap" has read the chapter correctly.

7. Late-session, if the room is engaged: the plan is submitted and there is no answer. What should the two partners be doing in the meantime? What to listen for: the open questions in the checkpoint, treated as work rather than as waiting — negotiating the lease, testing the construction number, sizing the reserve honestly, building the labor line, closing the revenue gap. The point to land: a strong applicant spends the underwriting period making the plan better, because every one of those items is something a lender will eventually ask about, and because the plan has to be true whether or not it is funded.