Chapter 5 — Further Reading

Sources are grouped by how confident we are in them, following the book's citation policy: Tier 1 are works, programs, and institutions we are confident exist and can stand behind; Tier 2 are real practices and conventions whose exact source we have not pinned down; Tier 3 is constructed teaching material in this book, labeled where it appears.

A standing warning for this chapter above all others: financing parameters change. Rates, spreads, fees, guaranty percentages, size limits, injection requirements, and collateral policy have all moved repeatedly. Nothing in this chapter is a quote. Verify with a participating lender before you build a number into a plan.

Tier 1 — Verified canonical

The U.S. Small Business Administration and its 7(a) loan guaranty program. The primary source for program architecture, eligibility, and current parameters, published by the agency itself and updated as rules change. Read it for structure — what the guaranty is, what uses are eligible, what a participating lender is — and then get the numbers from a lender. The agency also maintains lender directories, which is the practical starting point for finding institutions that actually make these loans in your market.

The SBA 504 program and the Certified Development Company network. The counterpart program for long-lived fixed assets and owner-occupied real estate. Worth understanding even if you lease, because knowing why 504 does not fit a leasehold restaurant is a good test of whether you understand the collateral argument in §5.3.

The JOBS Act of 2012 and the SEC's Regulation Crowdfunding regime. The federal framework that permits securities to be offered to the general public through registered funding portals, with prescribed disclosure and ongoing reporting. Relevant to §5.7 and to Case Study 2. The SEC also publishes plain-language investor and small-business material on private offerings and exemptions, which is the right first reading before you talk to anyone about equity.

Federal and state securities law generally. Offers and sales of securities are regulated at the federal level and by every state ("blue sky" laws). The structure — registration unless an exemption applies — is stable; the exemptions and their conditions are not something to learn from a textbook. Use a securities attorney.

Roger Fields, Restaurant Success by the Numbers. The best available treatment of restaurant financial reality for people who are not accountants, and useful here for its handling of start-up capital requirements and what a projection has to survive.

Douglas Robert Brown and Elizabeth Godsmark Rowe, The Restaurant Manager's Handbook. Encyclopedic rather than argumentative; use it to look up the mechanics of start-up budgeting, equipment specifying, and vendor arrangements.

The National Restaurant Association publishes industry research and operating benchmarks, and the U.S. Bureau of Labor Statistics publishes free establishment-survival and wage data for the accommodation and food services sector. Both are useful when a lender asks you to defend an assumption with something other than conviction.

Tier 2 — Attributed, specifics unverified

The "five C's" of credit — character, capacity, capital, collateral, conditions — is a long-standing teaching framework in commercial lending rather than a single authored source. Lenders do not literally score files this way, but the categories map closely to what an underwriter actually examines, which is why the framework has survived.

DSCR thresholds of roughly 1.15 to 1.35 as working minimums in small-business credit are lender convention rather than a published standard. Individual credit policies vary substantially by institution, by industry, and by cycle, and the numerator can be computed several defensible ways. Ask any specific lender for their threshold and their method; the second question matters as much as the first.

The "10% of project cost" figure for start-up equity injection is the number most commonly discussed in connection with SBA start-up lending. Treat it as the shape of the requirement, not the requirement. Actual policy is set by SBA's current standard operating procedures and by each lender, and restaurants routinely draw a higher expectation than the general case.

The 50/40/10 description of a 504 structure (bank first mortgage, CDC debenture, borrower injection) is the canonical summary of that program. Real projects vary, and start-ups and special-purpose properties typically carry higher borrower equity.

Lease rate factors, \$1-buyout versus fair-market-value structures, and evergreen renewal clauses in equipment leasing are standard industry practice described consistently across the trade, but terms are set contract by contract. The document governs; nothing else does.

Restaurant construction contingencies of 10–15% and the general observation that build-outs run over are operator convention supported by broad experience rather than by a published study. Chapter 1 states the same rule; Chapters 6 and 7 test it.

Vendor equipment placement — coffee, draft, ice, and POS hardware supplied against a product or processing commitment — is universal industry practice. The pricing of any specific arrangement is negotiated and confidential, so the worked example in §5.6 is constructed to be realistic rather than reported.

Tier 3 — Illustrative / constructed (labeled in text)

Bellwether and its entire capital stack — the \$150,000 injection, \$75,000 TI allowance, \$60,000 equipment lease, \$335,000 SBA note, and \$620,000 project cost — are a constructed teaching example. Every figure is illustrative and internally consistent; the restaurant does not exist.

Figure 5.4, the ten-year amortization schedule, is computed exactly from the constructed terms (\$335,000 at 10.5% over 120 months). The arithmetic is real; the loan is not.

Figure 5.5, the DSCR band chart, presents general orientation ranges, not a lender's policy.

The term-sheet reading in §5.4 is explicitly a constructed teaching document for an unrelated restaurant and is not Bellwether's.

The espresso-machine, draft-system, and investor-comping calculations are constructed with realistic figures chosen to make the arithmetic legible.

The composite operator in Case Study 2 — the \$400,000 project with \$120,000 of owner money — is built from documented industry patterns and is not a specific business.

All worked calculations in the chapter, exercises, and quiz use constructed numbers.

Where to go next

If §5.4's guarantee discussion unsettled you — and it should — read Chapter 39 out of order, in particular §39.9 on what a personal guarantee means after a closure. It is the honest companion to this chapter.

If the timing problems in §5.3 and §5.5 caught your attention, Chapter 33 builds the thirteen-week cash forecast that makes them visible before they happen.

Chapter 6 is the immediate sequel: the lease that carries the \$75,000 allowance, the three months of free rent, and the second personal guarantee.

If you are actually planning a restaurant, the sources-and-uses statement and the coverage arithmetic belong in Appendix C now, before anything else in this chapter fades.