As banks maintain a tight grip on credit, New Jersey restaurant owners have increasingly turned to Small Business Administration-backed financing to fund growth plans, according to the state district office's analysis of loan approvals for the first 10 months of fiscal 2012.
"Restaurants are always in the top three or four slot of the top industries receiving SBA loans, and while that's a national trend, it's been somewhat higher in New Jersey, because people here really like local restaurants, so people open food-related businesses here quite a bit," said Alfred Titone, director of the SBA's New Jersey office. "Banks aren't willing to lend to restaurants like they used to — especially to someone like a cook, who may not have owned a business before … having SBA mitigate the loans takes quite a bit of the risk out for the lender."
From Oct. 1 to July 31, the New Jersey office approved 935 loans for a combined value of $470 million, with 106 of those loans, worth $74 million, awarded to restaurant and deli owners, the report said. However, while the agency approved 170 loans for the same period in fiscal 2011, they were worth just $105 million, according to an earlier report.
Still, George Ebinger, owner of three IHOP restaurants in New Jersey and a National Restaurant Association board member, said demand for SBA-backed loans among restaurant owners has not waned, as piling upfront startup costs and the growing rate of failure in the industry continue to deter traditional lenders from providing financing to new eateries.
"With opening a restaurant, there's a greater need for a lot of upfront operating capital that other kinds of small businesses don't have, but banks don't want to deal with that risk," Ebinger said. "SBA loans have been a very good alternative for all kinds of restaurant owners who couldn't get a loan and get into the business otherwise."
Ebginer said the SBA is more willing to provide loans to minority- and women-owned restaurants than traditional lenders, and according to a spokesman for the New Jersey district office, minority-owned venues received more than a quarter of the loans approved for full-service restaurants in the first 10 months of fiscal-year 2012.
Other industries in New Jersey that received significant SBA-backed financing between October and July include beer, wine and liquor stores, with $11.7 million in loans; child day care services, with $11.7 million in loans; fitness and sports centers, with $7.5 million in loans; and small supermarkets and grocery stores, with $12 million in loans. Titone said loan activity for grocery stores spiked from the previous fiscal year, which he said shows "an industry that is on the rise and growing."