There are numerous paths to financing growth in the restaurant world, but these are particularly interesting times.
This article appears in its original context on the FSR Magazine website
By Daniel P. Smith
When it comes to financing the growth of Turning Point, Kirk Ruoff hasn’t been bashful. Since first opening his upscale breakfast and lunch concept in 1998—a modest 1,100-square-foot, 12-seat eatery in Little Silver, New Jersey—Ruoff has repeatedly bet on Turning Point’s ability to overcome the restaurant industry’s historically long odds.
Early on, Ruoff used loans guaranteed by the U.S. Small Business Administration (SBA), partnerships with contractors, existing cash flow, and even mortgage liens on his home to open new Turning Point stores.
“You do what you’ve got to do,” Ruoff says.
In 2019, with 15 Turning Point restaurants in operation, Ruoff embraced private equity, inking a minority ownership deal with NewSpring Capital to kickstart additional restaurant openings. Now, Ruoff, a former Chili’s manager who has shepherded Turning Point’s evolution into a three-state, 21-unit concept, is entering the franchising game, where growth can come fast and furious with other people’s money.
“With franchising, we can go faster and work with people familiar with their own markets,” Ruoff says.
Evaluating today’s market
There are, as Ruoff can attest, numerous paths to financing growth in the restaurant world, but these are particularly interesting times. Not only are many full-service restaurants climbing out of pandemic-era holes, but inflation, ongoing labor issues, and supply chain challenges have further intensified the inherent risk in operating full-service restaurants, a reality testing owners’ abilities to wrangle expansion dollars.
Unlike their counterparts on the quick-service and fast-casual side, where units are more easily scaled, full-service restaurants’ innate complexity—more labor and bigger spaces, more overhead and bigger menus—has long complicated accessing capital. It is an even trickier proposition in today’s still-recovering, fast-evolving marketplace.
“There’s not a lot of outside money coming into full-service restaurants these days,” says industry veteran John Hamburger, founder of the Restaurant Finance & Development Conference. “That’s just reality.”
Banks, the cheapest source of capital and the frequent starting point for many fledgling restaurants, stand wary of a risky business that became even riskier amid the pandemic. Though full-service restaurant visits increased 18 percent in 2021 over 2020, traffic nevertheless sat 16 percent below 2019 levels, according to data from The NPD Group.
“Banks aren’t stepping up. They saw what happened during the pandemic and they’re cautious,” Hamburger says, calling government-backed SBA loans the only realistic possibility full-service restaurants have with banks. “But even then, you better have a good story and cash flow.”
Banks, Hamburger reminds, resist lending to customers they cannot be “very confident” will pay them back.
“And that’s why owners have to go beyond banks,” Hamburger says.
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