In 2008, Dan Bavaro, his wife and five kids moved from New Jersey to Tampa to open his Bavaro’s, the first traditional Neapolitan Pizzeria in Florida. It was a serious risk, especially in a year when lenders were suddenly – and exceptionally –skittish.
“I had no restaurant experience, which the banks did not like,” says Bavaro. “They turned down our financing request. I called just about every bank that would listen.”
However, he eventually was able to score a small enough loan to begin the process, but the funds soon ran low, and then out. So, he turned to alternative sources for capital: friends, family and, yes, credit cards.
The combination was enough to open the doors. Bavaro’s was such a hit that two years later, he began bottling and selling his special pasta sauce, which is now carried in more than 400 retail markets throughout the country. He has multiple restaurants in Florida and is currently opening a fifth location.
Credit cards, says Bavaro, helped him create a pizza empire.
Did you make any uncomfortable charging decisions early on?
We used credit cards to purchase some of the equipment for our restaurant and were hoping to pay that down rather quickly. Interest rates on credit cards are super high and it isn’t wise to use them for long-term lending. Outstanding credit debt that you have for a long time affects your credit score and can result in a negative experience with another lender.
But we were in the midst of opening a restaurant in the recession and sales were not as high as we anticipated, therefore, we carried the debt on the credit cards longer than we wanted. Luckily, we were able to refinance the amount we owed with my mother, who co-signed a loan at around the second year of business at a much better interest rate.
What are your current cards of choice and why?
We currently use the The Business Platinum Card® from American Express, and use it for a good portion of our business purchases so we can earn rewards. Our Amazon Prime account is linked to it and managers at each location have access to order with the card. In addition to the rewards, it’s a charge card, so we are forced to pay in full each month. That prevents us from borrowing more than we can repay. Also, American Express is especially good with supporting customers and protecting them against false charges. That has been beneficial for us on a few occasions, like when vendors double-billed our account and refused to credit back the amounts. American Express was in the middle of the discrepancy and assured we were refunded.
We also use a Bank of America® Premium Rewards® credit card. It’s attached to our business account and works as a line of credit. With this card, it’s extremely easy to make payments by transferring from one account to the other, and we do everything online.
Credit cards not only offer rewards; they are important for cash flow. With them we were able to buy all the raw materials we need in bulk.
Because we’re operating multiple restaurants, it’s important for our managers to have access to both cash (to tip out our wait staff) and to the credit cards. With the cards, we can limit their credit access to $500 per day. Managers are responsible for maintaining and submitting expense reports for their charges and withdrawals on a weekly basis. Accounting reviews and confirms all their transactions. We have been handling the cards this way for five years and have yet to have a problem.
Any lessons about borrowing money you’d like to share?
Shop around for the right bank. Find one you are comfortable with, understands and supports your vision. You should see yourself growing with them. Different banks tend to focus on specific types of lending, so find one that understands your business. Plus, all businesses fall on hard times, and your relationship with your lenders might save you one day.
Avoid carrying large credit card debt because it’s not a healthy look when applying for conventional loans. Never look to raise or borrow money when you need it because it always costs more and is harder to get when in a pinch.
My advice to someone starting out, or even just having the thought of going into business, is make sure to always monitor and protect your credit. Credit is your most valuable asset, so don’t take it lightly. A few wrong decisions in your young adult life can affect your success later. I spend a few days each quarter publicly speaking to colleagues, mostly about entrepreneurship. I stress how important credit is to them now and the effect it could have on their future.
As for us, in 2019 it will be a priority to revisit how we are making our purchases and which cards we use. We intend to compare our practices against multiple cards to reevaluate which work best for our business. I don’t want more than two credit cards for operations, because it’s cleaner for accounting.