The Why and How of Restaurant Industry Financing
As your cutting-edge restaurant idea begins to take corporeal form, the first hard reality will probably be the rapidly growing list of expenses. As many entrepreneurial pros will tell you, one of the best (and often one of the only) ways to fund your restaurant industry venture is to secure financing.
1. Why You Need Financing for Your Restaurant
Restaurants require a lot of furnishings, ingredients and specialized equipment, and they are notorious for having relatively low profit margins. You will need money to buy or lease the property and then renovate it to your standards. You have to stock the coolers and hire staff to cook and serve your food. Keep in mind that you will have to pay wages and salaries before you even start serving guests as you train your employees and make preparations for opening night.
Next come the less obvious expenses, which include marketing and advertising costs, restaurant insurance and business licensing fees. Even your money will cost money to the tune of loan guarantees, interest and balloon payments. Don’t forget to set part of your cash aside for day-to-day working capital before you open, too.
2. What Your Restaurant Industry Loan Options Are
Depending on your company’s size, a great option for you could be a loan backed by the U.S. Small Business Administration. Because SBA loans are guaranteed, institutions can offer competitive interest rates and lower down payments. They usually require collateral, but you won’t need a squeaky clean credit history.
If you have great credit and are still in the early planning stages, a traditional bank loan can offer you the lowest interest rates and the highest potential for large amounts of capital. Banks are picky about who they lend to, but if you qualify, there’s a great chance that you could secure more than enough financing both now and in the future.
Many restauranteurs turn to business lines of credit as an ongoing source of working capital. Like a credit card, you can borrow up to your limit, paying interest only on what you withdraw. As you pay down your balance, the funds become available to borrow again.
3. How To Apply for Restaurant Financing
You can’t start too early on the road to secure financing. You’ll need to prove your assets and credit, and make sure you have a detailed business plan with projected earnings. If you can’t show that you’re likely to start turning a profit within the first three years, you’ll have a hard time convincing anyone to lend you money.
Be diligent with your planning and research, though, and you’ll have a better chance of finding a restaurant industry lender who is willing to back your concept.