The Complete Guide On How to Get Financing For Your New Restaurant
WHAT YOU NEED TO KNOW ABOUT FINANCING A NEW RESTAURANT
Do you want to start a new restaurant, extend your existing idea, or remodel within your existing four walls? You'll need money.
We’re here to explain what is restaurant financing, the many possibilities available, and how do you go about comparing and evaluating them. That's what this guide is all about!
Why Is Restaurant Financing
Important?
When it comes to starting, expanding, supporting, or refurbishing a business in the restaurant industry, the term "restaurant financing" is used. A restaurant can't get off the ground if it doesn't have seed money. Obtaining permits, refurbishing the property, employing and training staff, acquiring merchandise, and publicizing the big opening of the restaurant all necessitate thousands of dollars in upfront expenditure. Several of the most common reasons for relying on external financing are as follows:
- Purchasing new machinery/restaurant equipment.
- Staff Recruitment and Training.
- Giving Your Operational Budget a Boost.
- Making Quick Fixes at Your Location.
- Make Use of Advisory Services.
10 Restaurant Financing Options to Consider
Business financing choices seem to be as numerous as the reasons for applying for it.
While many small business owners assume that their only options for financing are small business loans or funding from a brick-and-mortar bank, this isn't always the case. Among the many financing alternatives available to restaurateurs, these are the ones that are most commonly used:
Brick-and-Mortar Bank Loan
Brick-and-mortar banks, as opposed to online-only banks, are conventional financial institutions having hundreds or even thousands of physical locations all throughout the United States.
Business Line of Credit
A business line of credit is a type of revolving loan that gives you access to a certain amount of money that you can use as needed to cover short-term expenses for your company, and will only be obliged to pay interest on the funds you use.
Small Business Administration (SBA) Loans
Small to large loans with SBA guarantees are available for a variety of business needs, including long-term fixed assets and working capital. The SBA loan ensures smaller loans for businesses, which many business owners are unaware of.
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Merchant Cash Advance
Merchant cash advances work better in case a company is new and doesn't yet qualify for a regular bank loan.
Alternative Loans
Consider these loans from private, alternative lenders like companies, credit unions, banks, or other institutions. They are also called “private” loans for this reason.
Asking Friends or Family Members
When you go to ask for the money, having a family member or friend co-sign a loan is a great backup.
Commercial Real Estate Loans
In contrast to residential loans, commercial real estate loans are mortgages backed by liens on business property. These are mainly used for expanding on your property or location.
Equipment Financing or Equipment Loans
When a company needs new vehicles or equipment but doesn't have the cash on hand, an equipment loan is a frequent financing option. A key fact about equipment financing to never forget is that it's meant only to finance tangible assets, contrary to working capital loans, which you can use for any purchase, but that purchase acts as a form of collateral.
Purchase Order Financing
Purchase order financing, commonly referred to as "PO Finance," offers money to companies that have purchase orders so they may pay their suppliers and manage their cash flow.
Tips For Getting Restaurant Funding Faster
Want to get restaurant funding a bit faster? Here are a few tips to go through the restaurant loan process smoothly.
Have a Complete Restaurant Business Plan
Always have a plan for any major financial decision ahead, especially for your restaurant business. A restaurant business plan is a roadmap for starting and then being profitable in the first few years. Take into consideration how your debt will be paid, and what you’ll do beyond that. Without, few or no banks will lend you money, nor will the SBA.
Rehearse Your Business Pitch
Like at school, practice your presentation before making your pitch to the investors, bank lenders, or simply your former coworkers that might help you. Remember to not ramble, repeat yourself, or just go blank.
Get the capital you need to allow your business to grow, today!
Be Ready To Answer The Most Common Questions
Above all, have concise responses ready for basic questions about your business, your target market, and your payment plan. Lenders and investors love to see entrepreneurs that have researched and planned accordingly.
How to Compare and Evaluate Restaurant
Financing Options
You've planned how you'll spend the money, and reviewed the business financing options given to you, so now you must compare. When comparing their financing choices, small business owners should consider Cost, Term, Speed, and Lender/Partner.
How Quickly Can You Get the Capital You Need?
Consider how long it will take for the money to be accessible before choosing a restaurant financing option. Ask your possible lender if they need any more information, eligibility criteria, and a deadline for a response, but also ask yourself: Can you wait for the cash for a longer-term build-out, or do you need a new range hood today?
Does the Lender Have a Good Reputation?
It’s not always easy to guess who is a suitable lender or not. Ask other restaurant owners about the lender’s reputation or look for lenders that care about their community and especially that have lent to restaurants before.
Evaluate the Payback Total
Lenders employ several pricing structures, with many aspects to consider when deciding about the overall cost of a restaurant business loan, none more important than the payback amount, the APR, upfront fees, compounding interest, etcetera. Don’t get APR and interest rates confused, as APR includes interest, fees, and their timing.
Take this case, for example:
A total of $10,000 for a loan is multiplied by the factor rate of 1.16 to determine the overall payback. In this case, the total payback for the $10,000 borrowed is $11,600 ($10,000 loan + $1,600 fixed fee).
Compare Terms
Remember that there is a wide array of financial choices available to businesses, including restaurants, with another useful classification being that of short-term, intermediate-term, and long-term term loans, which can be very useful to owners looking to plan ahead and meet their financial needs. Before settling on one, thoroughly investigate and contrast the available options for term loans.
Compare the Pros and Cons of Fixed Interest Rates vs. Variable Interest Rates
Suppose your loan has a variable interest rate. In that case, that means the interest rate will vary from payment to payment on your loan and can be difficult to calculate on the outstanding balance —the interest rate shifts in response to an underlying benchmark or index that change over time.
A fixed interest rate is the opposite of that. It never changes throughout the loan. The benefit of this is that it will save you from an increase in interest rates if they occur. On the other hand, they can deprive you of the benefit of lower interest rates, which can save you money.
Ponder what’s best for you and your restaurant, and carry on!
Is Collateral Required to Get the Capital?
It is common for businesses to be required to provide collateral when applying for loans, but this is not the case with all forms of business finance. When you apply for a fresh small business loan for your company, many financial institutions will want you to provide collateral. Small business owners could also be required to offer a personal guarantee or additional collateral, such as personal assets, real estate, or other financial assets. When your company borrows money from other sources, life factoring, or in the case of credit cards, they won't want collateral from you.
We know that the world of restaurant loans is not easy to wander, less when you have a restaurant to run. We hope this guide has given you an idea of how to stay alert and tackle any financial problems you might have regarding your restaurant or food service business. The Quick Capital Funding team is always available to answer all your questions and get you the best restaurant business loans you're looking for!
Quick Capital Funding is willing to guide you in the right direction of getting the loan you deserve.
