Restaurant financing options are a dime a dozen these days, especially with all the self-proclaimed pundits in the restaurant order management industry preaching about what to do and what not to do.
However, here, at Blink, we like to educate people about the intricacies of different aspects of founding a restaurant and look forward to seeing it as a thriving empire. For that reason, we believe that transparency is essential.
Whether you are looking to open a new restaurant or in the middle of expanding one, you need capital to make it happen. Unfortunately, when it comes to laying down the stepping stone for your new restaurant, many things can go wrong. Despite having a solid restaurant business plan in hand, if you don’t have prior experience or someone to nudge you into the right decision-making, you may not succeed as expected.
Cutting to the brass tacks, we’d like to discuss the best ways to seek restaurant financing options in 2022.
Let’s get started:
Restaurant Financing 101: What Is It?
Restaurant financing is all about getting the money to create your own food business.
For that reason, you need to get in touch with potential lenders, finance insurance companies, financial institutions, and maybe even a silent business partner. All these options are viable under the right circumstances.
For all we know, you could possibly get a loan on your restaurant from a family member. However, we do not recommend doing so. For starters, family members often overlook the overwhelming importance of getting a professional corporate lawyer to create a contract.
At best, family members, turned business partners, shake on a contract they create independently. Sooner or later, things can go out of hand when one business partner decides to look sideways.
In many cases, if you have loaned money or borrowed money from a family member in good standing, it will be returned once the restaurant is up and running; the plan may not come to fruition. Many what-ifs are involved in this equation, especially when the restaurant hasn’t started making a profit.
Nonetheless, it’s not as hopeless as it may seem. We have plenty of secure restaurant financing options waiting to be explored.
5 Best Restaurant Financing Options Worth Considering For Potential Business Owners
- Your Typical Bank Loan
Bank loans can be pretty helpful for restaurant financing options these days.
That being said, there are pros and cons of seeking a bank loan to build a restaurant. Of course, the loan amount and the interest rate vary from bank to bank. Then again, there’s a financial security that you need to provide to the bank to get things rolling in motion. Using a personal loan calculator can help restaurant owners precisely estimate their monthly loan payments and total interest costs, aiding in effective financial planning and budgeting for their new venture.
Here’s what’s super important:
- The actual loan application process is quite lengthy.
With the background checks that the bank has to run, the process takes 1 to 2 months to materialize. If you have that much time on your hands, then don’t worry. Spend that time elsewhere on planning your expenses and how much budget you can allocate to restaurant marketing resources.
- The bank loan requires you to put up collateral.
All banks require some sort of guarantee when you are looking to cash out a big chunk of money in loan form. That’s their policy because these organizations have to keep their end safe. If you are a small-scale restaurant owner, you may want to put up your personal assets as collateral.
In many rare cases, the banks may not be that hard on getting collateral. However, if that’s the scenario you are going for, the bank will have a higher interest rate than usual. However, the good news is that if you have collateral in any form or shape, it will speed up your bank loan approval process.
- Beware of the interest rate.
Ask away as many questions as you want before signing any contract with the bank. Potential business owners don’t worry about paying the loan back on interest when it comes to restaurant financing options.
That’s because these business owners do not envision the worst-case scenario. What if you cannot turn over a hefty profit, or the restaurant is going in marginal loss.
On top of that, we have a compound interest rate and bank amortization policies to consider. Compound interest rate increases your base interest rate over time. Either it’s due to bank policy, or you could not make a few payments on time.
Before shaking hands on a bank loan, the interest rate needs to be considered.
- Long-term payback tenure.
Some banks have an awfully long-term payback tenure. This policy is because the bank wants to make as much money as possible off of that interest rate that you have agreed to pay.
A 2 – 3 years payback period is acceptable, but if they are asking for a 10-year payment plan – and that too, on a compound interest basis, you might as well look elsewhere for better restaurant financing options.
- Alternative Loans
Alternative loans are another form of a restaurant financing option these days.
These loans are available from banks and nonbanking bodies. Alternative loans have a flexible payment tenure, possibly because the payment can be made based on daily sales or your restaurant’s quarterly profit.
Many nonbanking lenders out there provide alternative loans to approved business owners. To get that loan, you need to have a couple of businesses or assets in running condition as a form of security.
Your credit score might come in handy too. For instance, if you have already been running a small restaurant for a few years with a stellar credit score on the side, alternative loan lenders will be more than happy to assist you with the loan process and speed it up a few notches. If your credit score needs improvement, utilizing credit repair business software can be an effective strategy. This software helps in identifying and resolving credit report inaccuracies, thereby potentially boosting your credit score and enhancing your eligibility for alternative loans.
- SBA (*Small Business Administration) Loans
If you are a potential restaurant business owner in the US, you have good news.
The Small Business Administration can help you get a loan on your restaurant at very nominal rates. The application process is simple; you just need to head over to their website to get started.
You need to know about SBA because the organization itself doesn’t directly give you a loan. It’s more of an open platform for potential lenders and business owners from all walks of the industry. The good thing is that all lenders, just like borrowers, are vetted. As such, the loan process can take typically around 1 to 3 months, but it is well worth the wait.
According to SBA’s own policies, the eligibility for seeking a loan on your small business depends on a few things.
As cited from the website, “The eligibility is based on what a business does to receive its income. The character of the ownership and where the business resides is vital. Businesses must meet a size standard, repay, and have a sound business purpose. Even those with a bad credit score may qualify for startup funding.”
- Business Line of Credit
Just think of this restaurant financing option like a credit card for your restaurant.
An approved restaurant owner is extended an open line of credit from a bank or an alternative lender. Of course, there is a spending limit on the business line of credit loans, just like your usual credit card.
Interest rates may build up over time, and you need to be on your toes to make payments. The spending limit depends on the magnitude of your restaurant and how much security you are offering in the form of collateral. The same logic applies to installment or low-interest payment plans.
- Crowdfunding
When it comes to restaurant business finance options, crowdfunding is the best option on the table.
It has its risks, but you can secure the money just as quickly. For instance, Kickstarter is a popular crowdfunding platform where many businesses and products have been made possible. It starts with an idea, remarkable copywriting skills, and the ballpark amount you need to create your own restaurant.
Other alternatives to Kickstarter are IndieGoGo, Patreon *( one of the new platforms on the internet), and NextSeed. Whichever crowdfunding platform you choose as the root for your restaurant financing options, make sure you have a detailed page listing everything about your dream restaurant.
Kickstarter finance thrives on backers. They are the people who back up the funding process by paying money to potential business owners in exchange for incentives. Digital business owners offer digital rewards. In your case, since you’d be running a restaurant, think of the rewards at multiple tier levels, how long the entire plan will take, and the amount of money you need to open the restaurant.
All in all, Kickstarter is a very well-funded community, populated by hundreds and thousands of people who love to support potential small business owners, just like you. The best advice we can give you for your restaurant’s Kickstarter campaign is to be as transparent as possible with the audience.
Give your backers and potential backers regular updates on your progress. Always reply to people if they ask a question, and don’t hesitate to talk about any roadblocks that may extend your restaurant’s overall timeline.
Now that we have talked about different restaurant financing options, have you already tried any of them. If so, how was the overall experience? We’d love to hear about things from your side. So, go ahead and post your thoughts in the comments section below.
Good luck.
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