For those wishing to understand how to open a restaurant, they should know that there is no greater challenge to them than finding the financing necessary to set-up and operate their businesses. With the average cost to start a restaurant now being over $275,000 you need to have an understanding of how to align the right financing with your business.
Locating financing is not only difficult, but meeting the terms needed to then get the capital is also a large challenge for many new restaurateurs. Anyone needing financing needs to understand the types of financing to look for and where to look. Here are some ideas for you that can assist with you locating financing for your restaurant venture.
Different Types of Financing for the Restaurant Industry
The restaurant industry has many different types of financing options that may fit the type of funding you need. Here are different options for you to consider depending on for what reasons you need financing.
Small Business Administration Loans (SBA)
The U.S. Small Business Administration (SBA) was created in 1953 by the federal government to aid, counsel, assist and protect the interests of small businesses. The organization works with small businesses to provide loans and loan guarantees. They can provide funding for small restaurants up to $5 million dollars. They provide low interest loans and borrowers are given generous loan repayment terms of up to 10 years. The loans can be used to pay for virtually everything in your restaurant if they are approved. The downside of SBA loans is that they often require 10% of the loan as a down payment. And because of the detailed process they require they can often take months for you to receive the money even after you are approved.
Restaurant Equipment Loans
Restaurants used specialized equipment that is required to store, prepare, cook and serve the food professionally. This includes restaurant software and hardware technology systems like POS and inventory management software. This equipment is much more expensive than the home versions and will account for a major part of your funding budget for your restaurant. There are financing companies that work with restaurant owners to get the equipment they need. In some cases this financing covers almost all of the equipment’s value so you do not normally have to put up personal assets as collateral because the equipment can cover the loan. You may have to however put down a down payment that can vary in its amount.
Restaurant Inventory Financing
If you need a loan for inventory purchases, this might be the right loan for your business. It is a short term type of loan that purchases inventory for your restaurant and is repaid when that inventory is sold. The inventory serves as the loan’s collateral and it can be treated as a loan or a line of credit. The downsides are that the loans have high interest rates as most short term loans do and you may have to put your restaurant up as collateral to secure one.
Standard Loans
You can go to a bank or finance company and ask for a business loan for your business. These loans are difficult to get, will typically have strict terms including payback time and will be limited likely to $250,000. If you have a good relationship with a bank and you are sure you can pay back the loan in a short term, this might be a good type of loan for you.
Lines of Credit
Lines of Credit are loans that you can access on demand. They revolve and as you pay them back the loan amount becomes available to you. You will also need a good relationship with a bank and they will likely require good collateral to provide this type of line of credit.
