In some ways, opening a new bar or restaurant is risky. It’s a notoriously difficult industry, with razor thin margins. But, it’s also consistent. People will always be hungry and on the lookout for something new.
The one thing that stands between restaurateurs and their vision, is financing. Here are seven easy ways to secure financing, to help you bring your bar or restaurant vision to life.
While there are other methods of financing your new bar or restaurant, these steps are the most commonly used by both new and experienced restaurateurs. As with any financial decision, do your research, find the best option for your business, and exercise due diligence.
SBA Loans
The United States Small Business Administration was specifically created to provide support to small businesses, and that includes budding restaurant owners. Their long payment terms, low interest rates and fast approval times makes SBA Loans popular among small business owners.
It is important to know that with SBA loans, the SBA won’t lend you the money directly. Instead, they will help you find a lender to provide your needs. The SBA guarantees a part of the loan and sets a cap on loan fees and interest rates.
Small Business Loans for Restaurants
Some small business loan firms offer tailor-fit structures for those looking to finance their new restaurant or bars. These are available for new operators, and existing ones looking to expand or get emergency capital for difficult periods.
This kind of loan is perfect if you need a small injection of capital for your venue for things like renovations or equipment purchasing. If you’re able to meet their requirements, usually a strong business plan for the duration of the loan, a transparent credit history, and financial records. Small business loans for restaurants are usually approved quickly.
Crowdfunding
In the age of social media, you can never underestimate the power of strangers banding together for a unified cause. That cause could be your new bar or restaurant. For foodies, EquityEats is a growing crowdfunding platform specifically for restaurants. It allows you to trade investments for goodies, like a $1,000 pledge in exchange for $1,500 worth of food and beverages over the following years.
While setting up a crowdfunding page for your restaurant is as easy as opening a social media page, Kickstarter – the crowdfunding industry leader – reports that only about 25 percent of food campaigns hit their funding goals on the platform.
Investors
For most emerging entrepreneurs, securing investors seems like a far-fetched idea, something reserved for highflyers with the right connections in all the right places. But in truth, finding investors doesn’t have to be hard. If you have a solid business plan, you can find investors right in your own city. Some venture capitalists and angel investors take interest in a particular segment of the market, and some focus specifically on their local areas. You can find them on social media sites such as LinkedIn or through online platforms such as Angel Capital Association and Angel Investment Network.
Friends and Family Loan
Throughout history, there have been countless restaurants built with the good old friends and family option. From a loan standpoint, it’s fast, easy, and approval rates are generously high. There’s also no requirement for credit checks or review of business proposals from people you’ve known almost all your life This type of loan is based on trust, and driven by a sincere belief in your success. The investments are more a show of support than an entrepreneurial move.
However, these loans can be risky on a personal level It is important to clearly lay out terms and conditions when securing funds from people close to you. No one wants an awkward weekend or a holiday family reunion.
Business Line of Credit
For approved entrepreneurs, a business line of credit (LOC) is essentially your restaurant’s credit card. A bank or a lender gives your small business access to a predetermined amount of capital you can tap anytime you need and pay back later. It’s a revolving fund. Once you return what you borrow, you can start borrowing again. This is a great financing option for your new restaurant as you can use it for inventory, supplies, payroll, or any other operating expenses you need.
There are two types of business LOCs to familiarize yourself with. Secured LOC requires an identified asset as a collateral. If you fail to meet your obligations, the lender will assume ownership of the asset and liquidate it to pay off the balance. With Unsecured LOC, there’s no asset required, although it often involves a personal guarantee. Since it offers a line of credit with no collateral, this is generally only available to people with a solid credit history and a strong business track record, with higher interest rates thrown in.
Savings
In a perfect world, you’d be able to fund your enterprise yourself, running your business without any debt. But tapping your own savings to finance your new restaurant comes with advantages and disadvantages. As a financing option, you already know the capital you have, and you can create your business plans around it. It also doesn’t require anyone’s approval. However, unless planned well, it risks draining your savings and leaving a gap for your other needs like mortgage and emergencies.
Financing experts recommend treating your savings as a financial transaction, as you would with a loan. Document all of your expenses and set a plan to repay yourself, either through salary or profit.
Rumzz Bajwa is a digital strategist and content marketer at SMB Compass. She enjoys spending time with her family and new experiences, whenever they come to light. Bajwa loves investigating new subjects that expand her point of view, and you can usually find her reading a good book or exploring.
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