5 Things You Need to Get Restaurant Business Funding

The post-COVID era is proving itself a pause that allows those who felt isolated in recent months to be ready and eager once again to dine out at restaurants.

Re-opening and running your restaurant for the future goal of expansion can be a rewarding and exciting experience, but it also involves a lot of hard work and financial investment for restaurant owners.

To have your business ready for expansion, you will need to secure some funding through restaurant business loans. Here is a look at what you will need to do to get started.

Why Restaurant Financing is Important

The restaurant industry can be tough to scale up without some help from investors. Renovating the space you plan to use for seating, and expanding your menu requires capital investments that can run upwards of 10k-20K per month before even opening day.

That doesn’t even factor in another cost such as consulting fees or franchise costs which could quickly amount to another few thousand dollars each month.

A loan from the bank or credit union can help you meet your financial objectives. But, you have to have an established credit history before the bank, or other lending institution will agree to give you a loan.

This is why you must take care of all financial obligations as soon as you begin earning money. Read on to find out what financing options you can secure.

How to Get a Restaurant Business Loan

The process of securing restaurant funding is essential for restaurateurs who want to understand their industry better since it’s nearly impossible to expand without a completed business plan or thorough knowledge of the food industry.

Grants, loans, and investments are some ways to fund your restaurant. But what are some of the most common funding sources you need to consider?

Check out our list of the top five restaurant loans to help you decide better.

1. Small Business Administration Loan

The Small Business Administration (SBA) offers several loan programs to help small businesses get their footing. The most common SBA 7(a) Loan for restaurants is guaranteed by the USA government and can be taken out within weeks with one’s preferred lender.

Remember that SBA7(a) small business loans can only be used for specific expenses. Here are a few examples of what’s covered under this loan:

• Equipment like grills, walk-ins, and ovens.
• Purchasing and taking ownership of an existing restaurant business 
• Real estate to build, rent or buy a space for the restaurant.

Pros of an SBA Loan

The SBA is specifically designed to help small business owners succeed, so it’s easier to get a loan through them. If your application for an SBA loan at one of your preferred lenders gets rejected, that won’t disqualify you from getting a loan from another institution. 

Cons of an SBA Loan

The down payment and interest rate can be barriers to growing businesses with few profits. The lending institution will also demand detailed documentation on your business, including your business plan, as well as a formal application. There’s no guarantee for immediate loan approval.

2. Merchant Cash Advance

The merchant cash advance is a popular way for restaurants to get the funds they need without tapping into their capital. In exchange, creditors offer an attractive percentage of future sales as collateral - this makes them stand out from other lenders who only provide low-interest-rate financing options.

Merchant cash advances are often seen as a straightforward and unrestricted source for restaurant funding – particularly for existing restaurants that use credit cards for their business transactions.

Pros of a Merchant Cash Advance

Merchant cash advances are ideal for restaurants during slow business days. For example, suppose a seasonal summer restaurant requires immediate funding during the winter. In that case, the restaurant will pay back a smaller amount during the slower seasons and a more significant amount in the summer. This flexibility is attractive to any restaurant owner looking to fix essential equipment or renovate quickly.

Cons of a Merchant Cash Advance

Merchant cash advances have set amounts that need to be paid back. You can’t demand a lower interest rate like other loans. They are also reserved for existing businesses, and before approval, bank statements may be required. So, if you haven’t established a restaurant, this option isn’t ideal.

The percentage of the sales agreement is based on credit card sales (since they’re easier to track), so restaurants that mainly use cash can find this option unfavorable.

3.CrowdFunding

You can use sites like Wefunder or Kickstarter to recruit the public to fund your restaurant idea. If you choose Kickstarter, there is a monetary goal that, if met, will charge everyone who backed it with their pledge amount, while rewards change based on size donations made by backers.

Wefunder is equity crowdfunding, so your investors are financially rewarded through revenue, profit share, or a simple loan agreement.

Pros of Crowdfunding:

• Flexible agreements
• Minimum and maximum goals can be set
• Creates brand ambassadors and increases followers

Cons of Crowdfunding:

• All or nothing model won’t result in money if goals aren’t met
• It takes time to spread the word out
• Can result in financial failure if the goal is too high

4. Restaurant Investors

Cash investments can also be provided by venture capital firms or individual investors (“angel investors”). In exchange for providing you cash, investors typically ask for a percentage of ownership in your business based on their valuation of your restaurant’s worth.

Restaurant investors are known for helping such businesses succeed. They have the experience and incentive to make sure that their investment grows with time since each dollar gained by increased revenue increases both parts in value.

Remember that seeking help from an investor should be done carefully. In the early days of a new business, it’s not uncommon for profit margins to be thin. However, diluting your ownership could result in less control and future success as more changes are made without consultation - something that would harm any potential growth they may have expected.

5. Friends and Family

Hopeful restaurant owners can reach out to their friends and family for help funding the business. While this might be seen as one of the most scrappy roads towards success in entrepreneurship ( enlisting trusted loved ones), it’s still a viable option that has been tested time after again by those who have gone before you.

A family-owned restaurant is invested in the success and future growth of the business. While most small-town establishments have just one location, they can expand past that setting and create additional jobs as well.

Though many family businesses work out, some fail due to internal disputes. The balance between work and personal time is a delicate one. If you’re not careful, mixing business with pleasure can create problems for your plans–whether they be professional or personal ones.

Get Your Restaurant Funded Faster

When you’re looking for an investor to fund your expansion goals, it pays off big time if you can answer questions confidently and provide a strong business plan.

The more prepared you are before approaching investors, the better chance you get their attention. If this sounds like something that interests you, reach out to us here at Select Funding. Our team of lending experts will help guide you through every step of the financing process. We want nothing but success stories on our end too!