If you’ve ever had the idea to start your restaurant, you already know that opening a restaurant is no easy task. You’re not only investing your time and money into the business but working out a business plan and convincing investors to join your game. There are many potential ways to finance your restaurant, so let’s explore 5 of them.
1. Equipment Financing
Financing restaurant equipment allows you to buy the food equipment your business needs now and pay for it over time. Lenders offer this kind of financing for everything from cooking equipment to ice cream machines and soft serve machines, but not all lenders are created equal.
Before you opt for an equipment financing plan, keep these things in mind:
- Be wary of interest rates. The interest rate on an equipment loan can vary widely depending on the lender and other factors such as your credit score. Take some time to do your research to avoid paying excessive amounts of interest.
- Keep an eye out for fees and other charges. Some lenders charge application fees or prepayment penalties, so make sure you read the fine print carefully before signing any contract.
- Make sure you can handle your monthly payments comfortably before committing to a loan term.
2. Small Business Loans
If you’re ready to open your restaurant, likely, you’ve already done a lot of research into the costs, such as leasing a facility, purchasing all of the equipment, and paying for the build-out.
But even with all this planning, restaurant owners often realize that there are unexpected startup costs that they need to be prepared for.
A small business loan can help you cover these costs and get your business off the ground.
A small business loan is a type of financing provided by lenders to entrepreneurs and small businesses owners who may not qualify for traditional bank loans.
3. Crowdfunding
Crowdfunding is a way to raise funds for a project or business by asking individuals or groups of people to contribute via an online campaign. There are many different crowdfunding platforms, and each has its niche for raising money with specific goals in mind.
Rewards-based crowdfunding is the most popular platform for startups, including restaurants and bars. With this type of campaign, entrepreneurs offer backers rewards and incentives in exchange for their contribution to the business venture.
4. Business Lines of Credit
A business line of credit is a flexible and convenient source of short-term funding for new restaurant owners. This financial product allows you to withdraw money up to your approved credit limit, similar to how a credit card works.
A business line of credit can help bridge the gap between when an expense is incurred and when you receive payment from customers or other sources of income. You can also use it to address unexpected expenses, such as sudden repairs that need to be made. Like other forms of financing, business lines of credit have eligibility requirements, and there are different types to choose from.
5. Apply for an Online Loan
Online loans are becoming increasingly popular. Here are three reasons to consider an online loan.
Low rates make it affordable to start your restaurant.
In addition to getting you the funds you need, online loans offer lower interest rates than most traditional loans. That makes them more affordable.
A longer term may make it easier to manage your monthly payments. For example, an online loan from LendingClub can have rates as low as 5.99% and terms as long as five years. A short-term loan for the same amount can have annual percentage rates (APRs) that top out at 36%.
Restaurant loans don’t require collateral.
It’s not hard to find a loan that you don’t have to back up with collateral. This can be helpful if you don’t have any property or other assets you want to put up against the loan if you fail to repay it.
Online lenders often make applying for a small business loan more manageable.
You still need to meet specific requirements, but many lenders let you fill out an application in minutes and check your rate with a soft credit inquiry — one that won’t affect your credit score.
Conclusion
One factor that can make it difficult to open your restaurant is the money, especially if you don’t have a lot of it. Since banks are very cautious about loaning out money to restaurants, you will likely have to find a way of financing your restaurant yourself. The five options covered in this article vary significantly in where they get their money and how much they give.