Are you a restaurant owner and searching for funding options to support your restaurant growth? Or you have a yummiest bourbon chicken recipe that you ramble about, and now you thinking of starting a restaurant business? Just having a yummy recipe isn’t a way to succeed, generally in the current economic conditions with heavy competition in the food industry.
Starting a restaurant business needs detailed research, strategic planning, industry insights, determination and most important of all working capital. Start-up business is expensive and the costs can differ very much from one restaurant business to another – all the way from tens of thousands to millions of dollars.
As a small business owner, you might not have such capital available right up front. But, this shortage of capital doesn’t mean you can’t have a restaurant of your own. Most small business owners take benefit from many borrowing options available when planning to start a restaurant business.
Starting and managing a restaurant business is pricey. You need to have upgraded equipment’s, expert chef, restaurant license, while many other related costs add up quickly. Restaurant loans are needed to get your restaurant business running successfully. Having a sufficient amount of cash in hand is important to deal with unforeseen expenses especially in off-seasons. Maybe you need remodeling, or to hire an expert chef for a big order. And, there are essential advertising and promotional costs as well. Restaurant business loans offers the needed capital a restaurant business needs to stay competitive and keep operating effectively.
There are many restaurant financing options available to potential restaurant businesses. Whether it’s your money, borrowing from loved ones, or a traditional lending, there’s always something for a restaurant business.
Which Financing Option A Business Should Choose?
Starting a restaurant business in current tentative economy is hard, and bank loans are the hardest. There are few things you need to consider to take advantage when dealing with lenders like collateral, a big down payment, perfect credit score and industry experience. Unluckily, only few businesses fulfill the criteria. But, if you have a great business idea with a strategic business plan, and something to back it up qualifying for a restaurant loan will be a piece of cake. The best part of the story is: if one lender turns you down, another is in search of a borrower like you. The key is to find one that suits your needs best. There are numerous financing options and more widely used restaurant loan options are factoring, restaurant loans, merchant cash advance, SBA loans and restaurant equipment leasing.
Factoring, being the oldest business financing form, is a growing financing option among restaurant businesses today. Factoring is a financing type in which a business sells its receivable assets at a discount to a third-party (factor) to raise capital for business. Factoring is usually used by manufacturing industries where long receivables are part of the business cycle.
Restaurants and manufacturing industries are alike, where “stock” available is used for factoring. The inventory stock is used in the asset based financing option to raise cash for business. A business can get a loan using the inventory as collateral varying from 75% to 85% of the value of inventory. This way, you can turn your inventory into the needed restaurant capital. Factoring is basically a short term financing option that carries high rate of interest. If you are in need of quick cash with easy loan option then factoring is the suitable financing option for your restaurant business.
Restaurant loans are specifically designed financing option for restaurant businesses. Usually restaurant loans can be acquired from banks and traditional lending firms. Restaurant loans are general business loans, and can be used for any business financial needs such as remodeling, expansion, advertising, ride out seasonal swing and restocking inventory etc. The interest rate is dependent on the loan amount just like in business loans: smaller loans have shorter repayment terms and vice-versa.
Small Business Administration backed loans are another financing option for restaurants. SBA backed loans have gone to full size restaurants than any other business type over the last few years. With large number of restaurants applying for financing, SBA backed loans have become tricky to be eligible for. If you are lucky enough to get approved, your personal assets will be required as collateral to close the deal. This puts you on risk personally and you have to work hard for the success of your restaurant business. And, the opposite of it will have a severe mischief on your personal finances, and make your future financing much harder to secure later.
Merchant Cash Advance
Merchant cash advance is another extremely popular source of restaurant financing. Acquiring quick capital through banks or traditional lending institutions is hard. Unlike a traditional loan, a restaurant cash advance offers cash to businesses without the headache of collateral, personal guarantees and fixed monthly installments. Merchant cash advance relieves the business from complex documentation, long wait and high interest rate by getting quick approval with a simple loan application process. With cash advance financing, you can easily get through the tough times and slow seasonal beginnings. With merchant cash advance, you secure money against your business’ future credit card sales. The same cash advance can be used for almost any purpose like space redesigning, paying payroll, expansion and much more.
Restaurant Equipment Leasing
You might need the right equipment to make your restaurant business succeed instead of going for restaurant loans. Restaurant equipment’s are costly and required a large amount of cash. Equipment’s such as commercial bakery ovens, work tables and stations, commercial sinks, dish washing tools can be leased with restaurant equipment leasing option. Equipment leasing requires personal guarantees to get approved and a fixed monthly payment for the equipment use until you repay at the end of the lease. Though, restaurant equipment leasing is a feasible financing option, but qualification criteria and personal guarantee add risk to this financing option.
Whether it’s a pizza cafe, cake bakery, or a bar, there are restaurant loan options available for every kind of restaurant business. Starting a new restaurant business necessitates much more than a good food recipe, and there are lenders available to make this dream of yours’ a reality!