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Few people can afford to operate a restaurant with their own money, but new eateries are constantly popping up. Where does the money come from? Some incredibly brave restaurant owners sell everything they own and utilize their own money to start their businesses. Others look for investors to join their businesses. business loans are a third way to get money, and they might be a great way to launch your business. Read on to learn about restaurant financing choices and what to think about if you want to open a laid-back diner or a posh black-tie eatery.

Finding financing for your new restaurant might be a roadblock to success, regardless of your motivations. Look at a few ways to get funding to open a new restaurant to help you with your financing alternatives.

1. Investors

Finding investors to offer you the money to launch your firm is your first choice for funding. This is the time when wealthy individuals invest in your restaurant. For your new restaurant, this kind of investment may be beneficial, but you need make sure you can afford to pay it back.

Before you hire outside investors, be careful to draft a business plan that details how you’ll repay them and when you’ll do it. The majority of the time, you want to ensure that you retain control of your business, which is why the timeframe is so important. Choose a time when you anticipate being able to part ways with your investors.

2. Loans from Friends and Family

Friends and family loans can be beneficial if they fully support your restaurant concept and are committed to your success. These people are more inclined to trust you and your business strategy because they know you, care about you, and have invested in you.

You don’t want to damage connections, so take caution. Ensure that the conditions are outlined in writing and accepted by all parties.

3. SBA Loans

The US Small Business Association (SBA) offers loans to new small businesses such as your restaurant. Finding a restaurant loan can be easier when you work your loan through the SBA as they guarantee small business loans against default.

This means your bank is more likely to take on the risk of your restaurant. Lenders such as banks, credit unions and others participate in SBA loans. You’ll find a plethora of competitive loan programs through the SBA. It is worth noting, though, that you’ll be expected to add a substantial amount of your own cash upfront to secure the loan.

The key is to shop around for the best deal.

4. Bank Loans

Most restaurant owners get financing through a loan from their local bank. This can be a frustrating way to go because typically banks are leery of restaurants due to their high failure rate. It helps if you have assets to offset your loan, so discuss your options with your banker.

In addition, an SBA loan can help here.

5. Credit Union Loans

Credit unions are yet another option for financing to start a new restaurant. They are unique in their financing as they often charge you interest on the balance of your loan. So, if you pay it off earlier, then you don’t pay as much in interest.

If your business plan is complete and your market research solid, this can be a good way to go if you expect to be successful from the first days.

6. CrowdFunding

Another, more modern way to secure financing is through crowdfunding with platforms such as Kickstarter and Indiegogo. Crowdfunding allows you to approach the general public and ask for various amounts of money. While each contribution may be small, the goal is that they add up to a large number.

The bonus for contributors is the perks you offer. Many restaurants and food trucks offer food for the perks. Others get even more creative by offering parties and events or catering. inKind is another financing source that works similarly to crowdfunding, but the perks are a little different.

7. Your Credit Cards

Credit cards are sometimes used for restaurant financing. If you decide to use this option, be sure that you can pay the money back in the time allotted and that you are amenable to the interest rate.

Read Also: What Are The Qualifications to Get a Small Business Loan?

Be careful when going this route and know just how much your dollar is worth once the interest rates start adding up.

8. Savings

The best way to start a restaurant is without going into debt, right? Many financial planners would agree that using your savings to finance your restaurant is a good idea. Yet, it has its pitfalls.

To avoid problems, treat your savings as a regular financial transaction and pay yourself back with interest. You also don’t want to dip all the way into your savings as you might need some set aside for emergencies.

9. Home Equity Loan

Another option for financing your restaurant is through a home equity loan and using your home as collateral for your restaurant. Again, use this type of financing with great caution. It wouldn’t be a good scenario to lose your restaurant and your house at the same time.

10. Peer-to-Peer Lending

Another option, peer-to-peer lending, is similar to crowdfunding except you will pay an interest rate to your lenders. This type of lending allows you to get startup money from random strangers online, but you will have to pay a premium in interest.

First and foremost, make sure you have a thorough business strategy in place before applying for any startup loan. You will probably also require the following paperwork:

  • Loan application– Consider including a table of contents so your banker can easily access all of your documents
  • Personal background and financial statement – This includes a Statement of Personal History and a Personal Financial Statement
  • Profit and Loss Statement– Must be current within 90 days of your application and include supplementary schedules from the last three fiscal years
  • Projected Financial Statements – A detailed, one-year projection of income and finances, along with a written explanation of how you plan to achieve that projection
  • Ownership and affiliation documents – A list of names and addresses of any companies you own, partially own, or hold a controlling interest in, including any affiliations you may have with stock ownership, franchises, or business mergers
  • Business certificate/license – Must be your original certificate or license for doing business
  • Loan application history – Record of any past loans you have applied for
  • Income tax returns – Be sure to include signed personal and business federal income tax returns for the previous 3 years
  • Resume – Include a personal resume for each business partner involved
  • Business overview – Brief outline of your restaurant and why you need a loan

Depending on the amount of funding you need, the type of restaurant you wish to open, and your current funding ability, you can decide which loan is fit for your business. With diligent preparation and a promising restaurant concept, you can secure funding for your eatery.

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