Business owners must complete multiple tasks before they can launch their business. These tasks include obtaining a business site, hiring staff, obtaining permits, and securing financing for their company.
Restaurant owners face unique challenges when they're searching for a restaurant loan. Only 40 percent of restaurants are still operating after their first year in business. The high closure rates can make it challenging for aspiring restaurant owners to secure the working capital to launch their small businesses. Unfortunately, lack of cash flow can make it challenging to take your new restaurant to the next level and enable your business to distinguish itself in the restaurant industry. Fortunately, there are several financing options restaurant owners can consider using to finance their new restaurant.
1. Use alternative financing options to cover some of your costs.
Thanks to restaurant equipment finance options from restaurant equipment companies, you may be able to use their financing to secure some of the new equipment you need to launch your restaurant. Many restaurant equipment companies offer financing plans. You can apply for credit from their site. They may check your credit score before approving your credit limit. Once you have an account and credit limit, you can use the funds to purchase each piece of equipment you need, including stoves, ovens, refrigerators, dishwashers, and freezers. Equipment financing is a great option because it ensures you'll have new equipment under warranty and won't have to worry about incurring the cost of equipment repairs soon. You'll make monthly payments on your purchases until you've paid off the cost of the kitchen equipment and applicable interest.
You may also use your credit cards to cover some expenses. The downside to this option is that credit cards have a higher interest rate, so they're okay for short-term loans but will be more expensive than other loan options with lower interest rates. Don't buy too much restaurant equipment on a card.
A business line of credit is another way to access funds. You apply to a reputable lender, such as a bank or credit union, to receive a line of credit. The lender will review your finances and your credit score. Once approved, the funds from your line of credit are available immediately. You're only charged interest when you withdraw money from your line of credit. A line of credit is a very good option for individuals with good credit who want access to emergency funds.
Kickstarter is another funding option for small businesses. People contribute funds in exchange for rewards. Kickstarter's a great option for restaurateurs with bad credit.
2. Small business loans can help you launch your business.
Reputable lenders offer small business loans. Aspiring entrepreneurs can use SBA loans to launch their company. The U.S. Small Business Administration (SBA) helps small business owners apply for small business loans. Loan options include 7(a) loans, 504 loans, and microloans. It's a good idea to research each type of loan to determine how much money you can borrow, the loan terms, and the cons of each type of financing before you start the application process.
Microloans offer a maximum of $50,000 to small business owners, including restaurateurs. Borrowers usually have to provide collateral to secure a microloan. Restaurant owners can apply for 7(a) loans. These loans are available as short-term loans and long-term loans. They can also be used to refinance business debt. 504 loans offer long-term loans at a fixed interest rate, which protects borrowers from interest rate increases during the loan's lifespan. Borrowers may access up to $5 million through 504 loans.
3. With a great business plan, you might secure investor financing.
Whether you're launching a retail business or becoming a restaurateur, you'll need a business plan before you open your doors. A business plan is a blueprint guiding you through all the steps required to launch your new restaurant successfully. Your plan should include industry research, identify your ideal clients, and list marketing strategies you'll use to attract customers. It should also have an operating budget and revenue projections. With an effective business plan, you may be able to secure investor financing. Investors contribute money in exchange for a share of ownership of your restaurant. Working with investors can be an effective way to launch your new restaurant with enough money on hand to ensure you won't have cash flow problems. Investor financing prevents you from spending time applying to lenders, and you can use the funds for any business needs, including equipment purchases, payroll, marketing expenses, and utility bills. One of the disadvantages of investor financing is you won't have complete control over your new restaurant in the long run. Suppose you decide investor financing is the best option. In that case, it's a good idea to ensure you have a legal contract with your investors to protect yourself from financial and legal conflicts down the road.
4. Aspiring restaurant owners can also consider using working capital loans and hard money loans.
Working capital loans offer small business owners a way to cover routine expenses, such as lease payments, new equipment costs, and payroll. Banks and alternative lenders offer working capital loans. Working capital lenders have a straightforward approval process, making this a great way for new business owners to access the working capital they need without applying for a traditional bank loan.
Hard money loans are alternative loan options. You must have collateral to secure this type of alternative loan. Hard money loans have higher interest rates. They can be used to provide the amount of money you need to cover short-term costs, but they aren't a standard business loan and may not be the most affordable financing option for long-term expenses. Your loan amount may be affected by the value of your personal assets used to secure the loan.
Restaurant owners may use investor financing, small business loans, working capital loans, and hard money loans to ensure they have the money they need to launch their restaurant. Equipment financing is another option for covering some expenses.
My name is Sean Kearney and I own and operate The Restaurant Warehouse my cell/text 206-419-5801 or email therestaurantwarehouse@gmail.com. I am more than happy to provide price quotes, spec sheets, and more than happy to provide 24-month, 36-month, and 48-month commercial kitchen finance option estimates.
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