Unless you have been blessed with an inheritance or have enough saved up, you will need to get a business loan to open your cafe, takeout, fine dining restaurant, etc. Restaurant financing can get complicated if you do not have funds to take care of emergencies, pay staff, buy inventory etc.
Why You Need Restaurant Financing?
In order to ensure your restaurant is a success, you need to invest in key areas regularly. Besides covering seasonal dips in customers, a business loan can help you with the following:
Brand promotion – Most young diners choose a restaurant based on how it looks on Instagram rather than how the food tastes. With the right amount of funds you can pay a social media manager to keep your restaurant’s timeline or Instagram feed fresh with regular posts.
Renting and purchasing property – Whether you need to extend your lease or add a bar to your restaurant, a business loan can make it happen sooner rather than later.
Back and front of house funding – Restaurant financing can help you purchase new kitchen equipment, facilities, furniture, mood lighting and crockery which you may not have the money for at the moment.
Staff – Your restaurant is only as good as the serving staff. A business loan can give you much needed funds to hire experienced servers, train new ones and keep staff motivated.
How to Get a Business Loan to Open a Restaurant
Knowing how to get business a loan to open a restaurant is essential if you have never owned one before and don’t have enough money to fund it. Chances are the first thing you will do is head to the bank. The first thing they will ask for is your business plan, forecast for profit and loss and the cash flow analysis. This is understandable because they cannot risk you being a liability and defaulting on payments.
Additionally, a representative from the bank will meet you in person to determine whether you are eligible for the loan or not. While anyone who has a reliable business plan to repay the loan they get, in reality banks usually lend to people who have a strong track record of success. Individuals who can provide collateral as security for the loan are also preferred. In other words, the amount of money you can borrow from the bank will depend on your ability to repay it when the time comes.
The good news is that you have several options when it comes to loan providers. Each offers specific products that may meet your needs. Some of the common loans you can go for for restaurant financing include the following:
Secured loans – These loans are secured on assets you own such as a vehicle, property, stock etc. If you get a secured loan and are unable to make payments, the lender can sell these off to recover losses.
Unsecured loans – As is apparent from the name, unsecured loans do not require security. However, these are only offered by the lender if he/she determines that your restaurant can have a good turnover and can generate profits regularly.
The type of loan you go for should depend on how you want to operate your restaurant. Some lenders also offer flexible loans that do not require monthly payments if say your business can only generate enough profits over time, not on a monthly basis.
For example, if you only accept payment from cards rather than cash, unprocessed payments may exceed the loan payment date. In this case, you can ask for a flexible payment option that can ensure you pay all of your dues on time.
How To Improve Your Chances Of Being Accepted For A Loan
Asking the bank or a lender to invest a large sum of money for any business can intimidate anyone. However, if you are well-informed about your restaurant and its potential for success, you can face them confidently and increase your chances of getting the loan of your choice.
Before searching for a restaurant financing lender, the first thing you should do is create a thorough business plan for your loan applications. The plan should outline how you intend to use the money and how you plan on making repayments. To determine this beforehand, figure out how much capital you require. That way you will not over-borrow and set yourself up for disaster later with late or no payments!
A cash flow projection for the proceeding year will prove invaluable in this case. It will reveal any periods where your restaurant may struggle with say an influx or lack of customers. Most lenders will also wish to see your financial accounts and will provide a loan willingly if you have good credit. A great score will give you access to competitive rates which come with lower monthly repayments.
Professional lenders understand that the restaurant business can be fickle so they need to be flexible. A good one will offer short and long term options that can meet your specific needs. Howevr, they will not overlook basic eligibility requirements such as the following:
Whichever restaurant financing option you go for, make sure that it is one that you can live with over a long term. Otherwise, you will end up with one you cannot afford to pay and your business will face more losses than you can afford.
Do you want to know more? Browse through our blogs to receive more trade secrets. You can also hire our restaurant consultants for professional assistance.