Keeping a small business open is never easy, and that goes double for restaurant owners. Forbes research indicates that 543,000 small businesses open their doors for the first time every year in the U.S., about 1000 of which are restaurants. This $632 billion industry presents some unique challenges, especially in the realm of finances.
Coming up with the funding to open and maintain any business is no walk in the park. About 16% of loans taken out in the U.S. are for business use. Among small business owners, 38% took out loans just to maintain inventory, and 23% took them out to deal with poor or slow sales. Many even request cash advances, receiving immediate funding in exchange for an interest profit on credit card transactions.
Restaurants often require substantial overhead and operate with low profit margins, making the task of restaurateurs a difficult one. If you’re looking to open a restaurant, it’s important to know what to expect from the restaurant business loan process.
Get Yourself Ready
Lenders of restaurant business loans are probably going to require that you put up at least some of your own money. Restaurant loans start up your business by making up the difference, but they certainly won’t cover the whole cost. Save up your share, and spend some time gaining experience in the field. Whether that means taking a part-time job in a restaurant or taking some classes, gaining expertise can only help you on your quest for restaurant business loans.
Where Can I Get Financing?
There are a few options here.
- Small Business Association
- Personal resources like savings, IRA accounts, credit cards, mortgages, and personal assets
- Private investors
- Commercial finance companies like banks and equipment leasing companies/li>
- Friends and relatives
- Real estate assets
- Life insurance
- Housing and Urban Development- This might help you restore or rehabilitate a city building. They won’t finance your business, but might provide renovation funds.
Applying for a Restaurant Business Loan
A basic loan application is going to include a written statement from you, describing your business plan. That description must include how your business will generate income, an outline of at which points you will need an injection of cash, and an explanation of how requested loan proceeds would be used. The application will also require a description of how you plan on repaying the loan. Time your application so that you would receive the funds about six months before they’re necessary, and request enough to get you through two months of business.
Extra Tips and Helpful Hints
A restaurant business loan isn’t the easiest thing in the world to secure. Use these tips and tricks to make sure you’re well-prepared and to increase your chances of receiving a loan.
- Spend time shopping for the best interest rate and loan terms.
- Get your financing in place before negotiating a lease.
- Get your loan agreement in writing.
- Work with an accountant and a lawyer and ask that person to review your agreement before you sign.
- Make sure there aren’t prepayment penalties.
- If you work with a venture capitalist, make sure you’ll still be the one in control of your business.
Opening a restaurant is not for the faint of heart, though it can be a very rewarding experience. If it’s an undertaking you wish to pursue, take some time to make sure you’re really prepared. It could save you a lot of trouble down the road.