Restaurant owners face unique obstacles to being successful and profitable. Whether it is having a menu that stands out, having up-to-date and clean facilities, hiring and retaining qualified staff, or finding the best way to market your restaurant, it’s not an easy road for restaurant operators. But all of these obstacles can be considered minor when they are compared to the challenge restaurant owners face when it comes to capital and cash flow, not to mention restaurant financing.

Being able to finance a restaurant is probably the number one issue that restaurant owners face. According to a study by Ohio State University, almost 60% of new restaurants fail within their first year of opening. Strategically looking for financing options is a great way to avoid a similar fate and make your restaurant a roaring success.

Where to Start with Restaurant Financing

 Financing your restaurant is critical to your success in this competitive business. If you choose the wrong option or the wrong lender, it could lead you down the wrong path. Fortunately, there are several great financial products and choices that are tailored to the owners of restaurants. Each type of financing option has pros and cons. Speaking with one of the advisors at BuffaloBusinessLoans and Biz2Credit.com would be a great start to your search for financing. With one loan application, you can get all of the financing options you can choose from. The right option and the right lender can lead to a quicker and easier process which means you get access to the funds as soon as possible.

Speaking with a financial advisor or a funding specialist at a funding company who knows the restaurant industry is always a great way to start to your search for financing. You can also often apply online to be matched with financing options quickly. With one loan application, you can get all of the financing options you can choose from prequalified just for you and your business. The right option and the right lender can lead to a quicker and easier process which means you get access to the funds as soon as possible.

Here are four tricks that can help any restaurant owner as they seek financing.

Look into Traditional Financing Options First

 
Going for a traditional small business loan through the Small Business Administration is a well-tested trick of the trade. This is a great option for not only start-up restaurants, but restaurants that might not have needed funding before. An SBA loan is one that is a benefit both to the small business owner and the lending agency. For the owner, it is helpful because this is money & capital they may not currently have access too. For the lending agency, the loan’s risk is lessened because the loan is being backed by the SBA. Within the range of SBA loans there are 3 different types for restaurant owners to pay attention to:

  • 7(a) Loan Guarantee Program: aimed primarily in helping a small business start or expand its services. The maximum size of such a loan is $5 million.
  • MicroLoan Program: mostly used for short-term purposes, such as purchase of goods, office furniture, transportation, computers, etc.
  • 504: featuring fixed-rate and long-term financing, these loans are aimed at applicants whose business model will benefit their community directly, either by providing jobs or bringing needed services to an underserved area. Again, the maximum amount is $5 million.

According to Dave Cosentino, owner of the Aroma Group restaurants in Buffalo, NY, the SBA is a great option. He says that choosing the right funding partner up front is a really important factor. As Dave says from experience, you want to develop a long-standing relationship with your lender. He also added that the best option for either an upstart restaurant or a current restaurant that wants to add a location would be to purchase property through commercial real estate financing, if possible. This way, you can use it for equity for future expansions or improvements.

Additional Restaurant Financing Options for Different Needs

 
Although most people think of traditional term loans when they think of financing their restaurant business, there are plenty of alternatives available to operators. Some of these can provide more flexibility and make it easier for your business to cover the costs of funding.

Restaurant Equipment Financing

 
Another trick of the trade would be to go the route of financing your restaurant equipment. Restaurant owners have the option to lease or finance some of the larger equipment that is necessary to run their establishment.
This option offers affordable monthly payments through customized terms specific to your business. There are typically comprehensive packages offered, ranging from 12- to 60-month terms, which offer a solution to any type of restaurant owner. This type of financing or leasing usually has tax benefits as well. It also enables the restaurant owner use the new equipment as collateral for the loan, making equipment financing a smart way to preserve on-hand cash.

Credit Card Receivables Financing and Cash Advances

 A third trick to financing a restaurant would be to use a merchant cash advance (MCA). This is a great option as it doesn’t impact your current working capital and gets you access to funds extremely quickly.

A merchant cash advance, which is a great way to finance your restaurant, is technically not a loan; it is the purchase of future credit card revenues or a commercial agreement where the business owner sells their future credit card sales to a finance company or other third party. If you have a history of steady credit card sales and have been in business for 18-24 months, this is a great short-term trick. A business cash advance features a repayment fluctuation based on your business’s performance and is the perfect solution if you don’t want to be tied to a set monthly payment.

Restaurant owners especially enjoy the program because you are technically leveraging the lender’s capital to run your business, not your own.

Business Lines of Credit

 A similar option that is a trick used amongst well-established restaurant owners would be the business line of credit. A business line of credit is a key safety net to have financing for your restaurant when business is slow. Unlike a traditional business loan, a business line of credit acts as ready cash in times of need. In many ways it is similar to a business credit card. Your restaurant will qualify for a certain credit limit and you’ll be able to draw down in set increments against that total credit line.

A line of credit can be a lifeline to a restaurant in times of emergency or even seasonal cash flow tightening. A business line of credit is one of the quickest, most convenient tools for restaurant owners, designed to meet the exact needs of your business. One of its best features is that you only pay for what you use. So, while a drawback may be that lines of credit have slightly higher interest rates, you only are paying on what you have used. Even if you do not have an immediate need for funding, a line of credit is always smart to have for emergencies. You can apply for a business line of credit and use it as a back-up to extend your financial strength.

Unsecured Business Loans for Restaurants

 A fourth trick to financing a restaurant would be the option of an unsecured business loan. This trick is for restaurant owners that want or need financing, but don’t want to worry about providing collateral.

Unsecured business loans are also known as signature loans or personal loans and are based upon the owner’s credit. Unlike traditional loans with collateral involved, the interest rate you pay may be higher. But an unsecured loan does give you the capital you need to either expand your business or to purchase new equipment. It may be the only option some restaurant owners have to finance expansion, especially when they’re starting out. While it has advantages, if it is the option you choose, pay attention to the interest rate offered and what types of guarantees are required. As with all types of financing, it is best to look for several different offers before settling on a lender. If the offer seems too good to be true, then it probably is.

Getting Financing for Your Restaurant When You Need It

 The best advice when you’re thinking about borrowing money to support your restaurant location is to talk to a financing partner who can guide you through the various options to arrive at the best one for you. Small business funding experts like the ones at Biz2Credit can help restaurant owners navigate financing their business and help them choose which of these tricks can be a viable option for restaurant owners to expand their business. If you’re interested in getting some guidance, sign up online or reach out to learn more.

Tim Kelly

Mr. Kelly is a 20-year veteran in online business and financing.

He has consulted some of the top brokerages, media companies and financial exchanges in the area of finance, online marketing and content management including: The New York Board of Trade, Chicago Board Options Exchange, International Business Times, Briefing.com, Bloomberg and Bridge Information Systems and 401kTV.

He continues to be a regular market analyst and writer for ForexTV.com. He holds a Series 3 and Series 34 CFTC registration and formerly was a Commodities Trading Advisor (CTA).He was also a licensed Property & Casualty; Life, Accident & Health Insurance Producer in New York State.

In addition to writing about the financial markets, Mr. Kelly writes extensively about small business marketing and finance.

Mr. Kelly attended Boston College where he studied English Literature and Economics, and also attended the University of Siena, Italy where he studied studio art.

Mr. Kelly has been a decades-long community volunteer, he established the community assistance foundation, Kelly's Heroes. He has also been a coach of Youth Lacrosse for over 10 years. Prior to volunteering in youth sports, Mr. Kelly was involved in the Inner City Scholarship program administered by the Archdiocese of New York.

Mr, Kelly was Sr. VP Global Marketing for Bridge Information Systems, the world’s second largest financial market data vendor. Prior to Bridge, Mr. Kelly was a team leader of Media at Bloomberg Financial Markets.
Tim Kelly