There are many ways to raise finance for opening a restaurant or expanding an existing one. So you’ve gone through your check list of things to do. Business plan has been written, location chosen, restaurant name sorted, theme and concept has been finalised. All that’s left is to speak with your bank manager for that loan.
At the best of times it is difficult to get a business loan to finance a restaurant, because banks see them as having a very high failure rate. It is believed that 25% of new restaurant in the U.S fail in their first year. However in the present economy it has become even more difficult. Supplying the bank with support documentation like; your tax returns for the past 3 years, personal finance statements, credit report can be of great help. Other methods of finance are also available if you are not successful with your application for a business loan.
Personal savings; budding restaurateurs can also access their personal savings or release equity from their home to finance a new restaurant business. This also helps avoid taking on debt for the new business. Experts feel it is best to stay away from loans as the interest rate for loans can also affect the bottom line of the business.
Friends and family; are also a viable source of finance. As the global economy tries to right itself banks and other financial institutions are lending less to small business and start-ups. It is wise to seek out professional advice before borrowing from friends or family in respect to what type of investment they are making. Is it just a loan or are they going to have a stake in the business too.
Small Business Loans; a number of loan programs are made available to start ups and small businesses by the U.S Small Business Administration (SBA). Talking to them for help and advice on what financial assistant they have available to restaurateurs should be the first step.
Seeking out investors may be preferable to some. The best fit would be somebody who has the money to invest in your new restaurant, and can also add value. This can be in the form of expertise in running a restaurant or looking after finances.
Others may prefer to go the way of mezzanine financing. This hybrid of debt and equity financing is typically used when expanding your restaurant business. It allows the lender to convert his loan to an ownership or equity stake in the business if the repayments are not being made. But the disadvantage of this sort of financing is that lenders demand a high return rate.
