Best Financing Options for Restaurants

Restaurant-Owner-webA decade ago, securing financing for a restaurant was one of the easiest things about starting or maintaining a business in the food industry. In this post-“Great Recession” era, finding funding is a little more difficult and far more difficult with number-crunching necessities. You’ve got a few options to choose from, each with their own set of hurdles, but with the right plan in place and the perseverance you knew you’d need to bring to your business venture, you can find the operating cash your kitchen needs.

Traditional financial institution loans are still a great option for many restaurants, even though the money supply is far less loose than it was just a few years ago. If you have all of your bookkeeping ducks in a row, securing a loan through the Small Business Administration (SBA) can be an effective way to get startup or operating capital. The SBA doesn’t actually provide loans, but rather provides interest guarantees for a portion of small business loans. This can make lenders more willing to untie their purse strings, but in order to qualify, you need to show the SBA you mean business.

“Initiate and foster a solid relationship with an SBA-approved lending [institution] (this is the most important to-do),” says startup consultant Kent Capener. “Develop a good relationship with ‘your’ loan officer and let this person know quite clearly that you want him or her to help you with the ‘loan committee.’ In theory, they want to make the loan each and every time. In practice, they only make loans to those they feel will keep their loan principal secure and pay the interest on the loan.”

You can apply for financial institution loans without SBA backing, of course, and you’ll likely have fewer hoops to jump through, but the interest guarantee the SBA provides can often get you a better deal and makes it more likely that you’ll be approved.

restaurantLines of credit are fantastic tools for many businesses with revolving cash flow needs, including restaurants. Essentially, a revolving short-term loan, these can help businesses cover their costs with relatively low interest and on an ongoing basis.

“A working capital line of credit makes funds available for your business while you wait for payment on your accounts receivable,” explains Carl Carabelli, financial analyst and commercial lending professional. “For example, you have numerous accounts awaiting payment, but you do not have enough to cover payroll. With a working capital line of credit, you can contact your lender and request a transfer from the line to your payroll account. You will pay interest on the outstanding balance until your accounts receivable are satisfied and you repay the line.”

Loans are your best bet for covering startup costs, while lines of credit are all but essential for covering expenses for many restaurants. Short-term loans can also be used to cover gaps in your cash flow, though they’ll often come at a higher interest rate than lines of credit. Finally, you can seek external investors, but remember that trading equity means handing over a much bigger chunk of the pie, usually permanently — if you can demonstrate solid potential for a sound and profitable business, financial institution financing is your best long-term option.


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