When it comes time to secure restaurant funding, it's easy to become confused by the terms lenders use--whether they be commercial banks, individuals or venture capitalist companies. No one expects a restaurant owner to be fully versed in financing terms, but you should understand the common words used by restaurant lenders.

You may break down restaurant finance key terms into three broad categories. Take some time to familiarize yourself with each, and you'll impress lenders with your business knowledge--thereby increasing your chances of obtaining restaurant financing. These categories are:

1. Terms used by restaurant lending companies for Small Business Administration loans,

2. Terms used by venture capitalists for restaurant loans,

3. And general loan terms you may hear when funding a restaurant.

Action Steps
The best contacts and resources to help you get it done

Understand Small Business Administration loan resources for restaurants

The Small Business Administration (SBA) uses a number of loan terms specific to their organization. These include 'SBA loan' (when banks give loans but the SBA guaranties a certain percent of the principal will be repaid), '7(a) Loan Guaranty Program' (the most popular type of SBA loan), 'CDC/504 loan' (an SBA loan that offers long-term, fixed-rate financing for assets like buildings) and 'microloan' (a small SBA loan for start-up businesses).

I recommend: The Small Business Administration website offers details about each type of loan they offer, most of which are appropriate for restaurant financing. Excel National Bank includes a glossary of loan terms, including those specific to the SBA.

Learn about terms venture capitalists use when financing a restaurant

Sometimes venture capitalists are the best source of funds for your restaurant. Venture capital companies use many words and phrases you may not hear elsewhere; these include 'angel financing' (money from wealthy investors raised for a business), 'burn rate' (how quickly a business expends net cash over a specific period), 'capital call' (when a venture capital company approaches its investors so it can make a 'capital call' for funds) and 'limited partner' or 'LP' (an investor who has no voice in the management of the business).

I recommend: The 500 Group has an extensive glossary of venture capitalist terms, while FundingPost has a shorter, but still informative, glossary.

Familiarize yourself with general restaurant loan terms

When you're financing your restaurant, there are many general loan terms you may run across, such as 'combi-deals' (when a combination of different financing sources are used for financing), 'construction loan' (a short-term loan for the building of commercial buildings), 'personal guarantee' (wherein the primary owner takes on personal responsibility for paying the loan if the business fails) and 'secured loan' (wherein collateral may be used to satisfy an unpaid loan).

I recommend: Benton Commercial Capital offers a glossary of general loan terms associated with commercial ventures, including restaurant loans. EAGLE offers a similar, but more extensive, glossary.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Whenever you're seeking restaurant financing services, ask for explanations for any terms you do not understand. Understanding any contracts you enter into is vital.

When you want to open a restaurant, you need restaurant financing to get things started. There are many costs involved with starting a restaurant—location, supplies, food, and advertising, among many others. It is very difficult to fund all of this on your own. Because of this, you need to find restaurant lending companies.

Restaurant lending companies help new restaurant owners to succeed by loaning them the money that they need to start their business. It is important to note that in most cases, these are loans and you are required to pay the money back.

Financing a restaurant is not difficult, but you do need to know what restaurant financing services look for:

1. A good credit score. Restaurant lenders want to see that you have paid back your debts on time in the past.
2. A solid business plan. This shows the restaurant funding company how you plan to pay back their money.
3. Successful people involved. If you have people who have been successful involved with your business, restaurant finance companies are more likely to loan your money.

Action Steps
The best contacts and resources to help you get it done

Seek out angel investors to secure your restaurant funding

Many restaurant start-ups look to angel investors for their funding instead of a restaurant lending company. Angel investors are either an individual or a group of individuals who use their money to fund new businesses. They do this in exchange for a share of the profits.

I recommend: While it is often difficult to find angel investors in the restaurant industry, they are out there. The Angel Capital Association offers a directory of angel investors. You can easy find one that is located in your state. The Go BIG Network offers an easy way to advertise your funding needs to potential investors.

Use a venture capital company for your start-up money

Venture capital companies are similar to angel investors, but they are legally a business, not an individual. These companies are usually looking to fund high-growth businesses in need of $500,000 or more.

I recommend: VCLocator.com offers a power search feature that allows you to search venture capital firms by a wide variety of criteria, including type of funding and location. By subscribing to the Restaurant Finance Monitor, you will gain greater knowledge of what venture capital companies specialize in the restaurant business.

Secure a loan from restaurant financing specialists

When you have your business plan ready, you can begin to contact banks that specialize in restaurant lending. Contact a business that has a good reputation.

I recommend: Wells Fargo is a national bank that offers restaurant finance services. The SBA Loan Group also offers this service.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  If a restaurant lending company turns you down, do not be afraid to ask them how to make your presentation better. This advice may help you to secure a loan with another restaurant financing company.
• •  Make sure that your company is ready to handle the responsibility that comes with having a loan. You should have a solid plan for how you are going to pay that money back.
• •  A well-written business plan is essential for getting financing from a restaurant lending company.

You love the restaurant business and have a great idea for a new restaurant, but you don't know a lot about restaurant financing. In order to proceed with your dream, you will need to take the time to bone up on restaurant finance basics. How can you obtain the restaurant financing you need?

There are several common ways to secure restaurant lending, and each has its pros and cons. When thinking about loan resources for restaurants, consider the following:

1. Obtaining loans from restaurant lending companies

2. Securing an SBA restaurant loan

3. Funding a restaurant through individuals

4. Finding restaurant lenders in the form of venture capitalists

Action Steps
The best contacts and resources to help you get it done

Obtain restaurant financing services through a commercial bank

Commercial bank loans may be the first type of restaurant financing you think of, but novice restaurant owners may have a difficult time obtaining such loans. Whether you're a first timer or not, you'll need to present the bank with a strong business plan, excellent personal credit, and--ideally--a strong background in working in restaurants.

I recommend: Both Wells Fargo and iBank offer small business loans that are suitable options for financing a restaurant.

Seek restaurant funding through an SBA loan

Another good resource for financing a restaurant is a Small Business Administration (SBA) loan; in this situation, private-sector lenders supply funds, and the SBA guaranties a certain amount of the principal will be repaid. According to the SBA, around 5,000 banks offer SBA loans.

I recommend: Learn more about SBA loans at the U.S. Small Business Administration website. Bank of America is just one commercial bank that grants SBA loans.

Secure restaurant loans through individuals

If you can prove yourself with a great business plan and an impressive presentation, you may be able to attract investors to finance your restaurant. If you're a new restaurateur, aim for attracting several investors rather than a single investor who puts up a large sum of money. If you're buying an existing restaurant, you might also be able to obtain financing through the seller. Partnerships can also be an effective way to finance a restaurant, as long as you have a common vision for the business and a solid agreement about who will do what during day-to-day operations.

I recommend: For a good look at the pros and cons of working with investors, seller financing and partnerships, read "Restaurant Financing: How Easy Is It to Get Money Today?" at the National Restaurant Association. For a peek at restaurant financing from the investors' point of view, read "How to spot a hot investment: Putting your money where your mouth is" at the International Herald Tribune.

Find a restaurant loan through venture capitalists

If you've already operated several successful restaurants, another possibility is available: obtaining venture capital. Venture capitalist are most interested in your business if it's a chain that will expand rapidly and provide a large return within a few years.

I recommend: The National Venture Capital Association provides information about what venture capitalists are and the sort of businesses they are seeking. To find venture capitalists who may be interested in your restaurant business, see "Top 100 Venture Capital Firms" at Entrepreneur.com.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  When it comes to financing restaurants, know that most investors want to see you put your own money into the business, too. This shows them you are fully committed to the restaurant.