Restaurant Finance Basics

How to obtain restaurant funding

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

 

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.
Try: 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.
Try: 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.
Try: 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.
Try: 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.

 

• 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.

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