How To Secure Financing For A Restaurant Business

Venturing into the catering business is an ambitious project, which requires a lot of preparation and, above all, a solid restaurant finance option. The financing of a restaurant is usually done with a mixture of debt and equity. Banks and credit institutions offer different instruments, the duration of which is adapted to the types of assets to be financed.

Regarding the bank loan for restaurants, it should be noted that the banks check the viability of projects and the solvency of project holders. Many entrepreneurs embark on the creation of a restaurant without any experience in the sector. To reassure banks, it is advisable to do an internship or specialised training in addition to the mandatory training to obtain a license to operate the eatery.

A personal contribution corresponds to the amount that you can raise from your pocket or by joining hands with several partners. Banks generally require that the personal contribution represents at least 30 percent of the investment.

The exact percentage will depend on several criteria:

– The amount of funding required
– Viability of the project
– Applicant’s professional experience
– Credit history

Personal savings

In most cases, personal savings are not always sufficient to provide the amount of money required to secure restaurant finance. When this is the case, you must then seek to supplement this amount with other sources. On the other hand, love money refers to the money invested by close people: family and friends.

The advantage of this form of investment is that it is often easier and faster to obtain. Your loved ones know you and trust your abilities, which is not necessarily the case with your banker. Love money, however, has two disadvantages: the sums collected are sometimes very small (a few hundred dollars per person) and this can cause tension, especially in case of bankruptcy because you will have to announce to your relatives that you have lost their money.

Crowdfunding for restaurants

Crowdfunding is a very effective financing method for restaurants. The idea is to collect funds from individuals via a crowdfunding platform (Foodraising.com and Ulule.com). It is up to you to choose what you grant to funders in return for their participation. However, if this is the first time you start a business, you may not know the different types of incentives.

The Importance Of Collateral And Experience In Restaurant Finance

Coming with a new idea for a restaurant is relatively easy; financing it is not. While there are number of ways to finance not all ways will work for everyone. It usually comes to how much collateral a person has as well as how much as experience in the restaurant world that they have. While there are other factors in restaurant finance, those two factors are the biggest two problems for a would-be restaurant owner: A financier wants some guarantee that the restaurant will be a success, and if it is not then he wants to know he can recoup at least part of his investment. This can sometimes put the person at a disadvantage, but these are not deal-breakers.

Collateral is the most stressful part but the easiest part. Even allowing for an existing building the start-up cost of a restaurant can be immense, usually upwards of $100,000. This is not just the cost of the building itself, but the all of the cooking utensils, pots and pans, and even food itself. The restaurant owner has to allow for a few months of wages as well as marketing costs. If the person has to pay franchising costs, such as for a chain store, or to purchase the building itself, then costs become even steeper. Someone in restaurant finance can provide more information, but collateral makes a lot of difference when it comes to convincing someone to back the idea.

Restaurant experience will also convince someone to back the idea. Besides loan officers there are also capital investors that can help finance a restaurant, but they need some reason to have confidence in the potential owner. Having the ability to cook is just part of it; management experience and having a successful restaurant is a good idea as well. Of course, a new and innovative idea can help as well, especially if the would-be owner has the facts and figures to back the idea. Both the collateral a person has access to and the experience a person can bring to bear are important in restaurant finance, making them something a would-be owner needs to work on before approaching someone for a loan or investment.