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.