How to Finance a Restaurant and Get Startup Funding

Marketing 21 minute read 17th August 2023

Do you want to enter the hospitality business? You should know how to finance a restaurant and outline a business plan to fulfill your dream. You will need a lot of capital and may even have to borrow capital loans to start a restaurant business. Few people are financially stable enough to pay for their businesses out of their own pockets. If you are not one of those lucky people, securing restaurant business loans is an essential step for first-time restaurateurs.

To secure financial backing, you need a thorough understanding of the food service industry and a step-by-step business plan. Outlining the plan will help you understand how to finance a restaurant business. You will get an estimate of the funds needed and the extra costs that come with them. Extra costs are essential operating costs, such as keeping the kitchen stocked, hiring and training staff, and maintaining your business.

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Essential Documents for Restaurant Business Loans

When applying for a restaurant business loan, you will need the following documents on how to finance a restaurant business:

Loan application:

A loan application form is for individuals who need to request a capital loan from the bank or other sources. The form includes the borrower’s loan history, loan amount, loan period, and repayment terms of the capital loan.

Projected financial statements:

Another name for projected financial statements is “pro forma financial statements,” which means a matter of form. It shows a person’s total revenue, annual income, balance sheet, credit history, and cash flow.

Ownership and affiliation documents:

This is a statement that shows that you have legal possession and control over a property.

Profit and loss statement:

This is a financial report that shows how much your business has earned and spent over time. Simply put, the amount that comes into your business and the amount that goes out.

Business license:

A business license is a permit that allows you to operate legally in any country. It shows where your business is and the kind of business you are running.

Business overview:

This is a brief company description, including the purpose of starting a business, goals, and objectives.

Income tax returns:

Income tax returns are forms that show information about your income and taxes.

List of current accounts:

All the accounts you have opened in different banks, such as savings accounts, current accounts, fixed accounts, etc

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How to Finance a Restaurant Startup

Restaurant financing means borrowing money to start your business. Starting costs for an average restaurant can be more than $300,000. It depends on factors such as the location, size, concept, staff, and materials required for the restaurant. Carefully consider your options and the risks involved in debt refinancing. Some forms of borrowing have more drawbacks than others. Remember, loans are always risky, but they give you access to cash you don’t have, thus paving your road to success.

If you are wondering how to finance a restaurant startup, there are different methods of obtaining loans. Each of these restaurant financing options has its pros and cons. Consider each option carefully to determine what kind of loan is best for your restaurant business.

How to Finance a Restaurant: Online Lenders

Online lenders cater to a large variety of customers. Online loans are an alternative to the traditional method of taking loans from a bank. E-business financing focuses on making borrowing as easy as possible. They give you an instant response regarding your loan application. You can secure a loan even if your credit is poor. Online lenders may add a margin on top of the base rate to determine the final interest rate they offer.

How to Finance a Restaurant: Small Business Administration Loans (SBA)

If you are asking yourself how to finance a restaurant business, you can turn to SBA-backed loans. SBA-backed loans help small businesses when they can’t get financing from any other source. The repayment terms applied to these businesses are lenient, and you can acquire the loan over the long term. Interest rates at SBA are slightly higher than at most traditional banks. So it can be a barrier to growing businesses. Applying to the SBA does not guarantee loan approval, and it takes time to consider your application.

How to Finance a Restaurant: Brick-And-Mortar Bank Loans

The brick-and-mortar application process is quite lengthy and may require a processing time of about 2 to 6 months. Although the interest rate is low, you must have a higher rate of credit. Inventory financing will be a great help in getting your loan.

How to Finance a Restaurant: Crowdfunding

Using the internet to reach out to people to raise funds is yet another method of getting restaurant business loans. Crowdfunding is becoming increasingly popular; it is the process of getting financial contributions from individuals, different organizations, and investors. One huge advantage of crowdfunding is that there are no hidden charges, no repayments, and no payback.

Some strategies and key steps on how to finance a restaurant business through crowd funding are:

  • Assemble a team: It is essential to have a team to help you achieve your goal of financing a restaurant. Delegate responsibilities and assign tasks among the team members.
  • Identify your cause: Clearly explain the cause for your purpose of fund-raising; having a well-defined goal is essential. Make your campaign clear and easy to follow.
  • Plan your fundraising: Create a well-developed plan that will help you find potential investors to help finance your restaurant.
  • Target your audience: You need to know your investors by analyzing their various traits and what interests them. You can also invite your family and friends to help you in your cause.
  • Events and campaigns: Campaigns and events are essential for your cause as they are powerful fundraising tools.

How to Finance a Restaurant: Lines of Credit (LOCs)

The best advantage of LOCs is that you avoid paying interest on a large loan. Examples of different types of lines of credit are personal, business, and home equity lines of credit (HELOC).

Personal line of credit: You can use personal loans for a variety of needs. It has a fixed interest rate throughout the term of the loan. Your credit history and the minimum credit score requirements are key factors. The interest starts as soon as you borrow the money.

Business line of credit: A business LOC is a secure loan for a fixed period. When the period ends, you pay back the principal amount plus interest. As interest rates are variable, the cost of your debt can fluctuate.

Home equity loan credit: A home equity line of credit, or HELOC, is a type of inventory financing loan. Your house is a guarantee that you will pay back the loan. A HELOC has a lower rate of interest. If you can’t pay back your loan, you are at great risk of losing your house.

How to Finance a Restaurant: Angel Investors

These are wealthy individuals who provide seed money for starting a business. In return, they have a right to a percentage of ownership or shares in the company. There are many ways for an angel investor to take ownership, including equity and convertible debt. When you hand over the equity to your angel investor, you are essentially giving away a portion of your business.

How to Finance a Restaurant: Bootstrapping

Bootstrapping is a self-financing option in which an entrepreneur can start a restaurant with a small budget without any investment. This form of financing gives the restaurant owner more control over his business. The entrepreneur will not be answerable to anyone about how they are running the restaurant. Furthermore, they won’t be under any pressure to repay any form of restaurant business loan to any financial institution. Some amazing techniques for bootstrapping are:

  • Avoid renting a large workplace.
  • Don’t buy expensive furniture and equipment.
  • Hire staff who are eager to work.
  • Design a menu that has overlapping ingredients.
  • Optimize energy usage.
  • Reduce paperwork and go digital.
  • Advertise on social media platforms.

How to Finance a Restaurant: Restaurant Incubators

A restaurant incubator gives small restaurants a chance to compete when entering the local restaurant business. They are also known as food accelerators. They are affordable, certified kitchen spaces used for food preparation. An incubator kitchen lets you avoid spending a large amount of money to build or lease your facility. These incubators help you sell your menu to consumers on a low-rent basis.

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How To Manage a Restaurant’s Finances

In order to track your finances, there are certain things you have to do from the start. Understanding and managing monthly expenses is critical for the long-term success of your restaurant business. New restaurants need a few months to manage the costs and bills that come in every month. Here are some tips on how to manage a restaurant’s finances:

How to Finance a Restaurant: Budget Your Expenses

The first big step is to maintain your budget. This helps you avoid confusion and keep track of your restaurant’s expenses. Budgeting will keep you more in control of your finances. It will make it easier for you to save money, make better financial decisions, and increase your annual revenue. Budgeting is critical to the success and longevity of your restaurant business in the highly competitive hospitality industry. Without a budget, it is easy to overspend on unnecessary expenses or underspend on important tasks. A restaurant that neglects to manage its funds can easily find itself in financial distress with little chance of recovery.

To create a budget, you have to:

  1. Calculate your net income.
  2. Keep track of your spending.
  3. Follow your goals.
  4. Spend within your budget.

How to Finance a Restaurant: Keep the Labor Costs Under Control

Labor costs include training, payroll, uniforms, providing meals, holidays and time off, sick leave, benefits, and taxes. When hiring restaurant staff, your main focus should be on the quality of the work they offer. Some quality skills may include:

  • Customer service skills
  • The ability to work well under pressure
  • Teamwork
  • Communication skills
  • A good memory

The working staff is important for a restaurant. So provide a good pay structure and give them good incentives to prevent staff turnover. Overstaffing your restaurant is a big no, as this goes against the purpose of how to finance a restaurant business. You can also consider part-time employees; they work hourly, and you don’t have to offer them benefits or holidays. Monitor your staff regularly to identify areas where they are doing well and where they need your guidance.

How to Finance a Restaurant: Control Food Costs

Food cost control is a serious business and an important factor in maintaining your budget and growing your annual revenue. Optimize your menu to make sure that you don’t have any items that are not favorites with the consumer. Keep track of the amount and cost of the raw materials purchased and meals prepared. Create a method to measure the portions served to control the size of the food ordered and maintain the price. Over serving food can lead to higher food prices and food waste. It may also make people share one dish. Encourage your customers to make reservations before they come; it will help you know how much food to prepare.

How to Finance a Restaurant: Optimize Energy Usage

There are different ways you can reduce your energy bill.

  • Use energy-efficient equipment.
  • Maintain your equipment.
  • Shut down idle equipment.
  • Reduce the ambient temperature.
  • Decrease heat usage.
  • Use energy efficient lighting.
  • Reduce water consumption.

Learning how to finance a restaurant business may not prove fruitful if you overlook the importance of managing finances. You need to improve your overall restaurant operations. Otherwise, you will be looking at multiple restaurant financing options.

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How To Get Financing for a Restaurant

On the lookout for how to get financing for a restaurant? Not to worry; there are tons of restaurant financing options. Here is a list of the best lenders to acquire restaurant business loans from.

Fora Financial Fora Financial offers capital loans for small business owners. Cash advances come with no restrictions and require no inventory financing.

ARF Financial ARF Financial offers unsecured loan options and flexible payment terms. This company’s financial experts help you to find a suitable debt refinancing term.

Rapid Finance Rapid Finance offers various types of funding. You can choose from several loan options and receive money in your account within a few business hours.

Crest Capital Crest Capital fully funds your equipment and covers soft fees for delivery and installation. They also offers flexible debt refinancing options and quick approval processes.

Smart Biz Smart Biz helps you secure a loan from the SBA. The company simplifies the process and directs you to the right lender for your financial situation.

Fundbox Fundbox focuses on lines of credit. On application approval, you receive the money the next business day.

Funding Circle Funding Circle is a peer-to-peer lending platform that connects businesses with investors. They offer competitive rates and flexible debt refinancing terms. On loan approval, you will receive the funds within a few business days.

Repaying Capital Loan With Beambox Marketing

Now that you know how to finance a restaurant business, the next step is marketing. You can’t repay the capital loan if your annual revenue is below a certain threshold. For this reason, you need Beambox. While you focus on how to manage a restaurant’s finances, Beambox will focus on growing your business. They offer the best guest Wi-Fi solution to connect with customers and capture valuable data for additional marketing strategies. Learn more and start growing your business.

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