12 Ways to Get Financing to Start A New Restaurant

Create a business plan and include your financing needs.

Are you ready to fulfill your life-long dream of owning a restaurant?

Perhaps you’ve waited, honing your skills and becoming a top-notch chef, and now you’re ready to step out on your own.

Whatever your reasons for opening a new restaurant, finding financing for it can be a stumbling block on your road to success.

To help you with your financing options, take a look at 12 ways to get financing to start a new restaurant.

#1: Investors

Your first option for funding is finding investors to give you the money to open your business.

This is when people who have a lot of money invest in your restaurant. This kind of investment can be good for your new restaurant, but you want to make sure you’ll be able to pay it back.

Before you use outside investors, make sure you create a business plan that includes how you’ll pay the investors back and your timeline for doing so. (tweet this)

In most cases, you want to make sure you maintain control of your restaurant, and this is what makes the timeline crucial. Set a date when you estimate you’ll be able to end your relationship with your investors.

#2: Loans from Friends and Family

If your friends and family are completely on-board with your restaurant concept and helping you succeed, friends and family loans can be helpful.

These folks know you and are invested in you and are more likely to believe in you and your business model.

Be careful, because you don’t want to ruin relationships. Make sure the parameters are spelled out in writing and agreed to by all parties.

#3: SBA Loans

The US Small Business Association (SBA) offers loans to new small businesses such as your restaurant.

Finding a restaurant loan can be easier when you work your loan through the SBA as they guarantee small business loans against default.

This means your bank is more likely to take on the risk of your restaurant. Lenders such as banks, credit unions and others participate in SBA loans.

You’ll find a plethora of competitive loan programs through the SBA. It is worth noting, though, that you’ll be expected to add a substantial amount of your own cash upfront to secure the loan.

The key is to shop around for the best deal.

#4: Bank Loans

Most restaurant owners get financing through a loan from their local bank.

This can be a frustrating way to go because typically banks are leery of restaurants due to their high failure rate.

It helps if you have assets to offset your loan, so discuss your options with your banker.

In addition, an SBA loan can help here.

#5: Credit Union Loans

Credit unions are yet another option for financing to start a new restaurant.

They are unique in their financing as they often charge you interest on the balance of your loan. So, if you pay it off earlier, then you don’t pay as much in interest.

If your business plan is complete and your market research solid, this can be a good way to go if you expect to be successful from the first days.

#6: Crowd Funding

Another, more modern way to secure financing is through crowd funding with platforms such as Kickstarter (examples) and Indiegogo.

Crowd funding allows you to approach the general public and ask for various amounts of money. (tweet this) While each contribution may be small, the goal is that they add up to a large number.

The bonus for contributors is the perks you offer. Many restaurants and food trucks offer food for the perks. Others get even more creative by offering parties and events or catering.

inKind is another financing source that works similarly to crowd funding, but the perks are a little different.

#7: Your Credit Cards

Credit cards are sometimes used for restaurant financing. If you decide to use this option, be sure that you can pay the money back in the time allotted and that you are amenable to the interest rate.

Be careful when going this route and know just how much your dollar is worth once the interest rates start adding up.

Make sure you know what you’re getting into and understand your financing terms.

#8: Savings

The best way to start a restaurant is without going into debt, right?

Many financial planners would agree that using your savings to finance your restaurant is a good idea. Yet, it has its pitfalls.

To avoid problems, treat your savings as a regular financial transaction and pay yourself back with interest.

You also don’t want to dip all the way into your savings as you might need some set aside for emergencies.

#9: Home Equity Loan

Another option for financing your restaurant is through a home equity loan and using your home as collateral for your restaurant.

Again, use this type of financing with great caution. It wouldn’t be a good scenario to lose your restaurant and your house at the same time.

#10: Peer-to-Peer Lending

Another option, peer-to-peer lending, is similar to crowd funding except you will pay an interest rate to your lenders.

This type of lending allows you to get startup money from random strangers online, but you will have to pay a premium in interest.

#11: Cash Advance

This type of financing is quite expensive, but you can use it.

You can get cash upfront by using companies like Rapid Advance for small business funding. Like some of the other loans mentioned here, you’ll pay a premium (well over 20%) interest fee that might hurt your bottom line.

#12: The Landlord

You can ask your landlord for a loan – this is quite common.

Your landlord may reduce your rates if you offer him a share of your restaurant.

This is another tricky situation, so please be sure everything is in writing.

Final Thoughts

Why is it so difficult to find financing?

First, opening a new restaurant isn’t an easy task. You’ve got to have a great menu and superb customer service while managing your costs.

Second, CNBC says that nearly 60% of new restaurants fail in their first year, and almost 80% are out of business by their fifth year.

For many of them, they didn’t secure their financing because they didn’t accurately know what their needs were. They ran out of steam before they could turn a profit.

When starting a new restaurant, you want to follow our 12 ways to get financing and at the same time understand how much money you need for your fledgling restaurant.

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Images: Nick Hillier and Jason Briscoe on Unsplash

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