5 Tips for Financing a Second Restaurant Location

Your restaurant is highly successful, and the time has come for you to think about opening another location.

If your customers are asking for another location across town, and your wait times are so excessive you’re turning people away, a new restaurant can be in your sights.

It’s really exciting to ponder opening another restaurant, so can you just dive in? You actually need a plan and one that includes financing.

Let’s look at seven tips for financing a second restaurant location.

#1: Research Your Costs

Before you know how much you need to finance, you first need to know an estimate of your costs. (tweet this)

When it comes to your second restaurant location, consider these:

• Cost to purchase, lease, or rent the restaurant spot
• Security deposits and/or down payments
• What it will cost to build if you’re building new
• The cost to renovate the restaurant with fixtures and equipment
• Cost to purchase dishes, tables, chairs, and any décor
• The cost for inventory
• Upfront costs for staff
• Marketing costs to promote your new location including your grand opening
• New point of sale systems
• Phones, computers, packaging for carryout and delivery orders

As you begin your expansion preparations, you want to specifically outline these items. You can also consider increasing these amounts 10-20% to account for any overages.

#2: Look at Funding Types

Now that you know the costs to open a second restaurant location, you can start looking at financing options.

You need capital to open your next restaurant. Will you fund it yourself; will you take out loans; or will you look for an investor?

If you decide to take out a loan or find an investor, you do want to be sure the books for your current restaurant are in order. Your restaurant should have a positive outlook, and you don’t want to owe a lot of money.

If you take out a loan for capital and renovation, check around and look for the best interest rates.

If you’re looking for investors, make sure you put together a rock-solid business plan that also includes numbers for your current restaurant.

Because you know what it takes to open a restaurant, it should be easier the second time around to get prepared.

#3: Check Out Equipment Loans

When financing a second restaurant, you can look at specific loan types as well.

The first loan type to consider is the equipment loan. If you’re starting from scratch in the new location, you may need to add a lot of expensive equipment.

If this is the case, you might look at a small business equipment loan. With this loan, you get a lump sum of capital. You’ll pay this back with interest over a specified period of time.

The collateral for this loan is the equipment you purchase. You’ll find that this loan is generally self-secured. This means you’re more like to be approved and get larger loan amounts while paying much lower interest rates.

Finally, you can often set a longer repayment period for equipment loans.

#4: Look at Commercial Loans

If you’re thinking about purchasing a second restaurant location, it’s time to look at a commercial real estate loan.

Just like the equipment loan, you are taking out this loan for a specified purchase. The bank then uses the actual restaurant property as collateral for your loan.

You’ll generally find good loan terms for your commercial real estate loans. While banks are good places to check, don’t forget the Small Business Administration where you may find quite long repayment terms.

#5: Credit Cards are an Option

Another way to finance your new restaurant location is with your own credit cards.

While this isn’t the ideal way to move forward, you could use your credit cards for smaller purchases.

When doing this, though, you want to make sure your business credit cards at least offer 0% financing for 12 months or more. This means if you pay it off during that time frame, you pay no interest at all.

#6: Check out the Business Line of Credit

Another tip for financing a second restaurant location is to ask your bank for a business line of credit. This is similar to your credit card.

Once you’re approved, the bank opens a line of credit for you. You will most likely have a spending limit. You will also have to pay on this loan every month before you can take out any more credit.

This can be a good option when you need an open line of credit. This gives you the ultimate in flexibility.

Because this is unsecured debt like a credit card, make sure you can manage it well. It is generally more expensive, and you’ll pay bigger rates than with a traditional loan.

#7: Investors May Help

Another way to secure financing is by taking on investors.

For many restaurants, this is a good option.

If you’re going this route, you do want to understand your investors will most likely gain some control over your restaurant and your way of work.

If you’re willing to do this, research your investors and write a contract that serves you both well.

Final Thoughts

With thousands of restaurants in the United States, if you have a winning recipe for success, it’s time to open another.

Now that you’ve got seven tips for financing a second restaurant location, you’re ready to begin.

Securing capital and financing for your new project is vital to your success.

Be sure to weigh all of your options to find out the best one for you. It may also work out that you can use a combination of financing options.

Whichever way you go, research your potential financial providers. Try to find ones that are familiar with the restaurant industry.

This way, they know what to expect. They might understand how your business is seasonal, that some times are slower than others, and your profit margins won’t always be the same.

Ultimately you want financing that works for your restaurant. A good partner is key, and this is where your research comes in. (tweet this)

When interviewing potential funders and applying for financing, ask them as many questions as they ask you. Find someone who is reputable and reliable as you finance a second restaurant location.

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