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Can a Startup Restaurant Get Financing?

Posted On: May 5, 2018 author Paul Kendall

This is a common question for many new restaurateurs. Starting up a new restaurant, whether it’s for the first time ever or simply a new location or type of restaurant, can be a little overwhelming. Naturally, the more experience you have with starting up restaurants, the easier it seems and the less stressful the process is.

That said, it’s not uncommon for anyone, regardless of experience in the restaurant industry, to seek out funding options for their new restaurant, from a start up restaurant loan to the option to lease restaurant equipment and more.

To answer the question, “can a startup restaurant get financing?” requires looking into the individual situation a little more. The short answer is yes. But make sure to consider the following scenarios and variables as you look for financing or try to lease restaurant equipment.

 What Restaurant Financing Options Are Available?


Like any business in any major industry, there are a variety of funding options that are available for start up restaurants. Each type of funding has its own pros and cons that should be considered based on the needs and style of your business. From bank loans to merchant cash advances to the option to lease restaurant equipment, we’ve provided you with a lot of great financing and funding ideas.

Below are common forms of restaurant financing that you can seek out for your business, depending on various personal, business, and market factors.

  • Bank Loans for restaurants- Often times, the best option available to you, but is also commonly not an option available to businesses, especially startups. Banks typically have higher financial requirements and sometimes takes longer to acquire a loan. Time that you may not have as a business owner.
  • Small Business Administration (SBA) Loans for restaurants- Like a bank loan, this is usually a great option for businesses that can successfully apply for it. SBA Loans however take a while to process, so you may not know if you’re approved or denied for weeks or months at a time. An SBA 7 loan is a great loan if you can qualify for it. Be prepared to wait 2 -3 months for approval.
  • Line of Credit for Business - Great alternative for businesses that may not yet understand the full scope of their finances in early months. You only pay for what you use and you’ll gain access to funding when you need it. Lines of Credit can be used for bulk purchasing, fast access to working capital, short-term cash flow solutions, and more. Line of Credit for Businesses are harder to qualify for. 
  • Working Capital Loans for Restaurants- Often considered as a “catch all” for financing in restaurants. Working Capital Loans are any type of cash loan that will help you cover expenses over a period of time. There are custom working capital loans that exist for restauranteurs offered by various private lenders and local banks. A little secret that many start up restaurant owners will do is a balance transfer on their credit card to there bank account to give them working capital. Many credit cards are offering 0% for 8-18 months. If you have a great credit history of over 5 tradelines and over a 700 fico you should qualify. 
  • Lease Restaurant Equipment - Leasing Restaurant Equipment is a great choice for restaurants that know how to separate their financial needs between equipment, resources, working capital, etc. When you choose to Lease Restaurant Equipment, you’ll have the option to create a customized and affordable financing plan to cover the financial costs of owning/operating your restaurant’s equipment. For example you can choose a term to meet your needs, commonly between 2 and 5 years. Remember when you lease restaurant equipment you can write off 100% of your payments off your taxable income. Here's a restaurant equipment leasing calculator to figure out how much equipment you can afford to buy. 
  • Inventory Financing for Restaurants- In the beginning, restaurants commonly need funding to cover the costs of food, which is where Inventory Financing comes in handy. You’ll find flexibility with getting a line of credit or short term loan through your credit card receivables, as long as the resources classify as inventory, similar to when you try to lease restaurant equipment. Many start up restauranteurs will take out a personal loan with a local credit union for inventory financing for restaurants if they can't get there business approved yet. 
  • Unsecured Business Loans for Restaurants- These loans are a popular choice among business owners that have  great credit and are looking for monthly payments. Unsecured Business Loans are tied to your personal credit, duration in business, and the financial status of your business (e.g., showing a profit). This form of financing commonly requires a lot more documentation and will require your restaurant to be generating over $250,000 a year in revenue. 
  • Business Cash Advances for Restaurants- Although it’s considered a pricier option compared to the alternatives, a Business Cash Advance is still a worthwhile funding solution to mention for businesses that may need it. With this form of financing, you are getting a “loan” that is repaid by capturing a percentage of your future receivables. If you're not careful and in your busy season or have revenues coming in the foreseeable future. This type of loan can blead your business. Don't stack these loans on top of each other. If you have one and its drowning your business. Don't take another one to save it. That will just make things worse. If you currently have more than one. Than contact a financial professional to discuss your options.
  • Peer-to-Peer Lending - You can utilize third-party lending web platforms to help you find startup money. This form of lending can be a little more involved or complicated, depending on the platform that you utilize, and the interest rates can be higher due to these platforms using a ‘middleman’ to act as intermediary that provides security to actual lenders.
  • Personal Funds & Credit Cards - Another option that is common in some cases is to utilize personal funds that have been saved up over the years in addition to credit cards for making certain purchases for your business. This can put a tremendous amount of financial pressure on your or your family, so it is not always advised, but for some determined restaurateurs, it may be their only option to get the ball rolling.
  • Landlord Funding - In some situations you may be able to strike a deal with your landlord if they have interest in your restaurant idea, such as an actual investment or a reduced rent cost. Even if you can’t compensate him/her early on, you could provide equity in your restaurant or a percentage of your sales until you can pay him/her back.

 

As you can see, there are a lot of options to financing your business, whether it’s a startup or not. Whether you want to lease restaurant equipment or buy it outright, or if you want to diversify your funding or keep it streamlined with fewer financing choices, the above solutions will help you to get started with financing your startup restaurant.

 

What Do I Need to Get Restaurant Financing?


What you “need” will vary based on the type of financing that you’re seeking out, such as a opportunity to lease restaurant equipment or utilize bank financing. However, among most types of financing, there are common financial characteristics that each financier is going to look for before they give you a bunch of money to start your restaurant.

● Credit Score

● Time in Business

● Available Collateral (commonly used if you don’t have a great credit score or have a history of business to show)

● Available Funds (e.g., deposit upfront)

Regardless of where your finances are at the moment, don’t rule out any financing option. For example, some financiers may be able to help you lease restaurant equipment even if you don’t have a great credit score or already have years of experience with your business (i.e., because you’re a startup restaurant).

 

Benefits When You Lease Restaurant Equipment

Choosing to lease restaurant equipment is a great way to diversify your financing while gaining a handful of other benefits:

● Saves Money In the Beginning - Rather than buying equipment outright (and being out thousands of dollars), choosing to lease restaurant equipment means a much lower initial startup cost for your restaurant. When you lease restaurant equipment, you’re essentially spreading out the cost of the equipment across multiple months (12-60 months is common).

● May Get Some Equipment Free of Charge - Some companies may even provide certain restaurant equipment for free (monthly lease) as an incentive or reward for purchasing other products that company provides.

● Lower Repair Costs for Equipment - When your equipment breaks, you don’t have to break the bank to make repairs for the equipment because you’re only leasing it and a lot of leases can cover repairs. 

● More Flexibility with Equipment Choices - At the end of your lease, you can choose to either purchase the equipment for a small cost (as low as $1) or choose to give the equipment back, giving you the option to select different equipment or continue to lease the same equipment.

● Low Monthly Restaurant Equipment Leasing Payments - Utilize this restaurant equipment lease calculator to figure out what your restaurant equipment lease payments could be. 

Final Thoughts On Start Up Restaurant Financing

It's best to lease all of your restaurant equipment and small wares. Lease equipment that depreciates and pay cash for things that appreciate. Use personal loans, SBA 7 loans, Credit cards, savings, etc for things like hiring employees, payroll, marketing, licensing, etc. It's always best to lease equipment that.

When applying for a start up restaurant loan. You'll likely supply an application, business plan or forecasts/projections, personal financial statement, resume/proof of industry experience, banks statements to show proof of liquidity and access to cash while you start the new restaurant. Let the equipment finance rep know if you have a spouse that has a good job that can support you two while you start the restaurant. Proof of savings or money raised goes a long ways in the equipment finance industry.  

Use our restaurant equipment finance calculator to calculate how much your restaurant equipment financing payments could be and how much restaurant equipment you can afford to buy based on your monthly budget.

We invite you to give Trust Capital a call  at 866-458-4777 or send us a message today to learn more about restaurant financing options available for your restaurant. Whether you need to lease restaurant equipment or prefer utilizing working capital loans, we’ll help you find the best solution available for your restaurant. It doesn’t matter if you’re on opening your first restaurant, already have some experience as a restaurateur, or are a seasoned restaurant owner, a Trust Capital loan specialist will help you optimize your financing for your new restaurant.

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