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How Can I Finance a New Restaurant Startup?

Posted On: February 7, 2023 author Paul Kendall

If you’re starting up a new restaurant, do you know what financing options you have available to you?

Many new restaurateurs may not know the variety of financing options that are available to their business, even if they have a lot of experience with businesses or the restaurant industry.

It’s entirely possible to finance your new restaurant startup as long as you know what options are available to you, the needs of your business, what the market is like in your area, and so on. Getting a start up restaurant loan may not be as confusing and challenging as one might think!

So let’s jump right into it figuring out how to finance your new restaurant startup!


What You Need to Know

Starting a new restaurant from the ground up requires a lot of work. But we’ll help you work out what you need to know as you look for financing options.

It Takes Time to Get Equipment Financed

Don’t expect to be able to find your best financing option, apply, and get approved in a matter of days. Depending on your business, the financier you choose, the market you’re in, and the type of start up restaurant loan you select, it can take weeks or even months to get enough funding to get started with your restaurant. The more you can prepare your restaurant ahead of time, the better.

Know Your Personal & Business Financials

Before you even consider getting a start up restaurant loan or other form of financing, you have to know where your personal and business financials are at. Many financiers will be looking at your credit score, the time you’ve been in business, the amount of funding you have available (e.g., for a deposit), or other forms of collateral. 

When trying to get a start up restaurant loan, obviously you won’t be able to showcase how many years you’ve been in business. It’s also possible that you may not have a great credit score. But just because you may not have “ideal” financials, it doesn’t automatically disqualify you from getting your start up restaurant loan.

Instead, you may have to provide a larger deposit upfront or provide some other form of collateral to cover the “risk” that a financier associates with you.

Know Your Business Plan

In order to be seriously considered for funding, most financial institutions will want to look at your business plan. If you don’t know what yours is or you haven’t created it yet, you need to take the time write out your business plan before you seek out a start up restaurant loan.

A business plan is your blueprint or roadmap for success within your restaurant. Consider your business plan as a living “guideline” for the next 5 years that will outline the intention of your business, what success looks like, and how you’ll get to your destination.

What to Include In Your Business Plan For Start Up Restaurant Financing

While there are different ways to structure your business plan in order to get a start up restaurant loan, you’ll find common categories you can use in your own plan to get started:

Executive Summary - A quick overview of your business plan and the goals of your restaurant.

Business Organization/Management - The “structure” of your business.

Business Funding Requests - The type of information you need in order to seek outside funding and what you need to use the funding for.

Description of Business - A brief description of what your business is, what it provides, and what sets you apart from other businesses.

Services/Products - The type of product (e.g., food) you sell or the services (e.g., catering) you provide.

Start up Restaurant Financial Projections - Insight to how funding will be utilized and how it positively impact the growth of your restaurant. This may include information about paying your start up restaurant loan. Consult with someone to help you if this isn't your strength. 

Analysis of Restaurant Market - General overview of the research you’ve done about your market, industry, and competing restaurants.

Restaurant Sales/Marketing  Plan - How you plan on making money within your business, such as your sales strategy.


Types of Financing Options Available for Start Up Restaurants

There are many types of funding to consider for your restaurant when you’re seeking out a start up restaurant loan. While some options may classify as a restaurant loan, other options like restaurant equipment leasing are still viable options for your business. Getting a start up restaurant loan can be a great way to jumpstart the funding of your business.

Consider the following options as you develop your business plan, grow your restaurant, and seek outside funding to get your doors open.

Bank Loans / SBA Loans For Restaurants - One of the “best restaurant loan options" available to restaurants, in regards to low rates, repayment with no pre-payment penalty, and longer terms.

But oftentimes the most difficult financing option to nail down.

Restaurant Loans from banks or the Small Business Association typically have much higher requirements and take much longer to secure (without a guarantee that you’ll get funded). If you have the credentials and patience, it’s worth trying, but may not be the best option if you need business funding ASAP.

Still look to use this type of money for working capital expenditures if you're a start up restaurateur with under 100k in savings and no investors for your new venture. 

Restaurateur Working Capital Loans - A great start up restaurant loan as a “catch all” for all of your business financial needs. While it can be useful to diversify your funding needs between other financial solutions (that are better suited to that type of funding), Working Capital Loans can be used to cover the expenses that don’t have a form of funding specifically designed for it.

The majority start up restaurateurs will use personal loans and 0% credit cards for working capital related expenses and equipment financing to purchase anything equipment, furniture and fixture related.

Restaurant Equipment Financing & Leasing - When restaurateurs buy equipment for their first time. Restaurant Equipment Financing & Leasing can be considered the best type of funding for equipment. Similar to a start up restaurant cash loan.

Rather than buying equipment outright and being stuck with a massive expense in your first months, you can lease restaurant equipment and distribute the cost over a series of months (commonly between 1 and 5 years), with the final option to either buy the furniture, release it for another term, or switch to different (or better) restaurant equipment.

With a restaurant equipment finance agreement (EFA) business owners own the equipment, not the bank. Restaurant equipment financing enables business owners too utilize Section 179 tax code where restaurateurs can accelerate depreciation and write off the entire purchase price in year 1 off their taxable income, or they can depreciate the asset over its useful life and take a small tax break each year. 

Not to make things to confusing about tax advantages but you have one more option.

With restaurant equiment leasing business owners can structure their agreement with a FMV buyout an write off 100% of their monthly payments off their taxable income each year. This will give you the biggest tax write off year after year as long as you're leasing restaurant equipment.

At the end of the equipment lease term you can renew the equipment lease, negotiate a final cash payment with the equipment lessor or return the equipment and upgrade to the latest and greatest equipment. This will also give you a slightly lower monthly payment than restaurant equipment financing. 

Merchant Cash Advances - Should be considered as the last resort. Although it’s not a preferred option among people seeking a start up restaurant loan, a Merchant Cash Advance can still be a viable option for businesses that may not have the credentials for a start up restaurant loan. 

In order to qualify for a start up merchant cash advance loan. You must have atleast have 2 months of business bank statements showing over $7,500 in revenue and over 12 deposits. This type of financing is somewhat ‘adaptable,’ because it captures a percentage of your credit card sales, which means it will adjust based on how well you’re doing or how slow your business is during a particular week.

Contact us today to learn more about what start up restaurant loan is going to be the best option for your new restaurant or expansion. We're here to give you straight forward advice about all of your best start up restaurant financing options.  

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