Are you willing to establish an eatery to fulfill your dream of becoming an investor in the restaurant industry? Perhaps you have perfected your skills as a chef, and it’s time for you to go into a solo venture. Regardless of the reason for your choices, financing the start of a new restaurant can be a big challenge. But here is an insightful highlight on some of the five common restaurant funding options, which can help you in areas such as inventory financing, marketing funding, and payroll funding.
Small Business Bank Loans
Most restaurant businesses seek their funding from local banks, which offer them small business bank loans. Traditional bank loans are popular in America. In fact, according to the survey conducted by the Federal Reserve, an estimated 40% of business owners in the U.S applied for traditional business loans in 2017. However, it is a tricky path to follow because most banks don’t prefer funding restaurants because of their high rate of failure. But it will be easier if you have assets to serve as collateral or a record of good performance.
The SBA loan program provides a partial guarantee for loans, and this reduces the risk for lenders and increases their chance of lending you the money. The 7(a) Loan Program is the most popular, but to qualify you have to meet various requirements. For example, you have to be operating for profit and free from any debt obligations. Therefore, you should speak to an SBA program official to understand what is needed.
Equipment loans are also some of the most popular restaurant funding options for you if you’re seeking to buy equipment for your restaurant. Equipment loans are meant to fund the purchase of equipment for new restaurants or established restaurants that wish to upgrade or expand. The benefit of equipment financing is that the equipment you purchase serves as your collateral and this offsets some of the lender’s risk.
Merchant Cash Advance (MCA)
Merchant cash advance is also one of the popular restaurant funding options for you if your business has high sales volumes. MCA is a financing option where the lender advances you some cash and you pay back the amount by a pre-set percentage of the sales that you make through credit card transactions. If your credit card sales are low, then this isn’t an ideal option.
Home Equity Loan
Home equity loans allow you to secure financing by using your home as collateral. Notably, home equity loans are a risky option because you may end up losing both your home and restaurant if your restaurant business fails.
As you seek restaurant funding options for your business, make a careful consideration of these options as well as others. Also, get well equipped with all the necessary information before visiting your lender.