Financing a restaurant all on your own can be difficult. Most restaurant owners look for partners to share the cost. Others who are confident in their business plan may even put all their funds on the line to finance their restaurant. Another option for funding can be getting a restaurant loan. If you like the third option, then you are probably wondering how you can get a restaurant loan.
Getting a restaurant loan can be much easier if you follow the right steps. That is why we will be discussing the process of getting a restaurant loan.
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How to Get a Loan for a Restaurant?
Analyzing the Initiating Cost
Like any other business, starting a restaurant will cost you some money. Whether the amount is little or big, depends on the type of restaurant you are starting. A good restaurant owner needs to know how much it is going to cost him to build his restaurant business.
When you will ask a bank to lend you money, they will ask how much the whole thing is going to cost. You need to be accurate in this scenario. Because the bank will have their people research and analyze how much it is going to cost.
Before you go ahead and ask for a restaurant loan, analyze the initiating cost. Try to gather as much information about your business as possible. You need to remember that the lender will always want to know the numbers. For them to take your application seriously, you need to back your idea with some accurate numbers.
The funding for your restaurant needs to take into account the following costs:
Guaranteed Percentage is the portion of your loan which you must pay in case you are unable to pay the full loan amount.
Amount plus Interest:
It is highly likely the restaurant loan you will be getting will have some interest. For example, you’re getting a loan of 100,000 dollars, and there is a 5% annual interest on the loan. So, you will need to pay 5000 dollars each year until you have repaid your loan. Take the loan amount plus interest into consideration when you are calculating the starting cost.
Cost of Physical Space:
If you open a restaurant, you need a physical space where you will run your business. You can buy the space or take it on rent. Also, there is going to be a maintenance cost for this space too.
You must buy insurance for your business. Insurance for your business will cover any accidents which might happen during your natural course of business. So, add the insurance cost to start your business.
There are several licenses that you need to run your restaurant business legally. For example, you need to have a liquor license to sell alcohol in your restaurant. Other types of licensing are also necessary depending on the place you set up your restaurant. There are fees that you need to pay for you to apply for these licenses. Hence, take these into account also.
There is a lot of equipment that you need to run your restaurant successfully. You need to estimate the cost of all your necessary restaurant equipment.
At the start of your business, you will have a working capital deficiency. This means you have more expenses than income. To balance them out, you need capital at hand. This capital will help keep your business afloat until your income becomes more than your expenses.
If you serve good food in your restaurant, then your business will market itself. But you must run a marketing campaign when starting as you want more people to know about your business. Marketing will cost you so account for that also in your budget.
Where to Find a Restaurant Loan?
The most common place for a restaurant loan is to go to a bank or lenders who do it commercially. Whenever you are taking a loan, the lender is taking a risk on you. No matter how good your business is or how good your credit score is, there is always a risk. Lenders prefer to give the loan to people who have higher chances of paying them back. That is why they require you to have a good credit score.
You need to show the lender you have some assets which you can liquidate to pay for the loan in case your business is not successful. For example, you can show your home as collateral for the loan if your business fails.
Write a Thorough Business Plan:
Before you go ahead trying for restaurant business loans, you must have a thorough business plan. A good business plan will let you know whether you can make your business successful or not. From a lender’s point of view, your business plan should show that your business will be successful and you will be able to pay them back.
Types of Restaurant Loans
There are different types of restaurant loans available. Loans that are offered by the banks have lower interest rates and lend you a higher amount. But the problem with bank loans is that the application process is a bit difficult. You will need to have a good credit score and the approval process takes months. They will also want to see some collateral. Some loans offer a line of credit.
These loans operate like a credit card. You will have a maximum amount which you can use. But you will only pay for the amount you used from the line of credit. For example, your limit is 10000 dollars, but you used 2000 dollars. You will pay only for those 2000 dollars, not the whole amount. The interest will also be based on the 2000 dollars you used.
When applying for a restaurant loan, you must take your time to decide. Choose a loan that you can pay without taking too much pressure. Weigh your choices carefully, and then decide which loan to go with.