Running a successful restaurant can be an exciting and expensive business venture.
Even after the initial investments, many restaurateurs do not have the cash available to cover the ongoing costs associated with this process.
In that case, there are a few possibilities for borrowing the necessary funds to build a thriving business.
What Are the Costs of a Opening a Restaurant?
When constructing a food-service business, there are many different expenses that must be covered.
These are some of the largest, although there can be others depending on the type of restaurant and the number of improvements needed:
- Mortgage or rental of the restaurant building
- Remodeling costs to bring the location up to code and the desired appearance
- Furnishings for the kitchen, pantry, restrooms and dining areas
- Kitchen supplies and food inventories
- Pay and benefits for employees
What Types of Loans Are Available for Restaurant Businesses?
Those interested in running a restaurant have a couple of different financing options:
- Traditional bank loan – Many businesses opt for a traditional bank loan first, but restaurants are frequently rejected because of the large start-up costs with little guarantee of success.If the restaurant does go under, the person with the loan is still expected to pay the remaining balance, even without the restaurant income.
- Investors – Another option is to find an interested party who is willing to offer some financial backing by investing in the new restaurant business.Many investors are family, friends or philanthropic business owners.However, it can be very difficult to find someone to take a chance on a restaurant concept.
- Small Business Administration (SBA) – This is the most common type of financial backing used for establishing a successful restaurant.
Possible Loan Complications
Assuming the restaurant is backed by the SBA, there are a number of potential complications:
- The SBA actually provides interest guarantees rather than direct loans.This helps push banks into providing more traditional loans to businesses.
- SBA backing is very competitive and difficult to attain.A potential restaurant must be involved with an SBA-approved bank in order to qualify.
- Applicants must have collateral to use against the new loan, even with SBA backing.This process does not provide free money.
How to Qualify for a Small Business Loan for a Restaurant?
In order to qualify and earn SBA support, it is important to have the following items in line prior to meeting with any SBA or bank officials:
- All applicable documents to show current financial standing
- Demonstrable business experience
- A credit score of above 650 and a stellar credit history
- At least 20-30 percent of the requested amount available in cash as a down payment
- Collateral, such as a house mortgage, that can be used with the loan
- A detailed business plan that estimates costs and potential profits
Even with all of these documents and business plans prepared, there is no guarantee that the Small Business Administration will support a restaurant loan.
This is an unstable industry, and it can be very difficult to locate the financial backing necessary for a business to be successful.