4 Ways to Finance Your Restaurant Startup Concept

You’ve got your restaurant concept and business plan all ironed out. You have an idea of what you need to buy. You’ve got a roadmap for how to market your business…Now, all you need is to obtain the financing to turn your culinary dreams into reality.

We’re here to help. Here are five different methods of financing your restaurant venture or restaurant equipment purchases.

Need restaurant equipment financing? We offer Buy Now Pay Later financing and work with several lenders for equipment loans.

1. Traditional Bank Financing

Applying for a bank loan is often the first course of action that comes to mind for aspiring restaurant owners. But bank loans are also difficult to obtain. According to Venturize, “about 72% of small business owners who apply get rejected”.

That said, if you do qualify for a bank loan, accepting it can be beneficial, for some of the following reasons:

  • Low Interest Rates: Bank loans often have fixed interest rates that are lower than other borrowing methods.
  • Predictable Monthly Payments: These can make budgeting as a new business owner easier and more manageable.
  • Business Credit: Establishing credit as a business can be useful, especially if you grow to the point of expansion.
  • Flexibility: Bank loans are available for a wide variety of uses.

Bank loans have downsides too. They often take longer to obtain than other funding methods. They also often require extensive paperwork, strong credit, and collateral. For some of these reasons, many small business owners may be better off applying for a small business administration (SBA) loan.

2. Small Business Administration (SBA) Loans

The Small Business Administration (SBA), an outgrowth of the U.S. Federal Government, provides funding to small businesses that meet certain criteria. If you’re eligible for an SBA loan, it could make obtaining funding much easier than getting a traditional loan. In fact, the purpose of the SBA is to partner with lenders “ to help increase small business access to loans”.

The SBA is not a loan provider itself (except in instances where businesses are affected by a disaster). Rather, it functions as “a guarantor to loans offered by commercial lending institutions who have authority by the SBA to grant such loans”, backing the loans up to a certain point, and therefore mitigating risk for small business borrowers.

As the SBA itself notes, the benefits of SBA-guaranteed loans, include the following:

  • Competitive Terms: SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans.
  • Counseling and Education: Some loans come with continued support to help you start and run your business. Other
  • Unique benefits: Lower down payments, flexible overhead requirements, and no collateral needed for some loans.

To qualify for an SBA loan, you must:

  • Be a for-profit business that is officially registered and operates legally.
  • Be a business that is both physically located in and operates within the contingent U.S.
  • Be creditworthy.
  • Have exhausted other loan sources (The requested loan must be unavailable on reasonable terms from non-government sources).

3. Crowdfunding and Online Platforms

With barriers to entry for traditional loans and even SBA loans being relatively high, more and more small businesses are turning to alternative funding methods.

According to Stripe, “as of 2023, the global market for crowdfunding was estimated to be worth over $1.4 billion, a figure that’s projected to double by the year 2030.”

As Stripe also notes, while there are various types of crowdfunding, and each offers its own unique benefits, some of the overarching perks of funding your restaurant startup with crowdfunding include:

  • Increased access to capital.
  • Market validation potential.
  • Audience building and brand awareness capability.
  • The ability to collect feedback & insights through crowdfunding.
  • Less risk.
  • Potential partnership/networking opportunities.

Looking for information on how to crowdfund your restaurant? We recommend checking out Toast’s article “How Does Crowdfunding a Restaurant Work?”.

If starting a crowdfunding campaign seems like too much work, there are even organizations that are beginning to offer unique solutions to finding alternative local funding, like Honeycomb Credit, a platform for matching local lenders and investors with would-be small business owners.

4. Angel Investors and Venture Capital

Many aspiring restaurant owners turn to their network of connections when starting off. Whether that involves relying on friends, family, angel investors, or venture capital funds, these lending sources can often provide the money required to get a restaurant off the ground quickly without the red tape sometimes required with other methods.

But each four of these methods has its own unique benefits and drawbacks to consider.

If you’re getting friends or family involved, for instance, we recommend against word-of-mouth lending contracts.

We Offer Restaurant Equipment Financing for Startups

If your business is partially funded but you still require financing for restaurant equipment, GoFoodservice can help. We can help you get credit from a variety of lenders.

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