Thousands of people dream of opening restaurants each year, but many times the overall cost of opening and maintaining a restaurant deters people from pursuing their goals. Even people with existing restaurants struggle to find the funds to improve or renovate their businesses.
The most efficient way to help people open, improve, and maintain restaurants and bars is through restaurant financing. Restaurant financing refers to any form of outside funding from traditional or alternative lenders that restaurant owners use to support business needs.
Various business loans for restaurants and bars help owners start new restaurants and improve existing ones. Let’s explore the most common ways people utilize restaurant financing and which loan option is best for your business.
8 Ways to Use Restaurant Financing
Any restaurant owner knows that opening a restaurant requires more work than just leasing a building and creating a menu. Successful restaurants need up-to-date equipment, skilled employees, strong marketing efforts, stylish furniture, and more.
Usually, the only way to fund a new or existing restaurant is through restaurant financing. Luckily, financing can be used for a myriad of reasons, including:
1. Build a New Restaurant
Starting a brand new restaurant entails planning for start-up costs before the eatery can open its doors to guests. Before the grand opening, restaurant owners need to:
- Secure a commercial space
- Buy kitchen supplies and equipment
- Apply for appropriate licenses and permits
- Purchase furniture and decor
- Set up point of sale (POS) systems
- Advertise the restaurant
- Hire staff members
- Source the food and beverage stock
As you can tell, opening a new restaurant requires a lot of funding upfront. A restaurant loan can help fund any of the necessary start-up costs.
2. Make Renovations
Not only do food and drink trends change, but so do interior design trends. Especially in urban or metropolitan areas, there is pressure to keep up with rapidly changing interior trends.
Even with design trends aside, many restaurants experience frequent wear and tear on furniture and menus due to the number of customers who visit their eatery each day. Of course, a well-attended business is every restaurant owner’s dream, but frequent wear calls for regular renovations.
A restaurant business loan can help fund updated furniture, employee uniforms, wall decor, new flooring and paint, and more.
3. Relocate to a New Location
If a current restaurant location has high rent costs, isn’t visible enough to attract customers, or is too small to accommodate business operations, many restaurant owners choose to relocate their business to a new location.
Whether you want to move your restaurant down the street, across town, or to a neighboring suburb, there are many finance fees to account for.
- Securing a new lease
- Making a down payment
- Hiring a moving team
- Finding unique furniture to suit the space
- Completing inspections
- And more
4. Hire More Employees
Every restaurant owner can only hope that their business becomes a roaring success. When restaurants, cafes, and bars are constantly flooded with dining customers, take-out orders, and delivery requests, they need to hire more staff members to keep up with the demand.
Restaurant employees include servers, hosts, chefs, line cooks, bartenders, and managers. Hiring a larger staff costs money, and many business owners utilize a small business loan to cover the initial hurdle of bringing on more employees.
5. Cover Payroll Expenses
Right alongside hiring more staff members comes payroll expenses. Especially when a restaurant is brand new, business owners need to find a way to pay staff members for training and the first few weeks of service before steady funds come in from customers.
A business loan such as a line of credit is one of the best ways to buffer cash flow and working capital when restaurants are just starting. With the help of a loan, restaurant owners can rest assured that their employees will get paid fairly before the business gains momentum.
6. Purchase New Equipment
Every business needs equipment to run correctly, even if it’s just computers or cash registers. If a restaurant uses outdated equipment that is slowing down business operations, restaurant owners need to secure financing to cover the cost of new equipment.
Necessary restaurant equipment includes:
- Point of sale (POS) software
- Food processors
- Food prep counters
- Freezers and refrigerators
- Mixers and slicers
- Ice makers
- Safety equipment
- Cash registers
7. Add Additional Locations
If your restaurant has found success, you may choose to maximize your potential profits and open additional locations. To start, add a second restaurant location on the other side of your current city. If that location does well, you may consider expanding to a neighboring suburb or the nearest city.
Adding new locations entails many of the same start-up costs as opening a brand new restaurant. You will still need to secure a building, furnish the restaurant, hire staff, and apply for permits. Securing restaurant financing is the best way to help restaurants grow and expand.
If your restaurant finds success in multiple locations, you may want to finance a franchise. Franchises work when a franchisor establishes a brand’s trade name, and a franchisee pays a royalty to the owner to operate a business under the same name.
Franchising is widespread in the restaurant industry. Some popular restaurants that expanded into franchises include:
- Olive Garden
- Dunkin’ Donuts
- Panera Bread
- Noodles & Company
- The Melting Pot
- Outback Steakhouse
- And more!
There are things to consider before seeking a franchise loan, but franchising can open a world of opportunities for successful restaurant owners.
8. Invest In Marketing
If reliable business isn’t coming through your restaurant doors in the way you were hoping, it may be time to invest in marketing. You can create a robust marketing strategy in-house or outsource the work to a marketing agency.
It is wise to utilize a business funding loan to increase marketing efforts. With the proper advertising and branding, you will see business rise in no time.
The 5 Best Business Loans for Restaurants
Now that you understand how to use a restaurant loan, you may be wondering what loan is best to apply for. There are many types of financing available, and each loan suits different needs, credit scores, and repayment terms.
Let’s dive into the five best funding options for restaurants.
1. Equipment Loans
An equipment loan is a popular type of restaurant loan because every eatery needs proper equipment to operate. This loan designates funds specifically for the purchase of business equipment.
Equipment loans are secure financing options for alternative lenders because the equipment itself acts as collateral. Collateral positively impacts business loan eligibility because if you can’t fulfill the loan repayment, the lender has the right to obtain your collateral in its place.
The best part about equipment loans is that once you’ve paid back the required amount, you are the official owner of the equipment.
2. Merchant Cash Advance
Lending options such as merchant cash advances offer reliable access to working capital to increase your restaurant’s cash flow. A merchant cash advance offers many benefits for restaurants, including:
- No lending restrictions on how funds can be used
- Fast access to financing
- Simple application process
- Flexible repayment terms to the lender
A merchant cash advance works when lenders give business owners a lump sum of cash. The capital is paid back by exchanging a fixed percentage of the restaurant’s future daily credit card sales. Most small businesses that have consistent monthly credit card sales can qualify for financing from a merchant cash advance.
3. Term Loans
Term loans are a form of restaurant financing that requires repayment to be made within a specific time frame. There are two common types of term loans: short-term loans and long-term loans.
A short-term loan is a financing opportunity that offers fast funding for working capital, renovations, marketing efforts, and more.
The repayment term on a short-term loan is usually 18 months or less, and payments can be made monthly, weekly, bi-weekly, or in some cases, daily.
Business owners with poor credit but proven profitability make ideal candidates for short-term loans.
Long-term business loans operate the same as short-term loans except that the repayment period is longer. Typically, the repayment schedule for a long-term loan lasts anywhere between two to 25 years.
A long-term loan provides financing in the form of an upfront lump sum of money. The capital can be used for any business purpose, and repayments are typically made monthly.
4. Small Business Administration (SBA) Loans
The Small Business Administration (SBA) is a government agency that works to match small business owners with reliable forms of financing. SBA loans can help with debt financing through loan programs, optimal interest rates, and support for minority business owners.
Keep in mind that SBA loans are ideal for many people due to attainable repayment terms and low interest rates. For this reason, the application is more thorough than other financing options, and it usually takes a few months for businesses to secure funding.
5. Business Line of Credit
A business line of credit is one of the most flexible financing options available to restaurants. Technically, a business line of credit is not a loan, but it is a pool of credit that business owners can draw on when needed.
The financing in a line of credit works similarly to a regular credit card that you have in your wallet. Alternative lenders offer credit lines that restaurants can draw on only when needed.
A business line of credit is ideal for emergency funds, cash flow issues, and infrequent equipment purchases. The best part of this form of financing is that borrowers only pay interest on the funds they actually use.
Improve Your Restaurant Operations With Financing Today
Whether you want to start a new restaurant, improve your existing business, or expand into a franchise, you need reliable financing options to support your efforts. Between term loans, SBA loans, lines of credit, equipment loans, and merchant cash advances, there is no shortage of funding options available to your restaurant.
If you’re ready to secure financing and improve your restaurant, reach out to AdvancePoint Capital today. You can receive a free quote that won’t impact your credit score.