The restaurant industry. From the Michelin 3 Stars to the corner food truck and everything in between. From fine dining to the taqueria. There appear to be as many types of restaurant business loan options as there are restaurants. Our objective is to serve (no pun intended) you with the best options for restaurants. It’s the world where people, friends and family work long draining hours. They enjoy the pressures of a Fortune 500 company while barely breaking even.
YELP! Imagine your entire livelihood destroyed by a user named Debbie who hasn’t been happy with anything a single day in her whole life.
Most people watch five minutes of “Kitchen Nightmares” and decide that the restaurant business isn’t for them. However, there are some out there who watch Gordon Ramsay berate restaurateurs until they break down in tears and think, “I want some of that.”
How to Get Funding for a Restaurant
If you’re one of those people who just loves the kitchen, we won’t sugarcoat it for you.
The restaurant business is hard. It is difficult for existing restaurants that are trying to stay competitive, and it’s especially hard for new restaurants looking to make their mark.
It’s doubly hard if new or established, and you are trying to secure a restaurant business loan for restaurant equipment, advertising, or business expansion. The fact is that restaurant funding can be difficult.
If you think you’ve solved the great mystery as to what sort of restaurant will defy the odds, break the first-year curse and make millions in its first few weeks, then we won’t try and stop you.
As a business owner, there are specific restaurant financing options out there for the small business owner. We will discuss your restaurant financing option and how you can get a small business loan for a restaurant you want to open, build, or to expand your dream business.
Whether you’re starting a restaurant startup or have owned one for some time and are experiencing cash flow problems, the right working capital loan at the right time can make all the difference in the world when you’re trying to run a successful restaurant. As you know, loans for small businesses are always a challenge.
Unfortunately, qualifying for restaurant financing is often easier said than done. That’s especially true when your business is relatively new or losing money. If you have a bad personal credit score or credit history and no collateral, it’s even trickier.
Luckily, there’s an easier way. Sunwise Capital, an online lender, specializes in providing fast, easy small business loans, including restaurant loans. Unlike the traditional lender, an alternative lender can offer more business financing options. These alternatives are an ideal funding option to replace a restaurant equipment loan or inventory financing. If banks and other traditional lenders won’t give you the time of day, restaurant business loans from Sunwise are here to save the day.
Business lending sure has changed a lot. The Good Old Day’s Approach is how your great-great-grandfather opened his restaurant in 1835. He went into the bank, spent five minutes discussing it with the friendly banker, complimented the manager on his debonair pocket watch and left the bank with the cash advance for restaurants he needed to launch his little diner, which served the best steak dinner this side of the Mississippi for a whopping twenty-five cents.
Today, the process for would-be restaurateurs obtaining a small business bank loan has changed just a tad. Typically, the process looks like this:
A hopeful entrepreneur enters the bank with his bright new plan – which still smells of fresh ink, hopes, and dreams – and presents it to a bank loan manager.
The credit manager tells you that new restaurants in the area have an 80 percent failure rate within a year. The business bank manager also mentions to you that you don’t have the personal credit score nor the personal financial wherewithal, necessary for the business funding amount you’re asking for and that no bank will grant a restaurant bank loan or even equipment financing to you until you demonstrate success in running a similar business. The proverbial “Catch-22.”
Ironically, no one can do that unless they receive the working capital they need to start that business in the first place.
Then, the young entrepreneur feels crushed and hopeless, leaves the bank, and probably ends up going to grad school or something. Just kidding.
Yes, the process has certainly changed. Sadly, the truth is that a lot of new restaurants do fail in their first year. For this reason, a lot of bankers are hesitant to grant small business restaurant loans to entrepreneurs or restaurateurs looking to break into the restaurant biz for the very first time.
It’s not you; it’s the industry. Do a simple Google search for “Bank loans for restaurants.” It shouldn’t come as a surprise. There isn’t a bank that shows up in the search results.
According to the Wall Street Journal, in an article on “How to Finance a Franchise Purchase,” they laid out some pretty cold hard facts.
The crux of this article is if you are buying a franchise with a recognizable name or reputation, you may find a loan product that works for you. This article does not apply to your typical cafe or family restaurant.
The point is to show you the real challenges securing small business loans for restaurants that are recognizable. Imagine the challenges if your restaurant is a stand-alone or only a few local locations.
First, they tell you to be prepared to put down 20% from personal funds. Prior to the economic collapse or the mid-2000s, most business owners or would-be entrepreneurs cashed in on their home equity. Today, post-COVID-19, the challenges are even much greater. Currently, there is a good chance you will not even qualify for a business cash advance.
They must drain their savings account or checking account and give personal guarantees. That’s your “skin” in the game. Here is a list of all twenty-three documents you will need to prepare for a bank loan application.
CLICK HERE FOR REQUIRED BANK LOAN DOCUMENTS.
Next, they advise you to seek an SBA loan from the Small Business Association. The challenge here is that there is a good chance your bank doesn’t offer an SBA loan directly. Talk to us about our SBA lender program if the bank you are talking to rejects you. We’d love to be your lending partner.
Perhaps you are looking to tap into your retirement or 401K account. Just make sure you speak to a qualified accountant to review the tax implications.
According to the WSJ, here are the top 8 considerations when looking to traditional commercial lenders like your bank and credit unions:
If the statistics about new restaurants haven’t dissuaded you and you are determined to make your restaurant dreams a reality, don’t fret. There are other ways if the bank says “no.”
Yes, this is a thing people do. Surprisingly enough, it’s occasionally successful. Some people use crowdfunding websites to amass the capital they need for their new restaurant.
When we say it’s occasionally successful, we mean that there are a few specific situations where this seems to work. First, those who have a huge presence on social media tend to be more successful when they rely on crowdfunding as a source of national funding for just about anything.
So, if you’re already a huge YouTube star, sure, give it a shot.
Those whose restaurants will have a charitable angle might also have good luck with crowdfunding since people like giving money to companies that will end up giving back to their communities.
If you’re just a group of guys, who want to start a food truck to sell Asian-Mexican-Polish fusion artisanal burritos to hungry hipsters who will pay $20 for literally anything, well, don’t expect crowdfunding to yield results.
The crowdfunding websites teem with would-be business owners begging for money, and most of the projects never receive the funding or loan amount they need.
The Three “F’S” is a relatively common method that has stood the test of time. It works. No doubt about that. There are some positives and some significant drawbacks to this approach.
We could probably spend a few good days talking about it, so we will try to narrow in down to the big plusses and minuses.
Well, this is relatively straightforward. Let’s start with family and friends. You got your money. You probably got your family or friends to back you because they know you (or at least think they do). They like your cooking or concept and gladly want to support you in hopes of your big success.
You most likely didn’t have to submit a business plan or provide detailed financials including credit reports, a proforma, and a comprehensive analysis of competitors in the area and the competitive challenges they present to your restaurant.
Here is a huge difference between the banks, alternative lenders, investors, and your family and friends.
Everyone other than family and friends will want to know about the 4 C’s (evaluate these 4 C’s with credit reports, and detailed searches on your background).
All alternative lenders to some extent want to know about your 4 C’s. These are the four cornerstones to any decision they make.
The beautiful thing about family and friends is that they will pretty much give you a pass on most of them. They will be much more forgiving at least to start.
Character. It’s all about your reputation. How’s your history and financial stability?
Collateral. What assets can they take if you default?
Credit Score. What does your repayment history look like? How about your business credit?
Capacity. Can you pay it back (after all your current debts)? What is your annual revenue?
Working with fools can be a little different. It’s unlikely they will just lend you the money. They’ll probably require some equity in the business. The question is, “how much?”
Two words. “Thanksgiving dinner” or “Christmas dinner.”
That’s the challenge when you’re dealing with family or friends. It’s great if things work out. Not so much if things don’t.
To get a much deeper understanding of the challenges and what you should or shouldn’t do I recommend that you read the 9 Mistakes Business Owners Make.
Here is where you are going to score – BIG!
The new approach option is a restaurant loan alternative if the bank says “no.”
It is as close to a surefire “YES” when searching for the “Show Me the Money.”
Alternative lending refers to any lender outside of the traditional big bank system that provides business loans to entrepreneurs – even newer ones without a lot of experience.
Don’t think that these are all fly-by-night operations; alternative lending was born from the scenarios that we’ve outlined here. They offer multiple types of loans designed specifically for your business type. They have a wide range of repayment terms and loan amounts up to $2M. You don’t need a loan calculator. Reputable lenders will provide you with the tools to analyze the rates and daily, weekly and monthly payments.
Essentially, since the banks were all saying, “No!” to young entrepreneurs, there was a need for someone who would take a chance on aspiring business owners, especially when it came to funding restaurants.
Enter alternative lenders. The best small business loan companies and merchant cash advance companies are private lenders that provide financing to small business owners and aspiring entrepreneurs including you the restauranteur, who either cannot go the traditional route of obtaining a loan through a bank or you need a restaurant loan that is fast and easy. You can secure a term loan with an attractive interest rate and repayment term.
They didn’t. Why? No need. Getting a cash advance from a bank was as easy as signing your name to a piece of paper. Call your banker. Tell him you needed a $100,000 line of credit and presto!
Swing by the bank before it closes and sign for your line of credit.
It was that easy. Just sign and drive.
In fact, the idea of receiving cash for receivables (otherwise known as factoring) goes way back in time. Factoring goes back nearly 2,000 years ago in Mesopotamia.
Its popularity increased in the 1300s in England mostly financing the garment industry.
By the 1600’s it comes to the American colonies long before we become the United States. The focus was on financing the burgeoning timber, cotton, and tobacco industries.
In the 1800’s we see an explosion as the Industrial Revolution sweeps Europe and the U.S.
In the twentieth century, almost every decade sees more expansion of factoring reaching more industries as a primary source of financing.
By the 1990s there is a tremendous growth of factoring companies. Some start targeting specific industries.
Today’s merchant cash advance, some two decades in the making is an offshoot of this type of lending.
Are you short of the money that you need to keep your business plugging along? Perhaps you need some cash to expand your restaurant, or maybe you need it to invest in new equipment.
You might even need to catch up on old debts, including taxes. Whatever your reason may be, obtaining funding from traditional lenders is more trouble than it’s worth–and it takes forever.
What if I have bad credit? Is there a way to get a restaurant business loan? Why put yourself through that when you can get restaurant business loans in no time flat through Sunwise Capital?
Fortunately, the Merchant Cash Advance or MCA is not a loan. The money the restaurant owner receives is an advance predicated on the future sales or future receipts from the credit card sales.
The difference is the provider of the merchant cash advance for small businesses does not need to consider the personal credit of the restaurant owner.
The MCA provider looks at the daily credit card sales or receipts to determine the amount the business owner can pay promptly.
Think of it this way. Wimpy always told Popeye that he would gladly pay him tomorrow for a hamburger today. As a restaurant owner, you will gladly pay for the cash advance tomorrow for the funds today.
The merchant cash advance is how you can secure the cash advance you need even with bad credit.
Caveat: Don’t think that just because these lenders are independent of the big banks means that it’s free money with no strings attached.
Alternative lenders still charge interest or a fee. Usually, a bit more than the banks. There are terms for repayment (usually daily but possibly on a weekly basis), and borrowers can still default on these loans.
On the flip side, alternative lenders can be an excellent choice for would-be restaurateurs who need a credible lender to take a chance on them and help to finance their dreams.
Look, restaurant financing can be a real pain for anyone who doesn’t have heaps of industry experience. However, this doesn’t mean that those who are completely green to the industry but have dreams of opening their restaurant can’t secure the capital they need to get their own business up and running.
Good News: There are restaurant loan alternatives out there if the banks say no.
Good News: There are restaurant loan alternatives out there if the banks say no.