The process of opening a new restaurant has its own set of struggles. You need a substantial amount of money to pay for business expenses such as kitchen equipment, commercial space, serving equipment, facility improvements, and more. Most restaurant owners take on a business loan to pay for start-up costs.
However, first-time restaurant owners have a hard time qualifying for a loan for a number of reasons: (1) the common (but false) belief that restaurants are likely to fail within its first year; and (2) the owner’s lack of management experience. Fortunately, there are other ways to secure financing. Here are ways on how to get a loan to start a restaurant:
1. Find Your Niche
With the number of restaurants popping up everywhere, it’s no surprise that restaurant loans are the most common type of SBA loan. Since restaurant businesses are a very common venture, competition is tough and lenders doubt if you’re able to pull it off. To stand out from the sea of restaurants, make sure to find a niche. For instance, you might want to open a pizza shop if there are no pizzerias in your area. Include this information in your business plan, as well as your projected customer traffic.
2. Make a Business Plan
When applying for a business loan, almost all potential lenders ask for a business plan. Lenders want to know how prepared you are about starting a restaurant business. Make sure to include the following information in your business plan:
- Description of the restaurant
- Proposed location and potential customers
- Kitchen and front house staffing plan
- Competitor information
- Pricing, customer service, and food you plan to offer
- Executive summary with goals for first-year profit
- Projected income, expenses, and profits for at least three years
3. Financial Information
Private lenders and the Small Business Administration need to verify your financial information before issuing a loan. Lenders would want to see your credit report, bank statements, proof of income, and tax returns from the past three years. Keep these documents readily available in case the lender asks for it.
4. Make a Lender List
For obvious reasons, your lender plays an important role in your restaurant business venture. When choosing the best lenders to finance your company, make sure to list down potential lenders. To save time and effort, narrow it down to lenders that are familiar with the food service industry and restaurant business loans.
How to Get a Loan to Start a Restaurant
If you want to know more about how to get a loan to start a restaurant, SMB Compass can definitely help. We’ve funded hundreds of restaurants all over the United States. Our team of professionals will help you choose the right loan for your business and guide you throughout the entire application process, leaving no question unanswered.