What You Need to Know About Restaurant Business Loans
Did you know it takes approximately $498,888 to open a restaurant? This amount covers land and building costs, kitchen, bar and construction costs. Some restaurateurs are fortunate enough to use their own personal funds to get their restaurants up and running. However, not all shares the same luxury. For that reason, majority seek outside funding to cover the necessary costs. A restaurant business loan is an excellent option if you’re looking to obtain funding for your business.
Undoubtedly, opening a restaurant is never an easy thing, not to mention expensive. Whether you want to open a casual diner or a fine dining establishment, you’d eventually need funds to supplement your expenses. If you find yourself in a cash crunch or in need of additional cash to fund investments, you should look into business loans.
Here’s what you need to know about restaurant start-up loans:
The Costs of Opening a Restaurant
Applying for a restaurant business loan can be daunting. To streamline your loan process, it’s important to be prepared. Before you ask lenders to fund your business, you should have an estimated amount that is needed to get your project off the ground. Your total funding must be able to cover the following business expenses:
- Loan Guarantee Fee
- Commercial Lease
- Loan Repayment (plus interest)
- Staff Wages and Benefits
- License Fees
- Restaurant Insurance
- Kitchen Equipment
- Working Capital
- Marketing Capital
- Beginning Stock and Inventory
Moreover, you should also set aside an amount to cover for any unforeseen expenses. This includes unexpected damages in the restaurant or sudden cash flow gaps.
Requirements when Applying for a Restaurant Loan
Before applying for any type of business loan, you need to create a detailed business plan. Additional documents potential lenders may also ask to see include:
- Personal Background and Financial Statement
- Loan Application
- Ownership and Affiliation Documents
- Projected Financial Statements
- Profit and Loss Statement
- Business Certificate/License
- Business Overview
- Income Tax Returns
- Loan Application History
Most importantly, you should have a good personal and business credit background to qualify. While some business loans don’t usually look at the credit background of the business, larger loans or traditional bank loans may require borrowers to have a stellar credit rating. Be sure to have the documents ready to make the approval process quicker.
Best Types of Restaurant Business Loans
There’s no one-size-fits-all when it comes to choosing the type of restaurant loan that’s just right for you. What works for you may not work for others. There are numerous factors to consider when choosing a restaurant business loan, such as down payments, interest rates, and collateral requirements. To be sure, it’s always better to ask for help form the financial experts.
To help you choose the best financing option for you and your business, the following are some of the most popular restaurant business loans:
1. SBA Loans
An SBA loan is a loan program created by the Small Business Administration to help small business owners secure long-term financing. Remember that this is backed-up by the federal government so you shouldn’t have a bad history with government backed-up loans. The funds you obtain from an SBA loan can be used in any way you like as long as it’s for the benefit of your business. Small businesses find it easier to apply for an SBA loan since every loan is partially guaranteed by the Small Business Administration.
2. Equipment Financing
The equipment you’re using has a direct impact on the quality of food and service your restaurant provides. Restaurants need ovens, stoves, tables, chairs, and other service equipment to make their service more efficient. However, these thing scan be expensive and difficult to finance out of pocket.
An equipment loan will provide you with the funds you need to purchase or upgrade equipment. The terms of the loan will depend on your personal credit, your business’ financial strength, and the type of equipment purchased. Moreover, the equipment you’ll purchase will serve as the collateral for the loan.
3. Business Line of Credit
If you’re familiar with how a credit card works, then it’s easier for you to understand a business line of credit. With this type of loan, lenders set a maximum credit limit that you can withdraw from. Unlike a term loan, you only have to repay the amount of money you withdraw plus interest. The upside of a business line of credit is that you can withdraw the funds anytime you want.
Business lines of credit are useful in restaurants since these types of businesses often experience seasonal fluctuation in their sales. With an open line, restaurateurs can be assured that they’re prepared for dips in their sales. It’s also a good restaurant business loan option to build the company’s credit rating.