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Restaurant Financing Explained For New Entrepreneurs

Restaurant Financing Explained

March 2nd, 2021   |   Updated on November 26th, 2021

It’s no secret that growing businesses usually require financing. As a business owner, knowing how to solicit these funds is vital. This is even more critical if you’re in the restaurant industry.

If you’re unsure where to start, this article offers all the resources you need to go about financing your venture. You’ll further understand how to acquire the requisite finances for your business.

What Is Restaurant Financing?

Restaurant financing refers to the sourcing, loaning, or borrowing funds for the operation of a restaurant business. The finance can be used to open a new restaurant or expand the operations of an existing one.

So, why do business owners apply for financing? There are a plethora of reasons, and we’ve listed three common reasons below.

For the first example: Let’s say you want to open a restaurant with an attached bar. The equipment you need for such an enterprise is vast and costly.

Assuming you already have a space reserved and have done the requisite paperwork, you’ll then need to purchase a worktop refrigerator, a display case, or a sandwich prep table, etc.

For better aesthetics, you’ll also need excellent interior lights and a glass door refrigerator. In case free shipping is not available, you’ll also have to pay for it. All these costs factor into the capital you require.

For the second example: Let’s say you’re a restaurateur who wants to upscale your business to a commercial level. You’ll have to pay more for artistry.

You might also need to purchase heavy-duty equipment for your operation. A commercial oven is a must and commercial refrigeration (like the Atosa freezer type).

Preferably, this commercial freezer should have a solid door lock. It must also have standard parts like a high-duty compressor and adjustable shelves.

Modern features like digital temperature control, automatic evaporation, electric defrost, etc., should also be part of its make-up.

For the third example: You might already have a thriving restaurant and want to purchase a natural juice bar to provide fresh cocktails to diners.

In addition to the cost of expansion, a basic piece of equipment you’ll need is an ice machine. You’ll also need large compartment sinks and stainless steel work tables.

Keep in mind there would also be branding and marketing costs. Looking for a lump sum to get this without the technical know-how can be a huge hassle.

Restaurant Financing Options To Consider

restaurant dining table

There are many financing options available. It’s up to you to pick the one that is most suitable and convenient for your business.

The three most commons financing options for restaurateurs are:

Funds from family and friends: This is a common way of financing a restaurant business. The terms are flexible, and most of the time, you still maintain full control of your business.

Equipment financing: This is another quick way to sort out your financing needs. The lender will offer the specific funds you need to buy the requisite equipment.

You must then pay the full amount back in installments (usually with interest). Compared to bank loans, this method usually has lower interest rates and better terms.

Bank loans: This also covers loans from smaller banks and financial institutions, e.g., savings and loan companies. The advantage is that you get a huge lump sum.

The disadvantage is that the application is tiring, and not everyone succeeds. Worse yet, it usually also comes with a higher interest and rigid payment terms.

All in all, restaurant financing varies. That said, it’s vital to keep two things in mind when you seek financial assistance.

First, make sure you keep as much equity (control) over your business as possible. Secondly, try to choose the best repayment terms and always remember to stay focused on the fine print.