How to Finance a Restaurant Business
If you are thinking of opening a restaurant, chances are you have put a lot of thought into the location and theme. That's a good first step, but it's not enough. Especially in an anemic economy, traditional lenders are going to want to see a well-thought-out business plan. In the past banks often hesitated to make loans for restaurants, but such loans have become more accessible in the past several years.
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Initial funding
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When seeking a bank loan to open a restaurant, you can greatly help your chances by bringing some cash to the table. Traditional banks like to see that an individual also has some "skin" in the game. Government-guaranteed loans through the Small Business Administration (SBA) can be obtained if the borrower can match the amount he seeks to borrow. A clean credit record is important when trying to borrow through the SBA. The SBA is also a good source for business guidance and makes available mentors with business experience who can answer questions.
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A well-constructed business plan is necessary before any bank or individual will make a loan for a restaurant. A business plan is a road map detailing the fundamentals of your business. It shows that you have invested the time and effort to research the market and the restaurant industry. Your plan should include thorough market research, knowledge of the customer base, sales projections, long- and short-term goals, staffing and payroll costs and an inventory of items required to open the restaurant. A business plan should be comprehensive, leaving no unanswered questions. The SBA offers classes and tutorials on creating a winning business plan.
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If traditional lenders reject your loan application, you will need to tap alternative funding sources. To persuade investors, you will need a plan that details the loan terms and a repayment schedule. You can offer investors anywhere from a 5- to 20-percent return. Pick terms that are comfortable to you, such as a 60-month repayment plan. Make no attempt to repay a personal loan within the first six months you are in business, because you will need that money to fund restaurant operations. Make a list of every person you think would like to invest in your restaurant. Send those individuals your offer along with a copy of your business plan. Remember to stay flexible with your terms.
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Comments
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In finding a traditional lenders for your business, It is necessary to have an alternative source so that you will always had another plan to take over!
