Information on Financing a Restaurant
Furnishing and opening a restaurant can be expensive. You will most likely need an outside source of funding to make ends meet while you outfit your operation, advertise its opening and staff it until it begins making a profit. The process of financing a new restaurant involves realistically assessing how much money you will need, and then convincing a lender to advance the funds.
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Assessing Equipment Costs
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Realistically assess the cost of the equipment you will need for your restaurant before seeking funding. List all of the fixtures you will need such as stoves, vent hoods, ovens, prep tables, sinks and coolers. Also calculate the value of leasehold improvements to accomodate this equipment, such as plumbing and electricity. Evaluate construction costs for building out the space to meet your needs. Meet with contractors and ask for estimates, and shop around to learn the price of new and used equipment. Also include the price of furnishings such as art to decorate your walls, as well as dishes and silverware.
Assessing Operating Costs
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Budget for the cost of operating your restaurant before it begins earning a profit. Include the price of rent while you are under construction and also once you open. Assess the cost of training your employees and paying waitstaff and cooks before you begin filling all of your seats. Calculate the cost of inventory, such as acquiring an appealing selection of wine and buying vital staples in bulk. Also include the cost of utilities, advertising and taxes.
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Public Funding Sources
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Public sources of funding for financing a restaurant venture includes bank loans, SBA loans, small business lines of credit and credit cards. Bank loans and SBA loans tend to have the lowest interest rates as well as the most stringent criteria. In order to obtain a bank loan or an SBA loan, you will usually have to have collateral or personal assets to guarantee the loan. You must also present detailed documentation demonstrating your credentials and your projections for earning back the sum you borrow. Business lines of credit and credit cards tend to have higher interest rates, but they do not require collateral or extensive vetting.
Private Funding Sources
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Many new restaurateurs finance their restaurants through private sources. If you are an established chef with a solid reputation, you may be able to find an investor who believes strongly enough in your company to provide you with a start-up loan in exchange for a share of the equity in your restaurant. Alternately, if you have enough money saved to pay for the expense of opening your restaurant, you can save yourself the stress and the hassle of convincing an individual or a financial institution that you are worth the risk, but you do expose yourself to the possibility of losing your savings.
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References
- Photo Credit restaurant image by Svetlana Kashkina from Fotolia.com
