Jacques Famy Jr cofounded Advancepoint Capital, a small-business loan agency. He has over 20 year’s retail lending experience.
Where you look for financing for your restaurant will depend not only on why you need the funding and how you’ll use it but also on your qualifications. Credit, industry, time in business, financials and cash flow are just some of the qualifications funding sources will consider.
The restaurant business is a highly competitive industry. You need to keep ahead of the competition and leave no stone unturned. Whether it’s marketing your restaurant through your website, upgrades to the location, acquiring expensive new equipment for the kitchen or general working capital, there are many reasons your restaurant may need to seek financing.
You need to know what financing options are the best fit for your needs, what you’ll qualify for and where to go to get it. Let’s explore where to find the best financing options for your needs.
Banks
The first stop on your journey to find financing is the bank you do your business banking with. In many cases, banks offer the best rates and terms through a business line of credit or an SBA loan. Not all banks are the same, so you may find some banks more friendly than others as it relates to financing restaurants. Some banks don’t offer a product you may need, like an SBA loan. You may have to switch where you do your business banking if a bank other than your current one is willing to offer terms that make the most sense.
Qualifications at banks can be tough, so a restaurant may find it challenging to get approved. I believe the search should always start with banks, but if you can’t get approved through one, there are other options.
Online Business Lenders
Online business lenders are relatively new to the scene of business financing for restaurants. They typically offer a quicker and easier process than a bank and may have higher approval rates, but this can come at a price with less favorable terms than a bank. The terms usually give restaurants six to 18 months to repay the loan, with interest rates or factor rates that are higher in cost than traditional financing. This may be the best available option for your circumstances, but make sure you review the terms and balance that with the use of the funds for the restaurant before accepting an offer.
Merchant Cash Advance Providers
A merchant cash advance funder is the next step if a bank or an online business lender won’t make an offer. A merchant cash advance is an advance of money based on current sales volumes that you repay by allowing the funder to take a percentage of future sales or make regular withdrawals from your bank account. Approval rates are often much higher than those of other financing alternatives but can come at a substantially higher price than traditional business loans. Always weigh the risk versus reward before accepting this type of solution. Restaurants typically use this option for working capital needs.
Business Loan Brokers
Business loan brokers represent different products and work with a variety of lenders and/or funders; they help a restaurant shop for the best product and terms available in the marketplace. They can have a diverse menu of products that a bank or online lender may not have. Brokers are paid by the lender or funder, and the restaurant should not have to pay the broker directly for any professional service fees. Not all brokers are equal, and some only represent certain products, so you should still shop around and make sure you are getting the best product for your need.
Equipment Financing Companies
Equipment financing is a specific-use product that is very common for restaurants, as kitchen equipment can be expensive. You can find some of the best equipment financing companies at the distributor or retailer that you’re purchasing the equipment from. That’s often where you can get the best rates and terms for equipment financing. If you can’t get approved through those sources, there are alternatives online and through certain brokers. Keep in mind that it’s easier to find a company to finance new equipment than used equipment. You may have to look at online lenders or brokers if you can’t get financing through the retailer or distributor you buy equipment from.
The Bottom Line
All of the sources above can play a vital role in finding financing for your restaurant. What source, if any, you use will not only depend on your need for capital but also your qualifications. You should balance your decision about financing based on the need and the cost, so make sure you shop and compare so you can make an informed decision about who to work with on getting financing for your business.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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