What Can Restaurants Use Business Loans For?
Restaurant startup costs can run between $95,000 and $2 million, depending on your detailed business plan. Half of all restaurant owners start businesses using personal savings, so having a clear vision of your dream helps you plan and know how much funding you’ll need. Listed below are current estimates for the essentials:
- Food costs: The average amount of food costs run 28%-35% of sales, with steakhouses exceeding this at 40%.
- Operations: $10,000-$100,000 will cover equipment depending on the restaurant size.
- Labor costs: The number of employees, their salaries, and benefits should range from 28%-35%
- Rent and building fees: Owning your space averages $178 per square foot, while leasing averages $159 per square foot.
- Hidden costs: Approximately $180 a month will buy restaurant insurance that can offer some protection when unexpected events occur.
- Technology costs: Monthly costs of $100-$400 for technology, such as, but not limited to, point-of-sale terminals, handheld and at-table sale systems, self order kiosks, digital displays, cash drawers, and printers, could provide a significant return on your investment.
- Marketing costs: Low-budget marketing costs average about $1,000 a month. This may include branding, the website, and social media, to name a few.
Top 8 Ways to Finance a Restaurant Business?
Here are the top financing options for restaurant owners:
- Equipment financing – with this loan, you can buy the equipment to improve your restaurant or make any large equipment purchases.
- SBA loan – this loan is not as much as a funding option, but it provides a safety net for borrowers to get a loan from another lender.
- A business line of credit – a type of loan that can be handy, as you can use it at your discretion, and use as much of it as you need, and only pay interest on the amount you use.
- Startup business loan – this is a loan you can take before you open a restaurant, as you don’t need to have a business to qualify, and you can use it to build your business.
- Invoice factoring – this type of loan is interesting for restaurant owners who are dealing with slow-paying accounts. The lenders provide a lump sum of about 80% of the invoice value, and they then collect the money from the original owners. It is beneficial for restaurants that rent out their space and get late payments.
- Unsecured business loan – the unsecured loan does not require any collateral, and it is usually followed by a more significant risk and higher interest rates.
- Commercial vehicle loan – it is not exactly a friendly loan for conventional restaurants, but it is a perfect option for catering businesses, food trucks, and food delivery services.
- Merchant Cash Advance – this is the last resort when it comes to restaurant financing. The MCA is paid back with a percentage from future credit/debit card transactions, and the repayment terms last until the whole loan is paid off.
Applying for a Restaurant Loan
The process of applying for a small business loan as a restaurant owner is similar to any other small business loan. Often, restaurant owners tend to have tight profit margins, making it more difficult for them to get financing. So, it is wise to go the extra mile and prepare your loan application. Thus, before you go and apply for a loan, here is what you need to consider:
Ensure you have a credit score of at least 600, preferably 680.
Ensure you have annual revenue of at least $100,000.
Ensure all your legal and financial documents are in order.
These are the basics. To increase your credit score, the most important thing you can do is pay all of your bills on time and ensure you don’t max out your credit cards. Your rating will rise with time as long as you are responsible for the repayment schedule.
How Do You Finance a New Restaurant?
Whereas banks are most attuned to analysis of past performance, alternative lenders are eager to assess a restaurant’s upcoming expectations. Among alternative financing options for new restaurants are equipment lending and cash advances against merchant credit card sales.
Alternative financing lenders tend to have more lenient borrowing qualifications than traditional banks and provide greater repayment flexibility. However, SBA guaranteed loans from banks to new restaurants are possible. For example, an experienced restaurant manager with a sound business plan for a new restaurant is an SBA loan candidate.
Having access to working capital can empower your restaurant to go further, whether that’s by hiring more staff, investing in equipment that makes it easier to serve customers, or expand to another location.