Getting restaurant loans are often troublesome for their owners, especially if they are new in their businesses. The staggering lack of financing for startups and securing the right amount of working capital account for being the top reasons why restaurants fail in securing business loans for restaurants. However, the advent of online lenders has made access to business loans for restaurants far easier for the restaurant owners or entrepreneurs, as they are willing to fund the “riskier” small and micro restaurant businesses.
Whether you are a newbie or a seasoned veteran in the restaurant business, more and more restaurant business loans are getting available, that too at competitive rates. If you choose the right lender and a feasible amount, it will make your culinary dreams come true.
What Are The Different Kinds of Restaurant Financing That Are Available?
There are indeed quite a few different kinds of business loans that are available to the restaurant owners. However, which one suits your needs best would depend on your restaurant type and the specific financing requirements, as well as the lender that you would be working with.
For the benefit of your quick understanding, here are four basic kinds of restaurant financing that you may choose to fund your business with.
- Loans for Equipment:
Owning a restaurant can be quite an expensive affair. You will keep needing new culinary materials and equipment, as well as the groceries and dressings for your kitchen, all of which boils down to one necessity, additional funding.
The good part is that you no longer have to pay for all of this right out of your pocket. Getting the right kind of business loan for restaurant would help you grow your business at the right pace and being able to pay back in a slow yet steady pace.
For the restaurant owners, the competition out there is huge, so you will need new state-of-the-art machines, vehicles and expert staffing to cut a notch ahead of your contemporaries. Equipment financing is here to help you with that since you can choose to finance up to 100% of the total value of your restaurant’s new equipment with such kinds of restaurant loan.
With equipment loans, the catch is that the equipment themselves will serve as collaterals for your loan. This would mean that you will be able to get access to secure restaurant financing, without actually having to put any personal assets on the line for it.
- Loans for Working Capital:
Out of all kinds of restaurant loan options available out there, working capital loans make for the best one-size-fits-all kind of restaurant financing for existing owners or startup entrepreneurs. Loans for working capital are short-term loans,which helps one cover the expenses and also help in the smooth operation of your restaurant finances.
Working capital loans make for a great option for the restaurant owners that need quick business loans that aren’t very big.
- Financing for Inventory:
In accordance with a 2015 report on the International Restaurant Industry, covering the costs for food production is one of the commonest challenges that a restaurant owner faces.
Inventory financing business loans help you with the necessary capital that you require to finance the inventory purchases regarding your restaurant. Inventory financing is available in many forms, such as short-term and medium-term loans, or lines of credit, all for the specific purpose of buying the required inventory for the restaurant. The similarity between inventory financing and equipment financing is that in this case, the inventory that is getting bought acts as collaterals for the restaurant business loan.
And as long as you only purchase inventory with proceeds of inventory financing, and make the payments on time, you can keep using that inventory as per your necessity.
- Credit Lines:
Lines of credit make for amazing financing products for most small business owners, especially restaurant entrepreneurs, mostly because of their flexible nature.
With lines of credit, the restaurant owners are approved for set pools of funds that they can tap into as per their requirement towards the restaurant. Interest is payable towards only the amount drawn from the credit line as restaurant funding. Upon repaying what has been drawn, the credit line then gets refilled to the original amount.
In case of you running a restaurant that sees seasonal highs, a line of credit for working capital might work perfectly well for you. It will remain pre-arranged until you require the additional restaurant financing during the lead-up to the bustling season. You can also access it if your business gets slow and there is the requirement to cover the regular operational costs of the restaurant.
Choosing The Lender in A Wise Manner
You must be careful while choosing your lender as a wrong decision might end up hurting your existing restaurant business more than actually helping it. A good decision would be to do some primary research into the prospective lenders by looking at their previous records and available data online.
Traditional lenders do not do well with small and micro-level businesses like restaurants that do not have a lot of collaterals to offer,nor can they pay high-interest amounts. Also, approvals are difficult and time-consuming. This is where online lenders come to your rescue. With reasonable and competitive pricing, they provide you with easier approval, less paperwork, online application, faster funding resulting in much greater growth potential. Alternative financing companies have approval rates, are willing to work with all kinds of credit profiles, and arrange for funding options for the restaurant business owners, regardless of their annual revenue and the time they have spent in business.
Questions That Lenders Will Have Regarding Your Business Loan
Length of Business Experience:
The possible scenarios may be as follows.
- You might be looking for funds to start up a new restaurant
- You might be an industry veteran who wants to grow and expand his/her business.
- You might want to create a brand or chain of restaurants across locations or offer different products and services than you did before.
The relevant scenario to your restaurant business will help the lender to determine exactly what kind of loans you need or what you require to qualify for that specific funding option. It also helps determine the related interest rates, loan amounts, and term lengths.
The Proposed Usage of The Borrowed Funds:
As a restaurant owner, you need to have a solid strategy before you approach the prospective lender, regarding your future plans of using the borrowed funds for growing the restaurant. You need to be as specific as possible when you are explaining the business goals.
- This will help the lender feel more comfortable with the lending of capital, and in all probability, increase the chances of your approval.
- It will help you in getting the desired financing with better funding rates, longer tenure lengths and greater amounts of money.
The CIBIL Score:
Most of the banks,as well as the direct lenders, base the whole approval process upon the strength of the concerned restaurant owner’s credit score. However, alternative lenders offer restaurant loans with low-interest rates, long loan terms and larger amounts of loan to most restaurant business owners, regardless of their CIBIL score and financial history.
The Amount Made By The Restaurant Business in Terms of Annual Gross Sales
The more profit your restaurant business rakes in terms of annual gross sales, the better will be the terms of the concerned restaurant loan. However, do not fret if your business does not make a lot of profits. Alternative lenders will be there to assist you no matter what your financial situation is like.
Step by Step Application Method for Restaurant Financing
To begin with, you have to make sure that you have explored all the available options towards finding the right kind of financing option which will help to scale the number of sales that your business currently makes, in a way to prevent overspending as well as over-borrowing.
Step 1: Filling-out The Online Application:
The online application on the site of the lender will be a simple application which will take only a few minutes to fill out. It will not affect your existing credit score. As a restaurant owner, you will only have to provide the basic information regarding the business name, phone number, email, gross annual sales, and time spent in business.
Step 2: Connecting with Expert Financing Advisor:
After you have filled out the application, you will receive a call from an expert advisor within minutes. You have to tell them the business goals that you are planning to accomplish through the concerned financing so that the lender can begin tailoring the formal application in the precise ways to allow you obtain the right funding option with kind of terms that you desire.
Step 3: Determining the Best Loan for Your Restaurant Business Needs:
Once the formal application is finally completed with help from the advisor, the lenders will find you the right kind of loan that matches your business demands.
Step 4: Analyzing Relevant Options with The Loan Advisor:
Consulting with the loan advisor is the best way to compare the pros and cons of the different funding offers you receive and after that, determine the best option with the right terms that suit your business requirements.
Step 5: Start Receiving Funds Within as Little Time as 24 Hours:
Through the expedited and simplified process as mentioned before, involving industry experience and modern technology, you as the applicant will receive the required capital within a minimum of 24 hours.
To sum up, from the details covered before, here are the four ways you can secure loans for your dream restaurant, in a nutshell:
| Equipment financing | Best for the one-time purchase of restaurant equipment. |
| Working capital loans | Best for the restaurant owners needing capital regarding a variety of restaurant business expenses. |
| Inventory financing | Best for those restaurant owners who need lots of inventory that give quick turnovers. |
| Lines of credit | Best for the restaurant owners with seasonal highs and lows, who require flexible access to capital.
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