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How to Fund a Restaurant Venture

June 14, 2016

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Are you one of the many people who dreams of breaking ground on a new restaurant, offering delicious eats and treats- the like of which have never been tasted before? You’re in good company. With a surplus of 1 million restaurants in the United States, it’s a popular business venture to be sure, but with that popularity comes a great deal of competition and a high risk of failure. While great food and stellar staff are essential to the success of a restaurant venture, the most important aspect by far is the right amount of financing. With around 60 percent of new restaurants going under in their first year of business, having all of your ducks in a row from the onset is essential.

Determine How Much You’ll Need

Before you can approach investors and traditional loan sources, you’ll need an accurate estimate on just how much your venture will require. Starting a new restaurant requires a significant amount of money, with the average cost ranging around $125,000. This number can vary based on individual circumstances, like location, the type of restaurant you’re looking to build, and the amenities you’ll offer.

As you sit down to determine just how much capital your venture will require, these are the common startup costs to keep in mind. First, you’ll need to lease the perfect venue, with enough space and the right equipment for your plans. This means rent, security deposits, and utilities for the foreseeable future. In most cases, restaurant owners find they must construct custom elements including kitchen accoutrements and other essentials.

As with any venture, it’s important to protect your assets. In the case of a restaurant, this protection comes through insurance and the proper permits. A legally operated eating establishment has a vast array of permits and regulations to abide by. Collecting these permits can be costly in terms of money and time. Take an alcohol permit, for example. Depending on your location, you’ll be hard-pressed to find an inexpensive liquor license, as competition can drive up prices on the limited supplies of these permits. In many cases, restauranteurs find themselves hiring the help of brokerage services, like License Locators, Inc., just to be able to source a permit in their desired area.

Determine How to Get It

You have a number of ways to secure financing for your restaurant, it’s simply a matter of selecting the one that suits your aims—and finding one that you qualify for.

Traditional Loans

Gone are the days of traditional loans being the first and final stop on the road to securing financing. Banks and traditional lenders have been tightening the reins on loan qualifications. Business owners who have experienced success with prior ventures may find it easier to qualify for a loan from commercial banks, as long as credit history, collateral, and capital numbers add up as well. Community banks are often a better bet for small business owners, but there are also loans available from the Small Business Administration.

Crowdfunding Options

You’ve likely seen or donated to crowdfunding efforts in the past, and this increasingly popular type of funding has made its way into the restaurant industry. Whether you use a generalized platform like GoFundMe or a restaurant-dedicated crowdfunding source, if you can garner public support, you’re better assured of success.

Using Your Own Assets

Loans aren’t easy to come by, and if you’ve been rejected time after time, there are still options. Some restaurateurs choose to use their personal assets to get their business idea off the ground, but it can be a very risky route with serious consequences. This might mean using credit cards, borrowing against a pre-existing insurance policy, or depleting savings accounts.

Hard Money

Not sure about utilizing your own savings to get your restaurant idea off the ground? How about using someone else’s? Private lenders, like those found on LendingHome.com, are an easy way to secure the funding your business needs. Private investors need to be sold on your restaurant idea and convinced that your venture is an attractive route, so it’s essential to come prepared with a detailed business plan, a well thought out concept, and a lucrative business offer designed to entice.

If you’re looking to get your restaurant idea off the ground, make sure you understand the capital required for this investment.

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