Securing Financing for your Restaurant
As a restaurant owner, your goal is to satisfy your customers, and from time to time you may have to adjust your business to better suit the needs of your customers, expand your employee base, or purchase new supplies and equipment. If cash flow is an issue, then one of the best ways you can do this is by finding the right lender and financing option to meet your needs.
Finding the Right Lender to Work With
Every lender has their own unique qualification criteria when it comes to the types of clients they finance. The most important task when financing your restaurant will be finding a lender that has experience working in the restaurant industry and who can offer financing with terms that work for your business. Before exploring lending options, take some time to understand your business goals and financial position. To help with the process, there are several questions all restaurant owners should ask themselves when looking for the best financing.
- Why are you looking for additional funding?
- Do you need to purchase something specific, for example, a new piece of equipment or inventory?
- How much financing do you need?
- Is your cash flow going to affect your ability to repay your loan?
- Do you need a working capital solution?
Identifying the type of financing you need for your business goals is critical because it will help you narrow down potential lenders and lending products.
Does Your Restaurant Qualify for Business Financing?
It’s important for all business owners to have an understanding of the options available to them. This way, before you decide to apply for additional funding, you can choose an option that works for you and that you’ll be more likely to get approved for.
- Traditional Bank Loan: For those business owners who already have a relationship with their bank or for those who meet the more strict requirements, business financing from a big bank can be a great and slightly more affordable option.
- Online Small Business Loans: Since small businesses can have a more challenging time obtaining financing and meeting stringent bank requirements, a small business loan from an online lender could be your best bet. A quick, simple and fully online application, fixed and predictable payments, what more could you need?
- Merchant Cash Advance: A non-traditional form of financing, merchant cash advances are flexible financing options for companies that have more challenges with cash flow. Merchant cash advances are popular for small businesses, particularly those impacted by seasonal changes. You’ll use your future credit and debit sales to secure financing and your lender withholds a small percentage of your daily sales until you’ve repaid your advance.
Preparing To Apply For Business Financing
Part of your research on lenders and financial products should involve analyzing the qualification requirements. If you think you’ll have a challenging time meeting the listed requirements with a lender, move on. Committing to a loan with impossible requirements will only hurt you in the long run. The good news is, as we discussed above, there are plenty of great options available to help you invest in the success of your restaurant. Here are a few extra points all business owners should consider while they prepare to apply for financing.
- Plan of Action. Lenders like it when applicants have a plan of action. This means knowing your goals and having a contingency plan. Having a business plan set up is a great way to make better decisions to improve your chances of approval.
- Stable Revenue Streams. When you apply for financing, lenders will, without a doubt, be looking at your business’ financial performance. One thing they’ll consider is the stability of your revenue streams. Is your restaurant affected by the seasons? Are you busy in the summer months and less so in the winter? This will affect what type of financing you should apply for.
- Business Credit Score. A perfect business credit score isn’t necessary to get approved for either a business loan or a merchant cash advance. But, a very poor credit score could affect your ability to get approved.
Restaurant Financing FAQs
Running a restaurant and finding the best financing to improve and grow it is a learning experience, one that can conjure up a lot of questions. Here are some of the most common questions we get about finding financing for restaurants.
What can a business loan be used for?
Generally speaking, a business loan can be used for virtually any of your business needs. This includes new kitchen equipment, upgrades to your dining hall, hiring the best employees, marketing costs, and even expansion costs.
What can a merchant cash advance be used for?
A merchant cash advance can be used for exactly the same expenses as a business loan. However, merchant cash advances are helpful for businesses that want more flexible repayment terms which is not an option with business loans.
Do I need to have a good business credit score?
Having a good business credit score is not mandatory for financing. The only time when you need to be concerned is if you have an extremely poor business credit score. In this scenario, your chances of qualifying or getting approved for financing will be at risk. There are ways to improve your business credit score, consider doing that first before applying for financing.
What happens if I can’t make a payment on time?
Life happens, sometimes you have to accept that you won’t make a loan payment on time. In general, lenders don’t like surprises so you should definitely reach out to them if you know you’re going to miss a payment. Depending on the lender, you may be able to make partial payments for a certain period of time, postpone your loan payments, or extend the loan term to lower your monthly payments.
Communication is key in these situations, if you don’t communicate, lenders may assume the worst. Do your best to communicate and work with the lender.
How much should I apply for?
How much you should apply for really depends on the purpose of your financing. Some projects will be very predictable, such as equipment purchase, but other projects will be more challenging to estimate, such as renovations. If the purpose of your financing will be unpredictable, consider borrowing a little extra than the price as a safety net. Budgeting helps a lot for determining how much money you need. Part of your budgeting process should include getting estimates and quotes from suppliers. This is where having a restaurant experienced lender comes in handy because they can help you come up with a reasonable estimate by using their expertise.
Investing in the Success of your Restaurant
Financing can help your restaurant grow, improve, and even expand for the better. Make sure that you’re prepared for the application process by reading up on lenders, funding options, and requirements. Remember that your business is unique, a financing option that works for one restaurant might not work for yours.
This article was contributed by Loans Canada, the nation’s original loan search platform.