Restaurant financing can be a severe challenge for restaurant owners just starting. Banks often require six months – to 1 year of history and operating capital before even considering lending to a new restaurant. Here are some tips for getting approved for restaurant financing.
Decide on the Type of Restaurant Financing You Need
Before applying for a loan, it’s crucial to determine what type of financing you need. There are many types of financing available for restaurants, and each one comes with its own set of pros and cons.
Securing the correct type of financing for your business can make a big difference in your ability to secure funding. Here are a few different types of restaurant financing available:
Equipment Financing: Restaurant equipment financing is designed specifically for equipment purchases such as walk-in coolers, ranges, ovens, and other appliances used in the operation of your restaurant. This type of loan usually requires collateral such as real estate or personal property (in the case of equipment). Banks or credit unions usually offer equipment financing but can also be found through leasing companies specializing in equipment purchases.
Commercial Real Estate Loans: A commercial real estate loan allows you to purchase an existing building or build one from scratch, depending on what works best for your needs. Commercial real estate loans are typically long-term loans with fixed rates that last five to 20 years, depending on how much money you want.
Leasehold Improvements: These improvements are intended to improve upon the current condition of your restaurant or bar so that it looks more appealing or modernized with new technology features such as digital menus or flat-screen televisions.
Know Your Business Credit History
When looking to get approved for restaurant financing, you will need to know your business credit history. If you are applying for a loan from a bank, they will want to see a credit report on your business. This is because they will want to see if your business has been paying its bills on time and if there are any other issues with the company.
If you have had any problems in the past, you must address this with the lender before deciding whether or not they should lend money to your business. The lender may be able to help you find other options besides financing so that you do not have any issues with your financial situation later down the road.
Suppose you already know that there are issues with your financial situation. In that case, it is best to come clean with them right away so that they can offer solutions instead of rejecting your application entirely due to your poor credit history. This way, they will be able to help guide you through fixing any problems that may exist so that everything goes smoothly during the loan process and afterward as well when things get back on track financially for both parties involved!
Create a Business Plan
When you are looking to secure financing for your restaurant, one of the most important things you can do is create a business plan. The business plan will give the lender a clear understanding of your restaurant’s short- and long-term goals, the market for your concept, and how much money you need.
The business plan should include a summary of the business, an analysis of your competition and their strengths and weaknesses, an analysis of your market, and an explanation of how you will be pricing your products. A restaurant cash flow statement should also be included in the business plan. This will show lenders how much money you bring in daily compared to how much it costs to run the restaurant.
Have a budget
The first step to getting approved for restaurant financing is to have a budget. You should know what you can afford and how much cash you can put into the business. Most lenders will not consider loaning money to a new business without some equity or upfront cash from the owner. This gives the lender confidence that you are committed to your investment from the very beginning. It also tells them that you have dedicated resources to get your business up and running, which is essential for analyzing your financial risk as a borrower.
As you can see, there are many things you’ll have to consider when getting restaurant financing. But don’t worry; if you prepare in advance and do your research, it’s not as daunting as it looks. If you follow the steps in this guide, you’ll be well on your way to getting approved for restaurant financing in no time at all.