Opening a restaurant is a common dream for ambitious entrepreneurs, and for good reason. If successful, profits can be vast, and who can deny the allure of having your very own table reserved at a moment’s notice? This desirability has also made the restaurant industry one of the most competitive, and it requires a great deal of tenacity, focus, and determination to remain afloat. The statistical chance of success for a restaurant endeavor isn’t the most promising: According to statistics, over 60 percent of new restaurants fail within three years of opening. If you’re considering opening a restaurant, there’s one final aspect that require attention: how you’ll finance your plan. There are a variety of ways to get your idea off the ground, and the following financing options must be considered carefully before beginning a restaurant business.
How Much Will You Need?
Restaurants are costly to start up, and costly to maintain. While the total cost for opening a restaurant can range based on a variety of factors, most estimates see costs ringing in around at a base level of $100,000. One of the most important factors contributing to this overall cost is location. If you’re hoping to open a restaurant in a city like San Francisco or Los Angeles, prepare for prices to skyrocket. Populous metropolitan areas are extremely competitive for the hospitality industry, and the costs can rise exponentially. Finding an affordable property to lease in a city like San Francisco can feel impossible, and perusing sites that offer restaurant properties for lease in San Francisco show how quickly this cost can climb. Add onto that the cost of sourcing vendors in the area, purchasing furniture, and hiring and training staff. Then consider alcohol permits; getting your restaurant licensed for serving alcoholic beverages can be extremely costly. As most of the permits available in populous counties are already issued, restaurant proprietors often must search for their necessary permits from brokerage services, like the SF liquor licenses here. As you can see, the costs can spiral into a much larger amount than you might have originally anticipated, which highlights the need for solid financing options.
Traditional Loans
It’s getting harder and harder to secure traditional loans, especially for small business owners who have no prior experience. Unless you have demonstrated success with a restaurant endeavor in the past, have amazing credit, and plenty of collateral, it may be impossible to secure a loan from a bank, local or otherwise. The Small Business Administration (SBA) offers numerous programs to benefit small business owners; you can request an SBA loan from Kapitus by visiting their website.
Crowdfunding
Crowdfunding is relatively new, but it’s become a very popular way to start a small business, including restaurants. There are numerous crowdfunding platforms to choose from, but many restauranteurs stick to sites dedicated to restaurant endeavors, like Foodstart. Whether you’re looking to start a brewery, café, food truck, or small restaurant, this is a wonderful space in which to raise money for your dream.
Your Own Assets
It’s also important to consider your own assets if you’ve found it impossible to get a loan. That might mean using credit cards that you can pay back once profits start rolling in, using funds from a savings account, or borrowing against an insurance policy. You’ll need to take inventory of all of your assets, including equity in real estate, retirement accounts, vehicles, and other savings accounts. Investments might also be available for use, but it’s important to speak with financial advisors before pursuing this route of financing.
Private Investors
Private lenders can be an excellent source of financing for restaurant entrepreneurs, as these ventures can be very attractive to investors looking to diversify their portfolios. However, securing this type of financing requires a great deal of business planning and thought, and you’ll need to put in a great deal of work before ever being seriously considered. When you use financing from a private investor, they’ll often require partial control over the restaurant, so it’s something to keep in mind before pursuing this path. If you’re looking to open a restaurant, consider these financial strategies to make it a reality.
