Running a successful restaurant is more than serving quality food and drinks; it requires a business owner to have a means to pay for a knowledgeable and skilled staff, quality ingredients, efficient equipment, and appealing facilities that are required to remain competitive and keep customers coming back.

Regardless of a restaurant’s clientele, areas of specialty, location, profitability or number of years in business, the ability to access restaurant financing can be a key ingredient to continued success—and future growth.

This comprehensive guide to small business financing was designed to help business owners navigate the often confusing world of financing, and to provide a resource that business owners can rely on to identify which financing partners and products may be most appropriate based on a business’s unique business model, financial history and financing needs.

Restaurant owners have many competitive and cost-effective financing options to choose from in today’s economic environment, offered by a range of providers including traditional financial institutions, such as banks and credit unions, and alternative lenders that may operate exclusively in the online space. However, identifying the right financing solution remains a challenge for many entrepreneurs: Just 42 percent of small businesses that have sought financing were able to secure it.

Restaurant owners can improve their chances of success by researching the application criteria that various financing products require before pursuing it, including:

The role credit plays in the process

Business credit history and credit score may play a role in whether a restaurant is approved to secure financing. Yet the requirements and roles that business credit history and credit score play in financing decisions can vary significantly, based on the provider.

In addition to researching the basic criteria for financing, a restaurant owner can identify which partners may be a good fit by checking their business credit history with a business credit bureau to review what it entails. Businesses that lack an established credit history may want to consider alternative financing partners, which may have less stringent minimum credit requirements than traditional financial institutions.

The length of financial history required

A restaurant seeking financing from a traditional lender may be asked to provide financial statements for the past several years, a formal business plan and financial forecasts. Because a startup restaurant business or one whose performance is subject to seasonal demand may lack an established financial history or proof of consistent financial performance, an alternative financial solution that uses predictive modeling to determine financing approval may be a better fit.

Whether assets are required to secure financing

Restaurant financing providers may consider whether a business has valuable assets (e.g., equipment, real estate or raw goods) that could be used as collateral. Some financing partners may consider accounts receivables, or future debit or credit card sales as assets that can speak to a business’s ability to meet the terms of a financing arrangement.

Compare Terms, Conditions, and Timing

Nearly 80 percent of small business owners surveyedchose a financing partner because of a simple and quick application and approval process. Just as the process for securing a personal mortgage with a traditional financial institution may require several weeks, securing business financing approval with a bank or credit union may take time. By contrast, many alternative financing partners rely on digital application processes and algorithms to expedite the approval process. Restaurant owners should consider how quickly they need to secure financing, if approved, when choosing which financing partners to pursue.

In addition, restaurant owners should consider these terms and conditions:

Fees, interest rates, and repayment terms associated with financing

Financing providers may determine the interest rate and financing terms by the amount of risk a client may present based on business credit and financial performance, the amount of financing needed, and the client’s unique sales patterns and future potential. Restaurant owners should confirm that they understand, and are comfortable with, the terms and costs of any arrangement before agreeing to move forward with a financing partner.

Stipulations regarding how financing can be used

Some financing partners may specify that restaurant financing can be used only to purchase new equipment, or support an expansion. Others may offer flexible financing options, including the ability for restaurant owners to secure a line of credit that can be accessed in times of cash flow shortages.

How approved funds are transferred or disbursed

A business that will use financing to ensure payroll can be met may have more time-sensitive priorities in terms of when and how financing can be accessed compared to a business that seeks restaurant financing to fund a planned equipment purchase.  

Business owners have options when it comes to the type of restaurant financing they pursue, and the type of financing partner they’ll leverage to access it. Still, these guidelines help ensure those seeking financing can better understand the application and approval criteria, and financing terms and conditions for a more manageable, productive and less frustrating experience.

Tim Roach is Co-Founder of Lendr, a provider of merchant cash advances for small to midsize businesses. Roach holds a B.S. in Finance from Linfield College, and served in the United States Navy at Seal Team One. Before joining Lendr, Roach founded Oak Street Trading, a proprietary trading firm, in 2002.
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