Whether you need to secure financing to start a new business or expand your current location, there is a lot to consider. First, you must find the right lender for your needs, then determine the type of loan that best fits your restaurant. The type of loan you’ll need largely depends on what you intend to use the money for and how long you’ve been in business, among other factors.
Finding the Right Lender
A lender can either make or break your goals. Do some research before signing any loan documents to make sure you’re getting the rates that make the most sense for your loan purpose from the best company for your needs.
Check their Better Business Bureau (BBB) Rating
The Better Business Bureau is a good place to see reviews about a potential lender. Look the lender up on the BBB website to check their rating, and be wary of any business with a rate lower than A. Read the reviews left by other customers to find out about their experiences, and see how they align with the services you expect from your lender.
Don’t accept a loan offer with the first lender you speak with. Make a list of the things that are important to see in a lender – flexibility, interest rate, location, etc. – and speak to at least three different lenders to compare. Whoever you choose should best meet all of your top-priority requirements.
Find Out Who They Partner With
Some lenders will want you to switch over to their payment processing or other systems, meaning you may have to give up working with the service providers you currently work with. If you like the company you are currently working with on payments processing, payroll, or even banking, make sure your lender will allow you to stay with them, or partners with them.
If they don’t, make sure they are offering you compelling reasons to make the switch. This way you avoid the hassle of switching over to new accounts unless they provide you greater value than what you’re doing now.
Finding the Right Financing for You
If you’re opening your first location, you likely won’t be eligible for a business loan since most online lenders want to see that you’ve been in business successfully for at least a year, generally with a revenue of $100,000 or more. Traditional lenders, like a bank, will want to see an even longer track record of business success. New businesses have to be more creative with funding, like using credit cards, taking out a personal loan, using a crowdfunding source, or borrowing from investors.
When you’ve been in business for a year or more with a proven revenue stream, you’ll have more options than a new business, including government-funded SBA loans, business lines of credit, and fixed-term loans.
Small Business Administration (SBA) Loans
The SBA doesn’t lend money directly to business owners; they work with lenders to help them provide loans to their customers. The SBA sets the terms of the loans, reducing the risk for lenders and allowing them to access capital, while also helping customers more easily access loans. There are a variety of SBA loans to choose from, so it’s just a matter of doing some research to find out which is the right one for you.
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Business Lines of Credit
A business line of credit is different from a loan in that a loan will immediately deposit that money into an account. As soon as a loan is opened, it starts accruing interest. (Think of a student loan – the lender will pay a tuition bill in full, then the borrower will repay them over time.)
However, a line of credit is like opening up an account with money available to you on demand. Once you are given a line of credit, you can withdraw from it and deposit the money into your own bank account for spending. You can take out as little or as much as you want at a time, and only the amount you withdraw will incur interest.
Fixed Term Loans
There are two types of fixed-term loans: short term and long term. You’ll want to get a short term loan for projects that typically take 1-2 years or less to complete with an immediate return on investment, like making small updates to your restaurant or buying a large amount of seasonal inventory.
Long term loans are, unsurprisingly, for more long term projects like opening a second (or third or fourth) location. These projects will run you five years or longer and need a larger amount of money. Some lenders may even offer a hybrid of the two, a medium-term loan, for projects that run in between these two timelines (around 2-5 years).
There are a lot of fun and exciting things about opening or upgrading your restaurant. And while securing your financing may not be one of them, it’s a crucial part of making things happen. Partnering with the best possible lender will eliminate some of the headaches and allow you to focus on what you really love to do – serving your guests.