Breaking Down the Basics of Applying For and Securing a Restaurant Loan
Opening a new restaurant takes a lot of hard work and quite a bit of financial assistance. The cost of opening a new restaurant includes many expenses: a commercial real estate mortgage, licensing fees, employee salaries, and insurance, equipment for the kitchen, decorations and serving wares, food inventory, and extra money in case of needed repairs and renovations as they occur. Many startup restaurant owners do not have the cash or working capital on hand for these expenses, so financial assistance is needed. Take a look at three popular loan options that new restaurant owners can apply for and secure.
Small Business Loans
Through a partnership with the Small Business Administration, many banks and financial institutions offer special loans to small, and usually local, businesses. The guaranteed loan program gives banks incentives to offer small businesses startup loans and reassures the lenders that they are protected. This means that your new restaurant doesn’t need especially strong credit to get approved, but the lenders do require collateral of some sort.
Business Lines of Credit
A line of credit works very similarly to a credit card. Your business is approved for a specific amount of money that it can borrow against, and then you only have to pay back the amount you borrowed. The interest you are charged comes from the amount you spend. While you only have to pay back what you spend, the interest rate is usually much higher than the traditional or small business loan interest.
A traditional loan often comes from a bank or a similar financial institution. There are short-term and long-term loans; the duration of the loan will affect your monthly payments and interest rates. If you qualify for a business or commercial loan, you can lock in a low-interest rate, but traditional loans can be harder to obtain. In particular, new businesses can lack the necessary collateral or proof of financial success to qualify for one.
Before applying for any loan for your new restaurant business, you need to gather a lot of necessary paperwork and information to present to your potential lender. This includes financial statements (both personal and business), credit scores (both personal and business, if applicable), and the details of a complete business plan that projects expected profits and the possibility of losses. With the proper information, you will be well on your way to financing a prosperous new restaurant.