All About A Restaurant Business Loan
The restaurant business is challenging and competitive. Starting a restaurant or keeping one going through rough economic times can be especially difficult, and often requires some financing support. For many restaurateurs, a restaurant business loan is a necessary solution.
There are many reasons why such a loan might become necessary. Launching a restaurant requires substantial initial costs. Because the overhead in such businesses is so high, keeping an eatery open through challenging economic turns can require extra cash. Also, changes that will ultimately lead to improved business and increased revenues, such as equipment upgrades, remodeling, and transitions in focus and target clientele, might necessitate financial assistance.
There are several possible sources for financing available to restaurant owners. First of all there is the Small Business Administration, which lends start up and restructuring money to small businesses in all sectors. Banks often have loan products for small businesses as well. There are also private investors and investment groups who may specialize in related business sectors such as food services, hospitality, and restaurants.
The application process for a loan will usually require the same basic steps, no matter what type of financing source is involved. Lenders will want to see a business plan detailing exactly why the loan is needed and how it will be used. They will be especially interested in how well the business has done to that point, and how the loan funds will be used to generate revenue.
The terms of the loan will vary based on the source and the reason for the loan. Generally the longer the term of the loan, the lower the interest rate, though too long of a term can cause lenders to question the restaurant's ability to generate the revenue necessary to pay off the loan. Private lenders might see a loan as an investment opportunity and seek profit shares as part of the repayment terms. Before you seek a loan, have a good sense of what terms would be acceptable to you, and always have a lawyer or accountant you trust look over any loan documents before signing.
Another important tip to bear in mind is to hold off on committing to any financial obligations meant to be covered by the loan until you have actually secured the financing. Do not sign any property or equipment leases, promise employment to potential staff, or launch any marketing until you have a signed loan agreement. In fact, you are better off negotiating leases, salaries, and other expenses after you have received the financing.
There are some alternative modes of financing available as well. There are commercial leasing companies that can loan you equipment and appliances. Also you can always borrow against your retirement or home, though if you do, consider the tax and savings implications carefully.
The restaurant business has always been competitive and challenging. But in difficult economic times, starting or maintaining an eatery can be especially hard to do. But there are several options available to business owners in need of a restaurant business loan.