Because many investors consider restaurants to be risky business ventures, restaurant fundraising for a new concept can be challenging. Restaurateurs need to find financial backers, secure loans and stretch their pockets to the limit.
A restaurant business plan
can be the best aide when seeking financing for a new restaurant. It
brings your restaurant concept to life on paper and helps sell your
idea to potential financers.
Most restaurants end up using a
combination of personal finances, loans from friends and family and
commercial bank loans for their restaurant fundraising.
Personal Resources
Restaurateurs
can get a financial jumpstart for a new restaurant by borrowing against
their home, liquidating assets, borrowing against insurance policies
and even maxing out credit cards. It may seem nerve-racking to go this
route, but these are all financial resources that are readily
available. Before you can expect others to invest in your restaurant
concept, you must first invest yourself.
Business owners,
especially restaurant owners, won�t have as much difficulty receiving
financial backing as someone who is opening a business for the first
time. Financers know that a business owner has a steady source of
income and capitol to fall back on and can also borrow from their
existing company if need be.
Commercial Bank Loans
Restaurateurs
with previous restaurant experience, along with a great business plan,
are a good candidate for a commercial bank loan.
Banks look for
�five Cs� when deciding whether to loan money to a new business:
character, credit capacity, collateral, capital, and comfort with your
business plan.
In a nutshell, banks are looking to invest in
restaurateurs with previous restaurant experience, strong credit
history and plenty of capital to fall back on. Banks will also expect a
detailed business plan complete with financial projections.
SBA Loans
The
Small Business Administration has a myriad of loan programs that are
worth looking into. However, since SBA loans must still be accessed
through a bank or credit union, it can be difficult to secure one
unless you have been in business for several years or already have
multiple locations. Visit www.sba.gov for more information.
Mom and Pop
Smaller
mom and pop restaurants usually end up turning to mom and pop for
restaurant fundraising. Family and friends are the main source of
financing for most small businesses.
Friends and family who
invest in your company aren�t so much investing in your concept as they
are in you. They want to see you succeed so a loan may seem like more
of a favor than an investment to them.
Although you might not
have to �sell� your restaurant concept to loved ones, it is wise to
present them with a business plan. Avoid ruining friendships and
severing family ties by keeping transactions as professional as
possible.
Minority Priority
If
you are a minority opening your own restaurant, you have an especially
good chance of securing extra help with your restaurant fundraising.
Organizations such as the Black Business Investment Fund, Hispanic
Business Initiative Fund and various women�s groups award small
business loans and grants on a regular basis.
Although there are
plenty of great loan resources for minority-run businesses, they are
only temporary. Develop a maturation plan that will allow your
restaurant to succeed without minority loans within three to five years
after your restaurant opens.
Business Incubators
Business
incubators are organizations that support the entrepreneurial process
by networking a group of businesses together to make it easier for
financers to find and invest in them. Business incubators can be either
public or private and often partner with universities.
Specific
to the foodservice and restaurant industry, there are kitchen
incubators. Similar to large-scale community kitchens, kitchen
incubators provide a certified and legal kitchen for caterers, street
cart vendors, etc. to prepare food. They generally assist their tenants
with business planning, financing and other facilities to help get
their food service business off the ground.
Joining a kitchen
incubator can be a great way to get a catering or foodservice business
off the ground if you don�t have the funds to build your own commercial
kitchen.
Return on investment
Whatever
outlet you turn to for restaurant fundraising, you must gross a minimum
15 percent return once you open in order to pay off loans and turn a
profit.
This return is what you�re left with after you pay all
of your expenses. If your restaurant has $30,000 in monthly expenses,
then you�ll be required to earn at least $45,000 each month to net a 15
percent return.
Opening your own restaurant takes time, patience and most importantly, money.
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