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.
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.
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.
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 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.