Entrepreneurs who dream of opening up their own restaurants may find the final numbers quite overwhelming. There is a huge financial burden associated with launching a restaurant business as well as the risk of failure. But this fear shouldn’t stop business owners who want to venture into the restaurant industry. There are loan options that allow business owners to fund their startup and lead it to success.

There are lenders that provide business loans with fair terms and reasonable rates that would help small businesses. If you want to successfully launch a restaurant business, you need to know the basics that will lead to success. Make sure you check every financial aspect involved in your goals.

How Loans Can Help New Restaurant Owners?

During the first few months, and this goes for most types of businesses, it would feel like all you do is spend and sign checks for business expenses. This is why business owners should really understand the value of the loan they’re taking out. You may prepare a list of expenses but there may be unexpected situations that could also cost money.

It’s easy to feel like drowning before you even started swimming with expenses piling up and very little profit. This is where your loan can help you. SMB loans provide startup capital and help business owners cover expenses. It also gives you flexibility in terms of repayment once you have a more stable flow of income.

Pros of a Business Loan for Restaurants

If you’re thinking of launching a new business, here are some key advantages of taking out a business loan.

• Access to sufficient funding to start the business

• Immediately access the funds you need

• Pay off the loan over time

• Access to member-specific benefits from lenders such as financial education, job opportunities, and more

• Different types of business loans for specific business expenses such as commercial real estate loans, equipment leases, and ACH cash flow loan

Cons of a Business Loan for Restaurants

• Accumulate interest over time. Interest earned can be reduced by looking for a lender with competitive rates and favorable repayment terms.

• Poor credit may prevent you from getting competitive offers

• Collateral may be required which many new business owners do not have.

How Much Do You Need to Borrow?

A common and crucial mistake that a new restaurant owner would make is not borrowing enough money from their first loan. This occurs because they fail to account for some expenses that the business would need or they overestimated the rate at which their revenue would come in during the fledgling stages of the business. Below are some costs that you should cover with your loan:

• Starting costs

• Insurance and licenses

• Venue renovation

• Supplies and equipment

• Monthly bills such as water, electricity, and rent

• Staffing

• Inventory

• Promotion and marketing

• Taxes, accounting, etc

• Interest repayment and loan fees

Once you have a list of the items that you expect, you need to calculate how much income you would expect every month. It’s better to be as detailed as possible to minimize unexpected costs. It will also help in your application to have a comprehensive business plan.

Loan Options for Restaurant Owners

Business owners have several options when it comes to taking out a loan. You can go to your local bank, a private investor, or peer-to-peer lenders. Venture capital and private investors should be taken as the last option because they often come with high costs and forfeiture to the investor of a certain degree of control over the business. With banks, you would have to deal with strict eligibility requirements which can make it more challenging to get your loan approved. Banks also charge high interest rates which could lead to more difficulty in earning profit from your business once you get it off the ground.

A viable loan option for small businesses is to find an online lender. The online lending market is highly competitive which means you get better rates. You don’t need to put in a lot of effort to get favorable terms for your business loan.

Get a Small Business Loan for Your Restaurant

One of the most attractive aspects of taking out a loan from online lenders is the simple application process. Your loan can be approved in just a few minutes after submitting your application. Another advantage is that you only need to submit one application form to get multiple loan offers.

Each online lending platform will have different versions of a loan application form. But the basic information to provide will be similar. This would include your personal details such as name and phone number and the amount you want to borrow. You may also be required to attach bank statements, ownership documentation, and profit and loss statements. Lenders will use these documents to review the application and determine the rates they want to offer.

Where to Get a Business Loan?

OnDeck provides business owners lines of credit as well as traditional business loans. You can get the loan approved and the funds within 24 hours. However, you do need to provide a personal guarantee and a business lien for the loan.

Another company that works with small businesses is Rapid Finance. The company was established in 2005 and has provided more than $2 billion in funding to small businesses. Rapid Finance offers loan programs for small and medium-sized businesses from a range of industries.

Frequently Asked Questions

1. What can I use the business loan for?

Business loans typically do not limit where you can spend the funds on. However, lenders may still ask for a business plan with details of how you want to spend the money. There are also different types of loans that cover specific expenses.

2. How long can I repay my loan?

Repayment terms will depend on the lender. Some lenders only offer up to 12-month terms while others can offer you terms up to 25 years.

3. What should I do about unexpected costs after my loan is approved?

Experts recommend taking into account unexpected expenses when you apply for a business loan. Whether it’s a broken piece of equipment or limited revenue, you may be approved for a further business loan provided that you are on time with monthly payments.

4. What should I look for in the fine print?

Reputable lenders will be honest regarding their loan policies and terms. However, you might miss some unexpected fees and penalties in the fine print. For example, paying off the loan early may get you fined with prepayment penalties. It will be advantageous if you can find a lender that allows early payments or waives prepayment penalties.