Tips for Getting a Business Loan to Open a Restaurant
Harry February 28, 2022

The likelihood of making a lot of money is what attracts everyone to the restaurant business. Even during the pandemic, the restaurant industry managed to ride out. People are gourmet and if you promise them to deliver scrumptious flavors they will become your loyal customers.

It sounds great to open a restaurant but it requires a lot of initial capital. Even if you are going to open a small cafeteria, your nominal savings will not stand. In an ideal world, you can arrange the initial capital yourself if you are well off or you have a significant amount of money coming in from another business to pour into your new restaurant.

Things become complicated when you do not have enough savings to get the restaurant off the ground. There are various sources for funding your restaurant depending on your needs. Friends, family, investors, crowdfunding, and business loans from online lenders or banks are some of the funding sources.

You would not like to seek money from investors if you do not want to lose ownership. Other sources like family, friends, and crowdfunding may be appropriate if you only need a small amount of money. It can be difficult to qualify for a traditional business loan because of stringent criteria.

As a result, you are left with only one option and that is business loans from online lenders. However, there are a lot of things you need to consider before seeking these funds.

Tips for getting a business loan to open a restaurant

If you are trying to qualify for a business loan, you should do the following things:

Arrange the following things

Whether you are borrowing money from a recognized bank or an online lender, you will have to prepare and prepare. Some borrowers assume that they have a bad credit rating, so they have only one funding option: an online lender.

This is because only they approve business loans for bad credit, but there are a lot of things you need to get the approval. You will need the three documents to present: business plan, startup cost spreadsheet, and financial forecast spreadsheet.

Business plan

It is not just about your restaurant business, whatever the business you need money for, your lender will ask you for a business plan.

A business plan is an outline of your business that describes the current market situation and how you intend to make money from it. It tells your lenders about the market you are operating in, your objectives, and strategies to achieve them. Here is how you should create a business plan:

  • Your business idea: write a short description of who you are, what you offer, whom you offer, and why you offer.
  • Your marketing and sales strategy: your marketing strategy provides details about your customers, competitors, and how likely you are to grow down the road.
  • Operations: you will have to give details about how you will manage your restaurant business. It will include details about hiring, suppliers, networking, location, IT infrastructure, and the like.

Startup cost and financial forecast spreadsheet

Your business plan is incomplete if it is missing the startup cost and financial forecast. Your lender would like to know how much you can invest money in your restaurant. It is absolutely impracticable for an online lender to fund 100% cost.

Tell your lender how much you can invest in your restaurant business. You will also have to tell them details about the financial forecast – how much amount of profits you think will generate in coming months and what plans you have to do so and what alternative strategies you have in case the market turns unexpectedly. Here are the questions you need to ask yourself to make the spreadsheet:

How much money do you have?

It is important to assess your own financial condition to figure out how much money you have as an upfront cost. The more money you have, the higher the chances of getting approval. It shows that you are serious about your money.

Self-funded capital can include money you have been putting by for years for your restaurant, precious gifts or money from inherited property. If you are looking to cash out your asset or investment, make sure that it will not affect your finances.

Keep in your mind the contingency so you do not have difficulty making ends meet. Things do not go always as planned, so it is crucial to determine how much you can afford to lose. Take the help from a financial counselor to make the right decision.

How much money do you need to borrow?

One of the significant mistakes that people make while raising funds for the restaurant is that they do not raise sufficient capital. It will be more difficult to raise money in the middle of your business operations as it is assumed that you are unable to generate profits.

You should have a clear idea of how much total capital you will need to hit the ground running, but at the same time, you should figure out your affordability.

Depending on the borrowing amount, your lender will allow you to apply for unsecured business loans or secured business loans. The former will carry a higher interest rate than the latter but you do not have a risk of losing your valuable asset in case of a default.

How much profit will you likely make?

This is simply a forecast so it is impossible for you to give an accurate estimation, but make sure that it is quite impressive that the lender does not doubt your repaying capacity. Your business plan must show your knowledge about your target audience and the way to reach out to them and knowledge about succeeding against your competitors.

You should outline the strategies you will use in case things do not go as planned. Of course, no lender would like to fund a business that has no future of survival. Your lender will likely be more interested to know how you managed to ride out the market downturn.

Pandemic-like situations can come up any time and it can be extremely challenging for you to generate profits. You must have a plan for such unexpected events. At the outset, you cannot estimate the actual operating cost. You may likely need to apply for no guarantor loans to fill the gap.

You should be prepared for this situation. The lender may hesitate to lend you money in the middle of the restaurant operations. Taking into account such costs is equally important to estimate how much profits you will need to make.  

The bottom line

If you need a business loan for your restaurant, you need to make an effective business plan that outlines a futuristic favorable situation for your business. A lender will not just make a decision based on your business plan.

There are some other factors like your credit rating and current financial situation to estimate how much you can afford to pay back. For all your business plan seems very favorable, a lender will approve the loan that they think you can manage to pay off despite a business failure.