The Key Facts 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 options available to restaurateurs for financing. As a a small business, restaurant can take advantage of the start-up and restructuring loans available through the Small Business Administration. Traditional lending institutions such as Banks also often offer financing products for small businesses. Also, private investors and investment groups are often interested in offering financing options to specific sectors such as restaurants and food service.
No matter what the source of the funding, the loan application process will most likely center around the same main points. Lenders want a detailed account of the business, how it has done in the past, and what the infusion of cash will be used for. Usually they want to see all of this in the form of a business plan. They will want to know the rationale for the loan and the plan for generating revenue for repayment.
Loan terms vary according to the the reason for the loan and the source of the funds. Generally, the shorter the length of the loan, the higher the interest rate. But a particularly long repayment term may cause the lenders to doubt the restaurant's ability to develop the future revenues necessary to pay back the loan. It is also possible that some private lenders might want to include profit shares in the repayment terms to make the loan a sort of investment strategy. Potential borrowers should always have a clear idea of what terms they want before approaching lenders, and they should always have a trustworthy lawyer or accountant examine any loan agreement before signing.
It is also important to avoid committing to financial obligations that are to be covered by the loan funds until the loan is actually funded. Borrowers should avoid signing any leases for property or equipment, promising employment to new staff, or launching marketing campaigns until they have received a signed agreement. In fact, borrowers are better off waiting to negotiate leases, salaries, and contracts until after receiving the financing.
Alternative modes of financing are also available. Commercial leasing companies can loan some needed equipment and kitchen appliances on short or long term leases. One can also always borrow against a retirement account or home, but this can be risky and requires careful consideration of the the tax and savings implications.
The restaurant business is notoriously difficult. In times when the economy is faltering, starting up or keeping alive a restaurant can be particularly hard. But with careful planning, a restaurateur can navigate rough waters with a a restaurant business loan.
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