Whether you are opening your first or your 15th restaurant, you will likely need to rely on financing at some point. The financing gives you the capital you need to hire more staff, lease new buildings, and buy new equipment. When considering different financing options, it’s going to be in your best interest to understand how they are different. This will allow you to make an informed decision about which restaurant financing option is best for you.
Crowdfunding
If you already have an established brand with a solid following, crowdfunding could be a good option. You pitch your idea to the public and allow them to help fund your restaurant in exchange for some type of benefit. You want to make sure that the benefit you provide is realistic and that you’ll be able to give it to them.
If you wanted to make the funding more exciting for people, you could also use tier levels to increase the benefits based on the amount of money given. For example, you could give a free meal to anyone who donates under a certain amount, and for anyone who gives more than that, you could invite them to the soft opening. While your goal is to make money and not spend it all on “thank you’s,” you don’t want those helping fund the restaurant to feel ripped off.
Traditional Bank Loan
If choosing a traditional bank loan for your restaurant financing, you should know that they take an average of 60 days to process. This type of loan would be a good option if you started your funding early.
Traditional loans require that you use collateral, whether business or personal, to back the loan up. This could be real estate or equipment your businesses need. The amount of collateral required will depend on your bank’s terms and how much money you take out. Additionally, traditional loans tend to have compound interest, which means if you don’t pay it back quickly, you could find that you end up paying a whole lot more than you originally planned.
Merchant Cash Advance
With a cash advance, a loan provider will essentially pay you a lump sum for a percentage of your future credit card sales. Then, each day the lender will collect the money owed to them, usually through an Automated Clearing House deduction from that day’s sales.
MCA’s are best for businesses with large fluctuations in cash that might not be able to pay the same amount each month, like with a traditional loan. Furthermore, the interest to be paid for the advance is a set amount added to what the restaurant owes from the advance.