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Reader Q&A How do I Get Financing for a New Restaurant?


Reader Q&A How do I Get Financing for a New Restaurant?

Writing a solid business plan is a step toward opening your own restaurant.

Question: Reader Q&A How do I Get Financing for a New Restaurant?
Dear Guide to Restauranting,

I want to open a new restaurant, but I’m not sure I’ll qualify for a bank loan. My credit is so-so, and I have some debt, mostly student loans. I’ve heard it’s really hard to get financing for a new restaurant, because they close so frequently. My brother-in-law offered to help me out by investing as a silent partner, but I am little wary of going into business with family. Any suggestions?

George W.

Answer: Dear George, Convincing a bank to finance a new restaurant can be tricky. After all, there are all those scary statistics of one in every three restaurants failing in the first year (or one in every four in the first six months, or one in every five in the first two weeks – take your pick!). However, people like eating out and there will always be a demand for good restaurants, so banks will finance a restaurant they feel has the potential to succeed where others fail. There are several steps you can take to increase the chances of your restaurant concept being financed.

Write Your Business Plan The first step to securing financing is a good, solid business plan. A business plan is like a blue print of your restaurant, requiring research, writing, and editing. It outlines your concept and your start up budget. You may have a location in mind and if so, find out how much the rent or mortgage will be and figure that amount into your business plan as well.

A restaurant business plan also outlines any potential problems you might encounter, both before and after opening day, and how you will deal with them. Writing a business plan also allows you to examine your competition, from their concept to their menu pricing.

Once you have a rough draft of your business plan outlined, take advantage of local economic agencies in your area that can have resources for polishing your business plan. These agencies, like a local small business administration (SBA), can walk you through almost every part of writing a business plan, as well as help you find all the necessary information, such as local employment rates and population data. Read more about writing a solid restaurant business plan.

Get Ready for Your Bank Interview

The next step is to get ready for your bank interview. Don’t make extra work for your banker. Have all your necessary paperwork in order, before they ask. Standard papers include an updated personal financial statement three years of personal bank statements, tax returns and your most recent pay stubs. You should also have a written explanation of any criminal record as well as any big issues that might appear on your credit score (like a past bankruptcy). Other tips I suggest are calling the loan officer to make an appointment. Have all your papers organized in either a folder or small binder, which the loan officer may keep. And finally, make sure that your contact information is listed on all your paperwork.

Alternative Financing

Think beyond your local bank, when considering restaurant financing. There are other lending institutions that may consider financing a new restaurant, besides a traditional bank. Small Business Administrations are one option. Private investors are another option. However tread carefully when taking on partners (even silent ones, some don’t stay silent for very long). Though it is nice of your brother-in-law to offer to help you with financing, going into business with family or friends can change the dynamic of your relationship. Of course, many of the best businesses alliances are among families, but it still should be given careful consideration.

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