Financing a Restaurant - What are My Options? (5-part Series)

Posted by Robin Gagnon on Jun 15, 2013 5:12:00 AM

Financing a Restaurant


Wondering how to go about financing a restaurant?  You're not alone.  We get calls each week for answers on funding and the restaurant brokers have lots of ideas.  Here are just a few of the many options for financing a restaurant.  We will cover these on a general basis in this blog posting and continue with a 5-part series by breaking down each form of financing into an in-depth look complete with links to resources and lenders.  For today, here are the highlights for financing a restaurant.

SBA or Small Business Administration Lenders

The Small Business Administration does not actually fund any loans but they guarantee up to 80% of the loan giving local banks more security against their risk. 

SBA lending isn't confined to just franchise opportunities.  There are multiple programs available including the SBA 7(a) which lends up to $5 Million.  Lenders also process MicroLoans on behalf of the SBA that fund up to $50,000.  Strong lenders can go through the pre-qualification process with you on any structure and have answers in less than 30 minutes.

If you're doing a new franchise start up and the franchise is on the Franchise Registry list, then the SBA has already reviewed the fundamentals of the business and will just need your personal information to move forward on the loan.

Smart restaurant brokers have strong relationships and submit listings to their SBA lenders so they are pre-approved and buyers can flow right into the financing process once they find the right listing. 

Next week, we’ll cover SBA lending in depth with our 2nd article in this series titled, “SBA Lending – Financing a Restaurant with Uncle Sam’s Help.

Equipment Leasing

Start-up businesses can often qualify for equipment leases with a multitude of programs with credit lines up to $2 Million.  This lowers your capital costs up front and some of the benefits include:

  • No personal collateral
  • Potential tax advantages
  • Preservation of credit lines
  • Fixed payments and rates

Owner Financing 

If you're buying an independent restaurant, don't discount owner financing as an option.  Many owners will carry a portion of the note ranging from 25% to 50% of the purchase price over a period of years to allow you to pay them over time.  The advantage of owner financing is that you avoid fees and often get a quite competitive interest rate as well.  We will do a second installment in our series on the structure and types of owner financing options to consider when financing a restaurant.  Look for this article in two weeks under the title, ”Owner Financing When Buying a Restaurant – the Good, Bad & Ugly.”

401K Conversions or Stock Portfolio Loans

401K conversions have become quite popular in recent years as baby boomer executives leave the corporate world to a slow job market.  The roll-over of a 401k to fund your business can be done without any tax consequences.  The restaurants brokers work with an excellent firm on this process and we’ll do an entire article in our series on this option.

In addition to 401K conversions, some buyers with strong portfolios they don’t want to cash out can simply borrow against them.  This is a strong option for experienced investors with a strong grasp of their stock portfolios’ future.   The restaurant brokers will tackle both these topics in the third part of our series in the article titled, “Tax Free Stock Conversions for Financing a Restaurant.”

Crowd Funding

If you haven’t heard of crowd funding yet, get ready.  Lots of states are not waiting on the federal government and the Securities and Exchange Commission to finalize their plans before acting NOW to offer this resource.  The restaurant brokers will cover the exciting idea of crowd funding that we expect to explode in the marketplace over the coming years.  Look for our upcoming article in this series titled, “Crowd Funding – Financing a Restaurant With the Help of a Crowd.”

If you’re in the market to buy a business and thought financing a restaurant wasn’t possible, we have lots of options.  Continue to check our blog or subscribe for our 5-part series on financing a restaurant that will include:

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Robin Gagnon, Certified Restaurant Broker®, MBA, CBI, CFE is the co-founder of We Sell Restaurants and industry expert in restaurant sales and valuation. Named by Nation’s Restaurant News as one of the “Most Influential Suppliers and Vendors” to the restaurant industry, her articles and expertise appear nationwide in QSR Magazine, Franchising World, Forbes, Yahoo Finance, and BizBuySell. She is the co-author of Appetite for Acquisition, an award-winning book on buying restaurants.

Topics: Financing a Restaurant

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