Raising Restaurant Startup Funds

There are many challenges one faces when working on a proposal to obtain a small business loan for a restaurant. Restaurant loans are known to have high rates of default, and after investing in startup inventory and equipment it is difficult to re-sell if the business goes under because these are items that while 100% necessary to open up shop, also lose value at a very rapid pace (it would be a good idea to look into leasing equipment and fixtures). Tom Swenson, founder and chief executive officer of Bank of Montana writes, “If you are proposing a start-up business, you are de facto proposing something that doesn’t meet typical bank underwriting standards..Start-up businesses have no historical income. Traditional bank lenders rely on historical (tax-return verified) income in order to assess credit risk.”

So how do most restaurant startup companies typically begin operations? Roughly 80% of companies rely on the founder’s savings, 20% get funding from a business partner and up to a third of startups get funding from friends/family or charge credit cards. For those who do receive bank loans, most have personal guarantees from personal property such as home equity which is very attractive for a bank in a proposal. Another important note to include in proposals if it applies to you is to make the lender aware that you are committed to staying on at your job while starting the new business (if the existing household income is high enough to support debt repayment).

Of course a strong business plan and previous experience in the food industry are also positive aspects to include in a proposal to a lender if it applies. To read more about raising restaurant startup funds and how to strengthen a proposal to a bank lender, click here