How much does it cost to maintain a successful restaurant? Well, any restaurant actually. Keeping up with changing customer demands and getting through slow cash flow periods make maintaining a restaurant an expensive venture. Some big investments you should be expecting
- Equipment repairs
- Covering payroll during slow periods
- Expanding to a new location
It’s tempting for restaurant owners to use personal lines of credit to cover these investments. This is an understandable solution – what’s a restaurant without an oven? However, this may be a mistake. Financial advisors recommend getting your restaurant as close to break-even before tieing up credit line resources.
Knowing the funding options available to you will help you make the best decision for your restaurant’s situation.
Traditional business credit lines and loans backed by the Small Business Administration are the most popular options for local restaurant owners. An established restaurant can fetch a lower interest rate when the eligibility requirements are met.
Also known as Alternative Lenders or Market Place Lenders, online lending may be a solution for businesses banks consider too risky. The application process is relatively short compared to traditional lending options. Some guarantee a decision within a few days, and most take less than a week.There are usually three types of online financing available for restaurants.
Given in lump sums business owners must pay back over a predetermined time period, or term. Term loans work best for long-term investments like buying a business, remodels, and purchasing high-cost equipment.
Lines of credit:
Unlike the lumps of a term loan, lines of credit act like a cash account business owners draw from. Ideal for covering cash flow emergencies, lines of credit come in handy to bridge short-term needs. For example, taking advantage of a supplier’s discount to purchase popular inventory items. Be sure not to tie up your credit line with long-term investments.
Account receivables financing:
Like a line of credit, account receivables provides access to funds while business owners wait for payables to come in. The difference here should be noted, as most restaurants don’t have accounts receivable. So, this would apply to restaurants whose main source of revenue comes from corporate catering, for example.
Ovens, refrigerators, chairs, and tables. As a restaurant owner, you’ll need to upgrade your equipment at some point. There are two options you have to acquire the equipment you need:
Leasing equipment for your restaurant works very much like leasing a car. Usually, only a small down payment is required, and you have the option to return the equipment at the end of the lease or pay to purchase.
Financing restaurant equipment is again, like purchasing a car. Your options range from new to used equipment that you own from day one. Unlike equipment leasing options, down payments are significantly higher.
Merchant cash advances offer an option for funding if the above means aren’t available. Not to be confused with loans, cash advances offer an upfront lump sum, for a portion of your future credit/debit sales. Generally, these payments are automated and vary according to your daily sales.
What else do I need to know?
Outside investors and business partners are solutions you may want to consider. Before finalizing agreements, make sure you understand your stake in the business and choose your partners wisely.
Understand, there is no one-size-fits-all solution for maintaining your restaurant. Starting with this guide, it’s best to do some homework and educate yourself. Finding the right solution takes time and the best decisions are made before an emergency situation.
What other financial questions we can help you out with? Let us know in the comments below!