Getting a restaurant business off the ground is no easy task. It requires preparation, dedication, and, above all, the right amount of funding.
If you're setting up a business for the first time, it's likely you're unaware of the different avenues you can take when it comes to sourcing financing. So that's why we're here - with an essential guide on how to secure funding for a restaurant.
From dipping into your own pocket, to crowdfunding and state aid available, sit back as we detail the best financing resources at your disposal.
What items need to be funded when opening a restaurant?
A restaurant is generally funded through a mix of debt and equity.
So when thinking about how to secure funding for a restaurant, it's important to be aware of the different types of loans offered by banks and credit institutions, depending on the type of assets that need to be funded.
In the table below, you'll find the main possible funding options for each of the biggest investments to be made when launching your restaurant:
| Items to be financed | Bank financing |
Leasing |
Grant / Tax credit |
|---|---|---|---|
| Property/Renovation | Bank loan (10 to 20 years) |
Leasing of property |
Investment grant (in some cases) |
| Equipment | Bank loan (2 to 7 years) |
Equipment leasing |
Investment grant (in some cases) |
| Stock | Short-term financing possible in some cases |
||
| VAT | Bridging loan (up to 6 months) |
||
| Initial cash position | Overdraft |
Before deciding whether to provide funding for your business or not, a bank will check the financial viability of your business and test your own knowledge of the restaurant industry. If you don't have any prior experience in the restaurant sphere, we strongly recommend taking a restaurant or food-management course to reassure investors of your dedication and ability to propel your restaurant to success.
The power of equity in funding your restaurant
What is equity?
Equity is the amount of money you can contribute to the business yourself - whether it's by using your own cash or grouping together money from fellow business partners.
How much equity is required to attract investment?
As a general rule, banks expect equity contribution to make up at least 30% of your restaurant's overall funding requirements. The exact percentage depends on several criteria:
- The amount of funding required,
- the type of assets to be financed,
- your own experience,
- the relationship you have with the bank,
- the business's potential for profitability.
How can I build up my equity?
You can use several methods to build up your equity, such as:
Personal savings
Dipping into your own pocket is an excellent way to kick-start your business and show investors just how dedicated you are to its success.
Personal savings generally won't be enough to cover the total amount of equity needed to obtain funding. If this is the case for you, you can supplement the rest of this amount from alternative sources.
Love money
Love money refers to money invested into your business by loved ones, such as your family and friends.
One benefit of this form of investment is that it's often easier and quicker to obtain: your relatives know you and trust your judgment, so it's often easier to convince them to support and invest in your business than an investor you've never met before.
There are, however, two disadvantages to love money:
- the sums collected are sometimes very small (a few hundred pounds per person).
- if the business faces difficulty (especially in the case of bankruptcy) it can cause tension - as you'll be forced to tell your relatives that you lost their money.
Crowdfunding for restaurants
Crowdfunding is another very effective funding method for anyone pondering how to secure funding for a restaurant.
The idea is wonderfully simple: set up a campaign on a crowdfunding platform, tell your story, and wait to be put in contact with like-minded individuals who wish to financially support your venture.
It's up to you to decide how to thank donors for their contribution:
- nothing (although this is of course a possibility, it's not very incentivizing for potential donors)
- rewards (in the form of a free lunch or dinner, free coffee, or food discounts),
- shares in the business
The best thing about this method is that absolutely anyone can try it, all you need is a business idea and access to WiFi. It also gives you the opportunity to introduce your restaurant to your local community and test people's reaction to it (whether they think it's a great idea or if you need to work a bit more on it.)
And the drawbacks? Well, the effort required to run a successful restaurant crowdfunding campaign is pretty taxing (from creating your profile online, filming footage of the restaurant and team, posting regularly across social media and answering investors' questions) and the individual amounts contributed tend to be fairly low in comparison.
Private investors
Finding entrepreneurs or private investors who believe in your business and are ready to invest is not easy. But if you have a slick concept and a solid business plan, it's certainly not beyond the realm of possibility.
Securing funding in this way will enable you to not only finance part of your project, but also receive professional advice on how to best go about operating your restaurant.
This solution is quite expensive in the long term because the investors, who acquire shares in your restaurant, expect to eventually (normally after a few years) make a profit in return - in the form of a dividend or when they resell their shares.
This form of funding does, however, have two major advantages: there's no obligation to repay the money, especially in the event of bankruptcy. Securing financing in this way also provides credibility to your business.
State aid available for creating or taking over a restaurant
The last option in our guide on how to secure funding for a restaurant is to try to obtain one or more business start-up grants.
There are multiple schemes for the creation and takeover of businesses. The trick is to know them and to know that you are entitled to them.
If you are in the UK, to find out more about the support available, you can visit the Business Finance Support Finder. Another option is to apply for the Start-Up Loans Scheme. Supported by the government, this scheme offers personal loans of up to £25,000. The interest rate on such loans is just 6% and entrepreneurs also receive access to free mentoring and business support.
In the US, the SBA works with various organisations to provide small businesses with grants. Check out their website to see if you meet the criteria to apply.
Another option would be to find out about regional business start-up awards and competitions set up by your local government that reward and fund business start-up projects.
Now that our article is at its end, we hope that it has helped you paint a clearer picture of how to secure funding for a restaurant. If you still have any questions, do not hesitate to contact us for any questions related to the creation of a restaurant.
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