The hospitality industry is one of the most affected sectors by the coronavirus pandemic. According to McKinsey, hospitality industry revenues fell by 53%. As the world goes back to normal, players in the industry are trying to find their feet again. Restaurants, in particular, will need a lot of capital to restock, hire new staff, and cover operating expenses. This is money that most business owners may not have. As a result, most of them will turn to restaurant business loans to get back into the business. If you’re planning to get funding for your restaurant, here are some of the things that you should know.
Working Capital Loans
Business operational expenses can be a big problem for restaurant owners. That’s because they’re considered minor expenses, and most financial institutions are not willing to offer loans for such small expenses. A working capital loan can solve this problem since it’s able to cater to seasonal expenses.
If you are launching a new marketing operation or need some cash to keep operating during financial downturns, a working capital loan can come in handy. Moreover, you can use a working capital loan to take advantage of existing discounts from restaurant suppliers. As businesses start opening, many retailers will be trying to attract new customers. Consequently, they may decide to offer discounts to restaurant owners. When you have a working capital loan, you can easily take advantage of these discounts.
Small Business Administration Loans
The majority of the loans on this list will require that restaurant owners have a guarantee before they can benefit from the loans. A Small Business Administration (SBA) loan is ideal in this situation because it doesn’t require the applicant to have a guarantee. However, you must know that SBA does not give you the loan directly. Instead, it will ask a bank to provide you with a loan in which the SBA will be the guarantor. If your restaurant is unable to pay the loan, the SBA will compensate the lending bank.
Merchant Cash Advance
A merchant cash advance is not a loan. It is funding that restaurants get so that they can be paid back when they receive payments in the future. The guarantee in this case will be the merchant payment system where the payments will be deposited. This is a wonderful option because it enables restaurants with emergency orders from clients to fulfill the order. The restaurant will be able to fulfill the order even if it doesn’t have enough money to buy all supplies. Currently, most merchant cash advance loans can cover 40% of specific payments.
A Business Line of Credit
Alternative lenders and banking institutions usually provide business lines of credit. The business line of credit is only available when you have a minimum amount of funds in a bank account. You will be able to access certain amounts at a specific time until you repay the previous loan.
Crowdfunding is a popular method of raising funds for business ventures. Several individuals can come together and provide funding to your business. Nevertheless, you must prove that the investors will be able to recoup the money. You can do the crowdfunding online, or you can use a crowdfunding firm. As the pandemic continues to change business financing options, crowdfunding may be the best source of loans for your restaurant business.
Restaurant Equipment Loans
When the pandemic hit, many businesses had to sell their equipment to meet pressing financial obligations. These businesses will have to buy new equipment when they resume operations. Restaurant equipment loans can help restaurants purchase new equipment and repair broken ones. If you are buying expensive equipment, you may get full financing for it. However, this will depend on your credit score.
You can also take out a loan that covers the cost of the equipment as well as taxes. Unfortunately, the loan won’t include the handling, delivery, and installation cost. You will have to pay for these additional costs from your pocket.
If the cost of the equipment is too high, you can choose to lease equipment. In this case, you can still get a restaurant equipment loan. One good thing with equipment loans is that they mostly come with fixed-rate terms. This means you can plan and structure your payments depending on your projected profits.
Sometimes, your restaurant may have several financial requirements. A specific loan may not be ideal since it will not cater to all your needs. If you get a restaurant-specific loan, you can meet most of your financial obligations, such as getting more stock, making additional investments, and acquiring more restaurant space. The interest loans will vary depending on the borrowed amount and repayment period.
Family and Friends
Your family members and friends may be your restaurant’s most enthusiastic supporters. When you initially launched the restaurant, they may have spent a lot of time and money to promote the business. As you plan to relaunch your business, you may have to go back to them and ask for a loan. If they are able to help, you may get a loan at favorable rates and terms. For instance, they may give you an extended grace period. The loan interest rates may also be lower than what you could have gotten at banks.
Commercial Real Estate Loans
If your restaurant has been closed for a long time, your restaurant’s buildings may have gotten out of order. You can use a commercial real estate loan to renovate the building, conduct fresh landscaping, or even buy new restaurant space. You can also include legal fees as well as architectural fees in your commercial loan application.
Although the restaurant industry took a big hit, you can still bring your restaurant back to life with the help of a loan. The right loan can help you restock and pay any outstanding debts. You can also use the loans to renovate your restaurant space and hire new staff. This article will help you to get started.