Quick restaurant funding can help you take your small business to the next level. Learn how to take advantage of restaurant loans and similar opportunities with our definitive guide. 

In this article:

• What is a QSR loan?
• What are the benefits of restaurant ownership?
• How much does it cost to open a QSR restaurant?
• How to get financing for a restaurant
• The best QSR restaurant loans for business owners

What is a QSR loan?

QSR loans are financing options for entrepreneurs in the food and beverage industry. Quick-service restaurants (QSR) are known for selling convenient food items quickly. The foods offered at QSRs are items that don’t need much preparation and can be delivered quickly, like fast food menus. In order to provide high-quality menu items, QSR restaurants use standardized processes that cut down on preparation and execution times and leave little room for error or inconsistent presentations. QSR restaurants thrive when the business model focuses on preparation methods and advanced technological tools.

What do QSRs look like?

While the focus of all quick-service restaurants is fast and easy food, each QSR is unique when it comes to its menu and the takeout services they offer. QSRs may include drive-through establishments, where there is no indoor seating section for customers, or they may offer a sitting area for guests to eat food on the premises. Some QSRs even offer an outdoor patio area for customers. Typically quick-service restaurants are a part of a larger chain or franchise, which allows them to focus on volume.

There are three types of QSR restaurants:

• Self-service restaurants – This type of QSR features an ordering counter where the customer reviews menu items, orders food, and picks up their order.
• Assisted self-service restaurants – A type of QSR hybrid, assisted self-service restaurants may take the orders at the customer’s table and then have diners retrieve the prepared food from a window or more commonly, the customers order their meal at the counter, and then their food is delivered to where they’re seated.
• Full-service restaurants – While still offering a limited menu, full-service QSRs offer customers a location where they are seated at a table. The diners can then order from a restaurant employee and their food is delivered to them.

The primary business strategy of QSRs

QSRs make money because they can serve a lot of customers in a short amount of time. There is not a lot of focus on profit margin, because the bottom line depends on volume. The simplified menu allows these businesses to turn out a high volume of food products while serving customers the quality they expect at a fair price. QSRs increase revenues by offering bundled pricing, or value meals that include several items.

There are five main characteristics that make a QSR successful:

• Bundled pricing
• Limited menu
• Franchised business model
• Fast service
• High volume of business

What are the benefits of restaurant ownership?

There are many perks to owning your own business, but running a restaurant comes with its own set of benefits. Aside from working for yourself, getting into the food and beverage industry is an opportunity for unlimited earning potential.

You can do what you love

Opening a restaurant is a quest reserved for those with a passion for food and for people. If you love creating new recipes and meeting new people, owning your own restaurant is a great way to share your creations and personality with the public (although less so, if you’re opening a franchise). By investing in a career you’re passionate about, you can rest assured you’ll always be able to do what you love.

You’re the boss

Entrepreneurs succeed when they apply their education, passion, and life experiences to business. By working for yourself, you can set your own schedule, design your own space, and hire the type of people you’ve always wanted to work with.

You can spread joy

If your vision includes a dining room full of happy customers, owning a QSR will give you the opportunity to show off your people skills. Diners visit restaurants for good food, but also for the company. Having your own place gives you an opportunity to create an environment that brings joy to others.

Additional benefits for franchise owners

On top of all the perks that come with restaurant ownership, there are even more benefits for entrepreneurs who choose to purchase their QSR through a franchisor.

The advantages of franchising a QSR include:

• Business support – It is common for franchisors to provide corporate support to their franchisees. Support includes a proven business model, management training, marketing strategies, mentorship, and even financial assistance and franchisee loan options.
• Lower startup costs – There are significant startup costs associated with purchasing a franchise, but overall franchises require less capital upfront than privately owned restaurants.
• Built-in customer base – Buying into a franchise, like Papa John’s Pizza or Subway, gives small business owners a way to start a new business where the customer base is already intact.

How much does it cost to open a QSR restaurant?

RestaurantOwner.com states that the average startup cost for a restaurant is $375,500. But determining the exact amount you will need to open your own QSR will depend on several variables. Whether you decide to become a franchisee or build your own concept from scratch, the initial startup costs will depend on the location, size, and menu of your restaurant.

Licensing and legal expenses

The initial legal fees and licensing expenses will depend on the type of restaurant you are starting. Typical licensing and legal costs of a new QSR include:

• Franchise fees
• Legal costs to register your business structure
• Business license
• Certificate of Occupancy
• Health permits
• Liquor license
• Legal consult

Secure a location

If you’ve decided the restaurant industry is the right place for your entrepreneurial spirit, you’ll need to decide whether you are going to lease the restaurant space or purchase a new building. Purchasing the physical space for your restaurant will require a larger initial investment than finding the right space to rent, but owning the location will provide benefits including freedom of use, tax deductions, and the resale value of owning commercial real estate.

Renovations

Once you’ve decided on what type of space you’re going to build your restaurant business in, you’ll need to consider the costs of necessary renovations. Of course, the amount of capital required to remodel the location will depend on the starting condition of the space and your goals for the finished product.

Kitchen equipment and supplies

New equipment is one of the larger financial burdens restauranteurs face, but don’t worry we’ll discuss restaurant equipment financing and other restaurant loans in more detail in the next couple of sections. Some necessary equipment purchases to consider include:

• Ovens and flat-top grills
• Fryers
• Hood vents
• Refrigerators and freezers
• Commercial dishwashing equipment
• Point of Sale (POS) system and software
• Cooking utensils

Furniture

Your furniture expense will depend on the type of QSR you’re opening. Some quick-service restaurants do not have a dining room at all or may have a large area with tables and chairs. Whether it’s dining room furniture, a simple front counter, or office furniture, be sure to account for furnishings when adding up the cost of your new venture.

Advertising

If you’re going to build the best restaurant, you’ll need to plan for marketing and advertising expenses. Franchise agreements often include some type of marketing, but locally advertising your new business may be the key to building brand awareness.

Operating expenses

It will take some time until your restaurant is generating a profit, so you should include one to three months of operating expenses in your calculations. When restaurant owners are considering operating costs, they are planning for working capital to cover inventory, food costs, payroll, utilities, and more.

How to get financing for a restaurant

Entering the restaurant industry requires a lot of planning. To start the journey towards a successful business, it’s best to break the process down step-by-step.

• Create a business plan – Before you reach out to lenders or consider the amount of capital your restaurant dream will take, it’s important to create a thorough business plan.
• Crunch the numbers – Using the list above, figure out how much money your new business is going to cost. Consider the cost of the location, equipment, payroll, and operating expenses in your calculation.
• Consider funding options – There are several different business financing options available to new restaurant owners including crowdfunding, finding investors, applying for grants, and restaurant business loans.

You may also like: revenue-based loan for restaurants

The best QSR restaurant loans for business owners

Once you’ve figured out how much money you have to put into the restaurant from personal savings, investors, or grants, the next step is to decide which restaurant financing option will help you complete your funding needs. Some things to consider before beginning the application process for a QSR loan:

• Type of lender – Small business owners can get a traditional bank loan through local financial institutions or credit unions. Another option is to work with alternative lenders, like Biz2Credit, where you can review several types of loans in one stop.
• Creditworthiness – It’s important to know your borrowing power before working with a lender. Check your credit score and review your credit report for accuracy. If you have bad credit, consider compiling a list of personal assets you can use as collateral to increase your approval odds for a QSR restaurant loan.
• Loan amount – Along with your creditworthiness, you’ll want to know how much money you need to borrow. Understanding the total amount of funding you’re seeking will help the lender match you to the right type of loan.

Once you’ve worked through these options, here are some options to consider:

SBA loans for restaurants

SBA loans are a type of business financing where a portion of the borrowed funds is guaranteed by the U.S. Small Business Administration. Since they are lower risk for the lender, SBA loans offer loan programs with low interest rates and minimum down payments. To get approved for a loan through the SBA, you’ll need to show that you’ve already invested significant capital into the restaurant.

Restaurant Equipment Financing

As previously mentioned, restaurant equipment is expensive. Consider applying for equipment loans to cover large purchases like walk-in coolers and commercial ovens. Equipment loans are secured by the new equipment, so they offer longer repayment terms and reasonable financing costs.

Merchant Cash Advance

Business cash advances, like the merchant cash advance (MCA), offer borrowers fast funding on short-term loans. MCAs work when the restaurant owner receives a lump sum of cash upfront and weekly or monthly payments are taken from the business’s credit card revenues.

Business lines of credit for restaurant owners

A business line of credit is a type of financing where the borrower is approved for a maximum credit line and can withdraw funds anytime cash flow is low or restaurant repairs are needed. The financing costs for lines of credit are higher than term loans or other types of small business loans, but they are a great option for restauranteurs who need an accessible emergency fund.

Bottom Line

Owning a restaurant is a long-term commitment that offers many rewards to the business owner. The startup costs for a QSR restaurant include real estate, legal fees, equipment, inventory, and furniture. To help cover the costs associated with a new restaurant, most entrepreneurs turn to working capital loans for their restaurant financing needs. Yousaf Razzak was able to fulfill his dream of opening the second Kalachi Grill thanks to the loan options at Biz2Credit.

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