Tips for Getting a New Restaurant Loan in Florida

The restaurant industry directly contributes $1.4 trillion to the U.S. economy, equivalent to 6% of real GDP. Though restaurants often get hit the hardest during a recession, the restaurant industry has steadily been growing year after year. New restaurant openings increased 10% in 2023 to 53,800. Whether launching a new restaurant, opening a franchise, or purchasing an existing business, you'll need money to run your business. Learn more about restaurant funding, including how much it costs to open a restaurant, where to get the money and the types of funding that are available.

How Much Does It Cost To Open a Restaurant?

Knowing how much restaurant funding you need is one of the best ways to start. Your vision for the restaurant business and the dining experience for your customers dictate the amount of money it costs upfront to open the restaurant, serve the food, and market to the local community.

There are many costs to opening and running a restaurant business, but they generally break down into these categories:

• Property rent and equipment financing leases
• Renovations and furniture
• Business licenses
• Insurance, including property, liability, and worker's compensation
• Employee wages and payroll taxes
• Food and drink, including plates, cups, and utensils
• Marketing materials, including website, social media and print, online, radio, and TV ads
• Waste management
• Utilities, including electrical, water, sewer, gas, telephone, and internet

These upfront costs add up, which is why it’s no wonder that there is such a slim profit margin when it comes to running a restaurant. With proper management, reasonable prices, and quality food, your restaurant will be popular and provide a solid return on your investment.

How to Get Restaurant Funding

Although restaurants contribute $1.4 trillion to the U.S. economy, it can be difficult to get business loans in Florida as a first-time business owner. Having a great business plan covering all your bases will help, but it isn’t the only way you can achieve funding. Here are five factors to consider when seeking restaurant funding to open your business.

Location, Location, Location

With almost 54,000 new restaurants opening each year, selecting the best location is everything when running a restaurant. You can have the best food in the world, but your restaurant will be empty if customers cannot find you. High-visibility locations usually have higher rents, so balance potential customer traffic against your monthly rent costs.

Write Your Business Plan

A business plan not only helps you get restaurant funding, but it also serves as the road map to run your business. Within the plan, you'll perform a SWOT analysis (strengths, weaknesses, opportunities, and threats) of your business, create a marketing plan, and project your revenues and expenses.

Be realistic in your assumptions. Whether you're speaking with friends, bankers, or professional investors, unrealistic expectations will turn away potential funding sources for your business.

Create a Cost Analysis

Be objective about how much running your restaurant will cost. There is the cost of the lease, cost of utilities, cost of overhead, cost of food, cost of cleaning, cost of damages, cost of marketing, and so much more.

By outlining your entire budget, you can explain how you intend to keep it as low as possible and how many customers you would need to cover those costs.

Commit to Market Research

Market research is the process of getting to know your target customers. Their demographics, disposable income, spending patterns, and other factors will help you craft your menu and set prices. Understanding their values and what entices them to spend is also helpful when designing the layout and aesthetic of your restaurant. Creating an appealing menu and comfortable ambiance can position your restaurant for repeat business beyond the initial launch of your business.

Preview Your Menu

Creating the entire menu is another great way to get a loan for your new restaurant. It shows lenders that you've thought out your concept and are ready to proceed as soon as you have the money.

Consider preparing dishes for the lender to sample so they can experience your vision themselves. While you're unlikely to feed a banker inside a branch, this strategy is more successful when meeting with a venture capitalist, angel investor, or friends and family. If they enjoy your food, they will likely buy into your business idea.

Types of Restaurant Funding Options to Consider

There are many ways to get the money you need to launch your restaurant. Evaluate these seven restaurant funding options to find one or more that meet your needs.

Personal Savings and Credit

Entrepreneurs often rely on their personal savings, credit cards, home equity, and retirement savings when launching their business. While this type of restaurant funding puts your finances at risk, it is also easy to access.

Consider using your own money as a short term restaurant loan to establish a proof of concept and then repay yourself once you qualify for other financing options. Remember to keep enough money in reserves to stay current on your personal bills while your business revenues ramp up to the point where you can draw a regular salary.

Friends and Family

Many small business owners borrow money from friends and family to realize their entrepreneurial dreams. These people are often the ones who believe in you the most and want to see you succeed. However, if your new restaurant fails and they lose money, you risk harming your relationships, possibly for life.

Traditional Bank Loan

Banks typically lend to existing businesses with a track record of success. However, if you have industry experience, they may approve a business loan to open a new restaurant, purchase a franchise, or buy an existing business. For the best approval odds, keep your credit score high, showcase your relevant experience, and have a business plan showing how the money will be used.

Banks typically have more rigorous underwriting criteria than third-party lenders. Alternative lenders may approve your application more quickly but often charge higher interest rates and fees. Weigh the pros and cons before you commit and always shop around for lenders before you choose.

Merchant Cash Advance

With merchant cash advance, you’ll receive money tied to your credit card sales without waiting for your card processor to pay you. This alternative funding source provides money to buy equipment, purchase restaurant supplies, and working capital to run your restaurant. With MCA, you’ll receive an upfront lump sum of money, which will be repaid over time from your debit and credit card sales.

Small Business Administration (SBA)

SBA loans are an excellent choice for new business owners because the Small Business Administration guarantees a portion of your loan will be covered in case of default. This guarantee reduces the lender's risk, making them more likely to approve applications compared to traditional loan programs. However, SBA loans still require applicants to meet specific eligibility criteria and undergo a detailed review process.

As a bonus, SBA loans are one of the best ways to achieve the most competitive interest rates for business loans. The downside, however, is that the application process can take a long time to get approved because both the lender and the SBA must approve it.

Venture Capitalist or Angel Investor

Venture capitalists (VCs) and angel investors are another way to acquire the restaurant funding you need. However, they rarely provide money for a restaurant due to its slim profit margins and high failure rate.

VCs repayment terms typically require an "exit event" (sale of the business or going public) within five years, which puts high pressure on the business to grow quickly. Their investment also gives them input on the restaurant's direction, which may not align with your vision. Angel investors often have a longer time horizon for their investments, and they usually act more like advisors to help you reach your goals than business partners that require an equal voice.

Crowdfunding

Internet platforms like Kickstarter offer restaurant funding from multiple investors based on your credit profile, business idea, and other factors. Investors on these platforms combine their money to meet your fundraising needs through loans that are generally five years or less. In some cases, crowdfunding platforms allow investors to prepay for future goods and services rather than extend a loan.

Crowdfunding is an excellent way to get the money you need for small restaurant ideas like opening a food truck. Food truck financing in Florida through crowdfunding platforms can also be a wise choice when traditional or SBA loans are unavailable and you need a small loan to supplement your savings to start the business.

Final Thoughts

Running a restaurant is a difficult but rewarding choice for small business owners. To give your business the best odds for success, you must get it right from the start. Take time to research, find the right location, and prepare a business plan with detailed financials. While it may take more time in the beginning, you'll minimize the surprises later. Explore all of your restaurant funding options and consider combining multiple options based on your needs and personal finances. Combine all this with a fantastic launch, personal service, and delicious meals, and you should succeed.

Frequently Asked Questions

How Do I Fund My Restaurant?

Many restaurant funding options are available for entrepreneurs looking to open a new restaurant or purchase an existing business. While some aspiring business owners may use savings or home equity to launch their business, others must borrow money. Borrowing options include loans from family and friends, SBA loans, restaurant equipment financing, crowdfunding, and merchant cash advances.

How Do Restaurant Investors Get Paid Back?

If you have investors as part of your restaurant funding plan, not only do they want to get paid back, but you'll also need to provide a return on their investment. Depending on your agreement, you may issue distributions to investors on a monthly, quarterly, or annual basis. These payments come from the restaurant's cash flow and profits, so include potential payments when writing your business plan.

Can I Open a Restaurant With $100k?

It is possible to open a restaurant with $100,000, but many factors must be considered. The location and size of your restaurant dictate how much your startup costs will be and how much cash flow and profits you may be able to generate. Food trucks, pop-up kitchens, and small strip mall locations are more suitable for smaller budgets.

How Do Restaurant Owners Pay Themselves?

When creating your business plan for restaurant funding, don't forget to include a salary for yourself. Your contributions are just as important as the servers, cooks, and hosts, and you also have household bills to pay. Include your salary in the regular paycheck process for paying your staff, just as if you were a regular employee.

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