restaurant business loan

The majority of entrepreneurs must borrow funds at some moment. The pleasant news is, at present there are scores of distinct business finance programs. Unluckily, that is also the bad news. In other words, the capital is at hand, although it can be puzzling to make your mind up on which business loans to apply for, particularly for the reason that a lot of business loans fund certain things.

When it comes to the financing popularity contest, equity funding is now in vogue. Stories in the mainstream media as regards venture capital have glamorized the concept of promoting stock in your startup, and entrepreneurs across the world would a large amount have a preference to raise capital in the form of equity rather than debt.

restaurant business loan

Equity is so appealing because it feels like you're receiving "free" money through the startup stage. There are frequently no compensation obligations and no interest payments payable to equity investors. You will also have some voice in negotiating the price of your stock, any share payments and the rank the shareholder will have in your business. If your business goes belly-up, it's their loss (unless, of course, your investors can show in court that you did not unveil unfavorable information that would have influenced their decision to invest).

Besides providing funding, equity investors can be effective in extra ways as well. They bring their business experience and lessons learned to bear on your company, plus they can become a board member. The finest equity investors are individuals with experience in your industry, experience launching a business, a cool personality and a large bank balance. Some say choosing an equity investor is similar getting married-you're making yourself answerable to this person through thick and thin, so choose with care.

restaurant business loan

Before you go investor shopping, though, you should carefully think about just what you are promoting and what having equity investors really means for you and your company. Very few company's will ever be able to hand over a good return on investment (ROI) for equity investors. The usual restaurant or retail store, for instance, is unlikely to have any liquidity for its shares. And even if you plan to come up with a high-growth tech business, the chance of getting liquidity for your first investors is low. You should be sincere with yourself about whether your investors expect to be remunerated.

restaurant business loan

What about good, old-fashioned loans?

If the sheen of equity capital is marked by the reality of having to create a respectable ROI, you can fall back on a loan. The decent news regarding debt financing is that you're in spite of everything wholly in charge of your company-your solitary job to your lender is to achieve your payments on time, as spelled out in your promissory note. As long as you do that, your lender has no right to interfere in your business. Interest payments are typically a deductible business cost, and if your lender is someone you know well, you might be able to get positive repayment conditions that can make the loan walk and talk much like an equity investment.

restaurant business loan

There are several ways to create this flexibility:

• Defer the start date of repayment by adding a "grace period." Startup loans often have a six- to 12-month grace period before repayment starts, providing entrepreneurs with some time to ramp up the business.
• Capitalize interest. Your lender can also capitalize the deferred payments so they don't lose interest funds during the grace period. This allows you to pitch a lender by suggesting a much longer grace period (if you think you'll need more than 12 months).
• Use interest-only payments. If your lender wants to be repaid immediately, offer to make interest-only payments for a period of time to keep your monthly budget in check.
• Institute graduated payments. You can create a unique repayment schedule with low payments at the start of the loan and higher payments at the end when your business is proven.

For lenders who are very cautious about making a loan, you can offer to provide collateral on the loan, such as a lien on your car or home equity. Be careful, though: If your business isn't yet well established, taking on this type of risk too early could be a bad move.

Another solution that some entrepreneurs have used to find a happy middle ground between debt and equity financing is convertible debt, which is simply debt that converts to equity as the business grows.

restaurant business loan

In order to show that you are worth the capital, you will want to prepare some documentation. First, your personal credit history is relevant to your small business loan � especially if your business does not have a long operating history. They will assume that you operate your business in the same manner that you manage your personal finances. Bring your credit history with you to reference as necessary.

Next, bring financial statements for your business. You’ll need to show your business’s financial health. They want to know how much it’s worth and how much money you’re moving. If you’re serious about small business loans, then you’ll also want to prepare detailed pro-forma statements. These give projections about what your business will be worth going forward.

Finally, be sure you have an updated business plan. By preparing a detailed business plan, you’ll already have your financial statements and pro-formas prepared. Banks award small business loans to those that have everything spelled out and planned. I strongly suggest that you prepare a plan with as much detail as possible – including bios of you and your partners, your track record, your strategies and advantages, and more.

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