How to get funding for a restaurant | ResDiary

Let's face it: Opening a restaurant is expensive. The vast majority of potential restaurateurs will require some financial backing to get their new business off the ground.

That's why you'll need to start looking for funding for your restaurant. You might also be looking for investment to grow or expand your venue.

There are many potential avenues for funding you'll need to choose from, as well as a wide array of best practices to be aware of when seeking funding. That's why we've assembled this comprehensive guide to acquiring capital for a restaurant.

Raising funds for a restaurant: Pros and cons

Raising capital for any business is a major decision that should not be made lightly. Consider the following pros and cons before rushing into any decision about raising funds for your brick and mortar restaurant.

Pros of raising funds for a restaurant

• Use of capital: Once you successfully raise money for your restaurant, you'll have access to the money you need to pay for the many costs associated with opening and running a restaurant. This includes rent, labour costs, equipment, inventory and much more.
• Ability to grow: Raising funding isn't just for starting a new restaurant. It can also be a crucial step in growing your venue. It might allow you to purchase new equipment, physically expand your business or even open up a new location.
• Share the risk: Entirely self-funding a new venture in hospitality can be very risky. Your restaurant business may fail, potentially wiping out your savings. You can mitigate this risk by acquiring funding from a range of sources.
• Gain expertise: Anyone you bring in to finance your restaurant will likely be happy to share any knowledge they have about the industry or business at large. They can become an invaluable partner for your business.

Cons of raising funds for a restaurant

• Interest: Loans and other forms of private financing often come with high-interest rates. This means that taking on this debt can be very expensive in the long term.
• Loss of ownership: Some investors may require partial ownership of your venue to justify their investment. This can affect the financial rewards you can reap from your business.
• Loss of control: Whether an ownership transfer takes place or not, any major investment will usually result in you losing some control over your venue. You will have many more voices in your brain's trust to listen to. This can be very unappealing for some restaurant owners, so consider carefully if this is right for you.

Types of funding for a restaurant

There are many ways to raise money for a business. Choosing the correct one is essential for the success of your capital-raising efforts.

We'll provide a brief overview of each major type of restaurant funding you can consider. We'll also offer a step-by-step guide for accessing each kind of funding.

Keep in mind that this is all general information and is not financial advice. Consult with a professional financial advisor and/or your local restaurant association to address your personal circumstances.

Business loans

Business loans are loans, usually provided by banks, to support the establishment of a new business or the growth of an existing business. You'll provide the details of your upcoming venture and why the lender should consider making an investment.

They will then provide you with a predetermined amount of money to support your financial goals. Of course, this money must eventually be repaid.

Business loans are known for coming with high interest rates. New businesses often fail, especially in the restaurant industry. Banks and other investors require high interest rates to justify the risk they are taking on.

How to get funding for a restaurant with a business loan

1. Create a business plan: A well-crafted business plan is crucial when seeking a business loan. It will become a master document of the information you need to create a successful business. A business plan showcases your venture's best features and will help you figure out how much money you are seeking.
2. Do your research: No matter where you are in the world, you have a wide array of business loans to choose from. You must consider which type of business loan you want to seek, including term loans, small business administration loans and lines of credit. You should also consider the interest rates and fees you will pay, as well as collateral requirements. Be sure to shop around and consult an expert.
3. Prepare your documentation: In addition to your business plan, you will need plenty of documentation to apply for a business loan. This can include business financial statements, personal financial statements, proof of business ownership, insurance information and much more. Ensure you have these documents readily available before you begin seeking funding.
4. Submit your application: Meticulously fill out your loan application with all relevant information. Use all available resources and professional assistance to ensure your forms are filled out correctly.
5. Loan interview: In most cases, you will need to follow up your written application with a loan interview. Ensure you are prepared for an in-depth discussion of your business plan. Prepare to field potentially difficult questions.
6. Finalise your loan: If all goes well through the application process, you'll be all set with a business loan. Carefully review your loan agreement and secure your funding so you totally understand the arrangement you are entering into.
7. Maintain a relationship with your lender: Keep your lender informed about the development of your business. Ensure your repayments are timely. Don't forget to use any expertise provided by your lender.

Private investor

Private investors differ from traditional business loans in several ways. While business loans from banks tend to come with a rigid set of rules, private investing is a wider umbrella. Your private investor might come in a number of forms. These can include:

• Angel investors: Angel investors provide capital to businesses, usually in exchange for ownership equity or convertible debt.
• Venture capitalist: Venture capitalists are investors known for investing in high-potential businesses. They are often willing to wait for longer time periods before seeing a return on their investment if the long-term outlook is considered worthwhile. Venture capitalists typically invest in businesses in slightly later periods than angel investors.
• Private equity firms: Private equity firms are usually larger organisations which provide investment to businesses. Generally, the aim of a private equity firm is to gain some ownership of a business which they can later sell.

Often, private investors will prefer to invest in somewhat proven businesses, rather than brand-new concepts.

How to get funding for a restaurant with a private investor

1. Create a business plan: A business plan is also crucial for securing investment from these types of institutions or investors. It helps to instil confidence in the profitability of your strategy by showcasing your tactics for maximising yield and making use of restaurant software.
2. Find your investor: Finding the right private investor might involve online research. You can also leverage your personal connections to get meetings.
3. Prepare your pitch: Depending on the type of private investor you are seeking investment from, you might need to prepare different kinds of pitches. For example, you should develop an "elevator pitch" that quickly communicates your business' value in a short time frame. You may also need to prepare a slideshow presentation.
4. Prepare your documentation: While private investors can be less rigid in nature, you will still need plenty of documentation to secure your investment. This includes financial records, legal documents, insurance and more.
5. Submit your application or have a meeting: Follow the process for your chosen private investor. This might involve a written application, or you might progress to a meeting relatively quickly. Ensure you are well-prepared and ready for any questions that may arise.
6. Finalise your agreement: After a period of negotiation, you should produce final documentation and contracts outlining the nature of your agreement with the investor. Carefully pore over these documents with the help of experts.
7. Maintain a relationship with your lender: Ensure you set up a healthy and productive ongoing relationship with your investor, whether or not they have acquired part of your company. Be sure to use their expertise to your advantage.

Crowdfunding

A modern method of raising funds for restaurants is crowdfunding. Through platforms such as Kickstarter, Indiegogo and GoFundMe, small business owners can raise funds from users who wish to see their restaurant come to fruition.

You can reward investors in a range of ways. This might be with traditional financial rewards or something more unique like free vouchers. The major benefit of crowdfunding is that fulfilling these obligations to investors is generally far less taxing than paying back a loan or sacrificing ownership equity.

Crowdfunding is most effective if your restaurant has a strong unique selling point. This will help your venue to stand out from the crowd and secure funding on a popular platform.

You might find crowdfunding less effective if your venue is in a smaller location. A venue in central Sydney is likely to have a broader appeal to a range of platform users. However, a cafe in Wagga Wagga might struggle to attract attention on the platform, as most users are unlikely to ever visit it.

How to get funding for a restaurant with crowdfunding

1. Create a business plan: While often not strictly necessary for online crowdfunding, providing a strong business plan to prospective investors is a great way to organise your thoughts and bring legitimacy to your campaign.
2. Choose your platform: With so many platforms to choose from, making the right selection is critical. Familiarise yourself with rules, fees and payment processing for each platform. Also, be sure to compare the user bases of each option.
3. Prepare your documentation: As with any fundraising effort, having all your documentation is essential to bringing legitimacy to your campaign. Be prepared to show financial, legal and insurance documents to your investors.
4. Create your campaign: Now, you're ready to begin creating a winning campaign. Highlight what is unique and excellent about your venue. Convince investors that they will have an amazing time at your venue.
5. Promote your campaign: Don't forget to get the word out about your campaign. Consider using social media and press coverage to help drum up funding for your venue.

Friends and family

You have a great, winning idea for a business. Why run around trying to impress strangers when your friends and family have money of their own?

Leveraging your personal relationships to gain funding can be a highly effective strategy. Your loved ones want to see you create your dream restaurant and are more likely to be convinced that you will be a great restaurant business owner.

But you know what they said about mixing your business and personal life. There's no doubt that taking loans or entering business partnerships with friends and family can add tension to your relationship.

If this is a risk you are willing to take, securing a business loan from friends and family can be a highly accessible and effective strategy. After all, it worked out for Starbucks, Dyson and Google.

How to get funding for a restaurant from friends and family

1. Create a business plan and prepare documentation: Whilst this is the most "informal" way of securing funding, as always, you should always have a business plan on hand before beginning the fundraising process. You should also have the necessary documents ready.
2. Come up with a proposal: When you seek bank loans or private investment, your potential lender will likely have a major say in what your partnership looks like. When seeking funding from friends and family, there is more of an onus on you to prepare a proposal. How do you envision a potential investment or partnership taking shape?
3. Select your choices: Decide which friends or family members might be appropriate investors. Don't choose your high school friend you couldn't stand living with for 6 months.
4. Have a meeting: Meet with your chosen friend or family member. Pitch your business to them and decide what type of investment will take place.
5. Prepare a contract: We recommend getting any major financial agreement in writing, no matter how close you are to a friend or family member. Proper documentation prevents issues arising in the future and brings legitimacy to your business.
6. Maintain a relationship with your lender: Update your friend or family member as you would any other investor. If it is a simple loan, be sure to pay it back within your agreed time frame. If they have equity in your business, involve them in your operations to an appropriate extent.

Achieve your restaurant goals with ResDiary

Securing funding to open or expand your restaurant is an important step for any business. When you are ready to begin this new chapter, be sure you have ResDiary's restaurant reservation system to guide you on the path to profitability and growth.

After all the work you’ve done to fund and open your restaurant, use ResDiary's Restaurant Business Plan Template to give yourself the best possible chance of success. ResDiary helps make your paper diary a thing of the past and enhances your diner's experience with digital reservations. Gain a greater understanding of your yield management and ensure no customer is turned away with W8List.

You can also take advantage of more than 60 integrations. Book a demo today and find out all the ways ResDiary can elevate your business.