How to Get Funding for a Restaurant

Are you ready to turn your dream of opening a restaurant into a reality?

If so, it’s time to create a business plan, find a location, plan a menu, and hire your staff. If that sounds like a full plate, there’s more to consider: funding your restaurant. As a new restaurant owner, one of the worst mistakes you could make is failing to raise enough capital to start your new venture.

So how much start-up capital do you need?

The cost to open a restaurant varies, depending on the type of restaurant you intend to open, your location, your menu, and more. According to a survey of 350 restaurateurs from Restaurantowner.com, a small restaurant can cost as much as $175,500 in total start-up costs. A medium-sized restaurant costs up to $375,500, and a large restaurant costs up to $750,500.

Wondering where that money will come from?

This guide will walk you through the start-up costs of opening a restaurant and 8 ways to help you finance it.

How Hard is it to Open a Restaurant?

Most restaurant owners will tell you that it isn’t easy. It takes talent, time, dedication, planning, and focus to bring your vision to life. And of course, money.

Although we more often hear about the restaurants that fail, many do succeed, and yours could be one of them. It will take more than optimism, though. As a new restaurateur, it’s essential to know the most common mistakes in the industry so you can avoid them.

One pitfall that can drive your new restaurant into the ground is insufficient start-up capital. You must have enough funding to cover your one-time costs and ongoing expenses. According to Sage.com, here are some of the most common expense items for new restaurant owners:

One-time expenses.

Location

A loan to purchase a building will require a down payment. If you’re leasing, you must pay an initial security deposit.

Renovations

You may need to remodel your space or kitchen to fit the specific needs of your restaurant.

Business licenses/permits

The requirements, costs, and renewal fees for licenses and permits will depend on your location. Here’s where you can find out how to get a business license in your state.

Legal fees

With all the paperwork required to open a restaurant, it’s wise to hire a lawyer to review contracts and documents on your behalf.

Kitchen equipment

Depending on your business, you’ll likely need a stove/oven, refrigeration, a dishwasher, and other cooking equipment to open your restaurant. These costs can add up, so you may want to look into restaurant equipment financing (more on that later).

Furniture

Dine-in restaurants must invest in tables, chairs, tableware, and other decor before opening. And you may have to invest in improving accessibility at your location.

Point-of-Sale (POS) system

Once your restaurant is up and running, you’ll need a way to receive payments and keep track of inventory. You can learn more about POS systems in this article.

Advertising

You can’t bring in customers if they don’t know you exist. As a new business owner, you should plan to spend money on a logo, signage, website, advertising, and a grand opening event.

Recurring expenses.

Rent or mortgage payments

Be prepared to make monthly lease or mortgage payments for your building. You also will have to pay property tax if you purchase a property.

Payroll

Unless you’re running a one-person operation, you must hire and pay salaries for employees. These may include a chef, line cooks, waitstaff, and a manager.

Food costs

Like many expenses, this one will vary based on your menu, vendors, and location.

Utilities

It takes electricity, gas, water, trash removal, and phone and internet service to keep your restaurant running.

Marketing

While word-of-mouth advertising is a great way to bring in customers, having an ongoing marketing budget helps your restaurant maintain visibility after your grand opening. Check out our simple tips for marketing your restaurant.

Unexpected costs

Along with the more-obvious expenses, there can be costs you weren’t expecting in the restaurant business; all it takes is one of those events to set you back financially. That’s why you should always have a contingency fund for unexpected expenses, as well as business liability insurance.

How to Get Funding to Open a Restaurant

As a new entrepreneur, it may be overwhelming to see so many expenses. But don’t let it discourage you from opening your restaurant. Instead, focus on what it will take to finance your dream. Here are some tips to help you get started.(1)

1. Identify your needs.

First, determine how much money you have to put toward your business. Then figure out how much money you need to open your new restaurant. Once you know the bottom line, you can pursue the finance options that fit your needs.

2. Write a business plan.

Whether you’re talking to a bank or a restaurant angel investor, anyone who lends you money will likely require a written business plan that outlines your restaurant concept and how you plan to execute it. You should detail your value proposition, target market, marketing strategy, and the breakdown of your start-up costs.

We can help you get started with our free business plan template.

3. Create a pitch deck.

If you have a great restaurant concept, you should know how to pitch it. Sharing your vision with a detailed pitch deck can excite restaurant investors and help you make a strong impression. You can learn more about crafting your elevator pitch here. 

Where to Find Funding for Your Restaurant

Finding funding is a crucial step in opening a restaurant. But where do you find investors? And how can you get a loan? What if neither of those options works?

The good news is that you don’t have to put all your eggs in one basket. There are many ways to raise funds for your restaurant. What may work for you is a combination of your own savings and one or more of these other funding options.

1. Restaurant investors.

One way to help fund your venture is to find someone to invest in your restaurant in exchange for a portion of the profits. While there are different types of private investors(2), restaurant angel investors are often the first to invest in the early stages of a new business.

Some restaurant investors may have more to offer than money. They may have expertise in the industry that could help your business succeed. As a new business owner, you may not know how to find restaurant investors. You can start by talking to industry peers and joining the Angel Investment Network(3).

2. Restaurant business loans.

Another way to fund your new venture is with a restaurant business loan, which involves working with a bank or credit union. Whether you’re buying an existing restaurant or opening a new one, restaurant business loans can help you get the funding you need to upgrade your equipment, keep your kitchen stocked, or cover other essential costs.

When you obtain a loan, you must pay it back with interest. Interest rates and term lengths vary, so be sure to explore your options.

3. An SBA loan for restaurants.

When searching for a restaurant business loan, you may notice an SBA 7(a) loan. This type of loan is issued by a private lender and backed by the federal government. The government guarantee makes it more likely that a bank will take a risk on your restaurant. However, you still need to meet the SBA loan eligibility requirements.

4. A restaurant line of credit.

Another funding option is a line of credit. Similar to the way a credit card works, you get approved for a specific amount of money, but you pay only for what you use.

Let’s say your credit line is $100,000, but you use only $30,000 in the first year. Your monthly payment would be based on the money you have drawn — which is $30,000. When you pay down the balance, you have more credit to draw on in the future.

5. Grants to open a restaurant.

Can you get a grant to help finance your new business? Yes. Although it is rare for restaurateurs to get grants, they are typically reserved for nonprofit organizations.

That said, there are ways to find them. The Small Business Administration(4) connects entrepreneurs with private organizations offering grants. We wrote this guide to help small business owners learn more about finding grants and how to apply for them.

6. Restaurant equipment financing.

Your kitchen is the heart of your business, but setting it up can be expensive. As a new restaurant owner, you may wonder, “Can I finance restaurant equipment?” Absolutely.

Restaurant equipment financing is a business loan that uses the equipment you buy as collateral. For some new business owners, this may be an easier way to qualify for financing, since you won’t be required to produce external collateral. In addition, financing your equipment allows you to spread the cost over time, making the expense more palatable.

Not all lenders offer restaurant equipment financing, whereas others specialize in it. When exploring options, be sure to compare terms and rates from lenders who work in the restaurant industry.

7. A fundraising campaign.

Instead of meeting with investors and banks, you may decide to launch a fundraising campaign. Crowdfunding platforms such as Kickstarter allow you to approach the general public and ask for money to fund your new restaurant.

Each contribution may be small, but those numbers can add up to something substantial.

8. Loans from friends and family.

You’ve likely cooked a fantastic feast for your friends and family. They already know you have talent, drive, and passion. So why not ask them to invest in your business?

Here’s one reason: mixing professional and personal relationships can be a recipe for disaster. It isn’t always the case, but do proceed with caution when accepting loans from friends or relatives. Whether they write you a one-time check or commit to paying an ongoing expense, ensure both parties agree to the terms in writing.

The Importance of Business Liability Insurance in Financing a Restaurant

It takes money to open a restaurant, and insurance to protect it. Whether you’re opening a tiny takeout place or a large upscale establishment, business insurance can safeguard your investment.

When it comes to restaurants, accidents and lawsuits can happen at any time. That’s why it can be important to set your business up with a business owner’s policy (“BOP”). BOP insurance bundles three foundational coverages into one convenient policy. Coverages generally include:

1. General liability insurance

2. Commercial property insurance

3. Business interruption insurance

For a restaurant, BOP insurance can provide financial assistance in the event of third-party bodily injury, damage to your equipment and inventory, and more. 

Simply Business® makes it easy to purchase restaurant business insurance coverages that fits your budget and business needs. Check out our easy online quote tool to get a business insurance quote and determine how much a business policy might cost. Have a question? Our licensed insurance agents are just a phone call away at 844-654-7272.

Funding Your Dream

You found your dream. Now it’s time to fund it. Whether you apply for a loan, pitch to investors, or start a fundraising campaign, you have the information you need to finance your restaurant. Be persistent, stay the course, and get cooking.

1. Learn more at Sevenrooms.com. 
2. Learn more at Startups.com.
3. Learn more at AngelInvestmentNetwork.us.
4. Learn more at SBA.gov.