Ever since the financial crisis of 2008, banks have been more risk-averse and inclined to shut the doors on small businesses. In fact, according to a 2014 Harvard Business School working paper, some banks won’t lend to restaurants at all. The options restaurants have been left with include: private investments, crowdfunding, loans backed by the U.S. Small Business Administration and online small-business loans. As you go over your options, consider the following tips:
- Pitch your plans to friends and family. Pitching your business plans to investors and lenders takes practice. Practice going over your business plans with the people that care about you the most – your family and friends. This provides you with the opportunity to answer tough questions and learn more about your business. In the end, you will be much more prepared and confident to approach lenders and investors.
- Get a second opinion. Getting feedback on your business plan is really important. This can be done by presenting it to your attorney, accountant and/or other restaurateurs. In fact, other restaurant owner’s business plans can provide guidance. If you cannot show that you are capable of operating your restaurant as a business, you will not be able to get very far. As Charles Bililies, owner of casual Greek eatery, Souvla, points out, “if you cannot operate your restaurant as a business, that means you just throw great dinner parties.”
- Prepare your paperwork. Having your paperwork organized and thoroughly put together can help you secure funding in a matter of a few weeks, versus it taking months. Marlow Schindler, lender relations specialist at the San Francisco SBA district office, explained that SBA loans take months to get funded. However, she adds that having your paperwork ready can greatly reduce the wait time to a matter of a few weeks. To apply, you will need personal and business income tax returns, financial statements, loan application history and various legal documents (business license, lease, etc.).
- Be honest with yourself about crowdfunding. It is true that rewards-based crowdfunding is a good option for businesses that have a large social media following, but it can also be really expensive when you consider the cost of T-shirts and other prizes. You have to also keep in mind that popular platforms – like Kickstarter, Indiegogo, GoFundMe, etc. – take 5% from the total amount you raise.
- Avoid a nondisclosure agreement. Because many entrepreneurs want to protect their ideas, they use nondisclosure agreements before their restaurant opens. Experts have shared that this might not be in your best interest. They advise that sharing your ideas with people who can help you improve upon and execute them is a better use of your time and energy.
- Do consider working with a high risk lender. While the first thought in many entrepreneur’s minds is to turn to a traditional lender, this might not be possible for a restaurant. Most banks shy away and categorize this type of business as “high risk”. A high risk specialist like First American Merchant, on the other hand, offer services tailored to meet the specific needs of each industry. For example, a restaurant cash advance offers entrepreneurs the funding they need without the endless documentation process required by a bank (only to find out that you’ve been turned down by the bank later on). With the flexibility they provide – not to mention the hassle-free application process – restaurant cash advances are quickly becoming one of the most popular sources for working capital.