Restaurant Financing

Restaurant Financing : The Ultimate Beginner to Advanced Guide in 2023

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This is the Ultimate Guide to Restaurant Financing,


The truth is,

The majority of Entrepreneurs nowadays let their business idea and concept die because of financing fear,

And who knows if some of those ideas were the next McDonald’s or Starbucks?

No one,


Getting and understanding how restaurant financing works and actually getting approved for one is not rare at all,

In this fully comprehensive guide, here is what we’ll cover:

  1. What is Restaurant financing
  2. Restaurant financing Options
    1. Definition of each one of them
    2. How to get them
  3. Restaurant Financing Comparison
  4. Bonus: Restaurant Financial Management


In this Guide, we will cover 10 financing options that you could consider to open your restaurant,

Without further due,

Let’s Rock!


What is Restaurant Financing?


Money is flowing everywhere,

And there is a huge amount of people looking to invest their money somewhere,

So why don’t we try to get a piece of the pie as well?

As a matter of fact,

Restaurant financing is simply the process of requesting and getting approved for funding,

There are many ways to get funding, and we will cover them in the next section,

But there are two major categories of getting funding:

  1. Debt Financing
  2. Equity Financing


Debt financing is simply the process of getting funding from an external source by promising to pay the amount back with interest,

This is your traditional loan for example,

And they have many advantages such as :


Debit Financing Benefits



On the other hand,

Equity financing refers to the process of giving up a part of your company in exchange for a certain amount depending on the valuation,

Basically selling a certain percentage of your company,

Usually, people think it Is a bad thing to give up some of the concepts you have worked so hard to get together,

But sometimes it is actually the best decision to expand your restaurant and make it even more successful,

Here are some of the advantages of equity financing:


Equity Financing Benefits



But there is a question that I often hear whenever I’m giving a lecture on restaurant financial management,

“If I have enough money to fund my restaurant idea, should I request financing?”

And this is a great question,

And I always answer this question by asking them a couple of questions back:

“Do you believe you have done enough homework and research and know that your concept can succeed?”

If yes,

“Then why would you spend your own money, when you can get technically get free money”

If no,

“Then why would you invest your own money in something you think will fail?”,

The truth is,

If even YOU think that your concept is not good enough to succeed,

Then of course investors will not be compelled by the offer,

However the idea here,

Is to come up with an outstanding and revolutionary concept,

That could disrupt the industry,

And that have high chances of success,

Investors are looking for one thing,

Their money back + extra bonus,

And you are looking for the same thing,

So the fundamentals in restaurant financing are the concept and the pitching process itself,

In this article, we will not cover the concept development,

If you want an actionable guide on how to open your restaurant with no experience,

Here is it,

Now let’s get into the juicy part of this guide and tackle all the financing options that you could consider to open or expand your restaurant,


Restaurant Financing Options


SBA Loans


a. What is it

If you are located in the US,

You probably have heard about the Small Business Administration,

And the SBA Loans are basically loans granted by this government organization to small business owners,

It’s a great alternative,

It reduces the risks that usually come with regular financial institutions,

The Small Business Administration’s process is to help you get a loan from traditional financial institutions,

But they give you the possibility of getting better terms,

As they will give a partial guarantee of that loan in case you are unable to pay it back.


b. How to get it

In the order to get approved for an SBA loan,

You need the following rules:

– Proven Revenue generation (100.000$ or more)

– 2 years of business experience

– A good credit score (More than 640)

If you want to learn more about SBA Loans,

You can check their official website,


c. Pros and Cons


  • Get Better Terms
  • Less Risky
  • Small and large amounts offered
  • Assistance is provided



  • Requirements
  • Personal Liability
  • Slow approval process
  • Need for high credit score


SBA Loans Pros and Cons


Lines Of Credit


a. What is it

A line credit is basically when you have an arrangement with a financial institution,

Where you set a credit limit,

Meaning that you set a max amount that you can tap into whenever it is required,

However you cannot exceed that credit limit,

That set amount of money can be borrowed, paid back, and borrowed again,

The agreement with the financial institution will obviously include:

  • The interests,
  • Payment size,
  • Do any other regulations


There are different types of Line Of Credit:

– Personal LOC

– Home Equity LOC

– Business LOC

– Demand LOC

– Security Backed LOC

If you need to learn more about each one of them,

I found this article to be useful,


b. How to get it

To get approved for a LOC,

You will need:

  • Good credit history
  • Demonstrate ability to repay


c. Pros and Cons


  • Interest charged only on the borrowed amount
  • The interest rate is lower
  • Don’t usually require collateral



  • Needs a good credit history
  • Some types of LOC are not a good deal


Lines of Credit Pros and Cons


Alternative Loans


a. What is it

Alternatives are simply a way of getting funding that is different from traditional bank loans,

When you apply for a regular loan,

You are expected to pay a certain amount every month regardless of your restaurant operation,

And knowing that unexpected factors could affect your restaurant,

It makes it sometimes quite risky,

Alternative loans give you more flexibility,

For instance, they could adapt to your operation and offer you a payment that is a commission of your sales,

They could even offer you daily repayment,

The major benefit here is flexibility,


b. How to get it

Alternative lenders give you easier access to funding,

And you can get it pretty fast:

  • Basic business information
  • Credit history


c. Pros and Cons


  • Extremely Flexible
  • Adapt With Business activity
  • Great alternatives to traditional loans



  • Less regulated
  • Rates could be higher
  • Usually large loans
  • Hidden fees


Alternative Loans Pros and Cons


Restaurant Equipment financing


a. What is it

Equipment Financing is the process of getting funding for the required equipment that you need to run or scale your restaurant,

The Equipment lender will either give you the fund you need to purchase the equipment,

Or they will sell you the equipment you need,

The good thing here is that the equipment could be used as collateral,

Meaning that if your restaurant fails to pay back the funds,

The lenders will s get back the equipment,

Yet if you make the full payment,

You will own the equipment.


b. How to get it

Getting approved for equipment financing will obviously depend on the lender but here is what you can expect:

  • Good credit score
  • Proof of Annual Revenue
  • Previous business experience


c. Pros and Cons


  • Tax advantages
  • Flexibility
  • Make financial management easier



  • Restricted to equipment only
  • Could have higher rates
  • In case of default, you lose the equipment


Restaurant Financing equipments Pros and Cons



Brick and Mortar Loans


a. What is it

Brick and Mortar simply means that a business is operating in a physical location,

Restaurants are brick and mortar businesses in contrast to online stores for example,

And those loans are the traditional ones,

The basic process of applying for a loan in a bank and waiting for the approval process and so on,

They usually offer less flexibility but they are the most used ones,


b. How to get it

To get approved for a loan, you can expect the traditional requirements such as:

  • Good credit history
  • Collateral
  • Down Payment
  • Business Informations


c. Pros and Cons

Pros :

  • Flexibility
  • Temporary
  • Tax advantages



  • Long application process
  • Collateral
  • Interest can grow over time


Brick and Mortar Loans Pros and Cons





a. What is it

This is a new way that has recently emerged where you basically ask for funding from a large number of people,

Basically getting a small amount from a large number of individuals ends up being an advantage for both parties

You can either expect to give up some equity depending on how much each individual is investing,

Giving some benefits in exchange for the financing such as promotional advantages, merch…

Or some individuals just donate the money altruistically, (don’t expect that though),

It is typically done online but you can also gather investors and do it in a physical location,


b. How to get it

All crowdfunding platforms must be regulated by the SEC, in the case of the US,

And you basically don’t need anything to start except maybe a marketing budget to advertise your restaurant,

And the platform requirements which can end up being strict,

You simply need to:

  1. Select your crowdfunding Platform
  2. Create your advertising campaign
  3. Test and assess


c. Pros and Cons


  • Increased awareness
  • Low risk
  • Easy to start
  • Data gathering and analysis



  • Marketing budget
  • Need for a community to believe In you
  • Low success rate
  • High fees


Crowdfunding Pros and Cons


Merchant Cash Advance


a. What is it

MCA is an alternative way of getting funding by giving the lender a percentage of your sales until the full amount and interest have been paid,

Here is how it works:

  1. The Lender gives you the required sum of money upfront
  2. They purchase a percentage of a restaurant’s future sales
  3. Through an automated method, They get a percentage of the sale until the amount is paid back
  4. Interest is added to sale percentage repayments


It is not considered s being a loan,

As the merchant technically buys a part of your future sales,


b. How to get it

There are a couple of factors that will impact the interest that you’ll get in this type of funding:

  • Business Information
  • Years in business
  • Debit and credit card transactions


This type of funding is typically great for restaurants running cashless operations.


c. Pros and Cons


  • Best for short-term Use
  • Fast access
  • Flexible



  • High fees
  • Go into debt cycles
  • Savvy merchant


Merchant Cash Advance Pros and Cons



Friends and family


a. What is it

This is the most common way that most businesses have always got funding,

The reason is quite simple,

It doesn’t require as much time and effort in certain cases,

And the requirements are almost inexistent,

But you got to be careful with this method,

As sometimes it could literally ruin your relationships,

I always tend to keep my family out of business,

But in certain cases, it could be a great idea,


b. How to get it

What makes this financing method so appealing is that there are no requirements,

Besides explaining your idea and convincing your friends and family about your restaurant concept,


c. Pros and Cons


  • Easiest way
  • Fast access
  • Low or no interest



  • Can ruin your relationships
  • Tend to be biased
  • Restrict your growth potential


Friends and Family Loans Pros and Cons


Angel Investors


a. What is it

Angel investors are individuals that invest in many businesses,

By providing funding in exchange for equity or convertible debt (royalties),

Angel investors are extremely experienced and they know what they are doing,

Thus you need to provide valuable and well-researched data to make the offer appealing to them,


Here you just got to be careful with the individual you will work with,

Even though you are seeking funding,

If the terms that they offer you don’t fit your particular needs,

Don’t go for it,

You will end up losing more than what you could have,


b. How to get it

To get funding from an angel investor,

The only requirements are to:

  • Find the opportunity to pitch your restaurant idea
  • Convince them


The rest will depend on them,

They will go through a long due diligence process to determine if your business is worth the investment or not,


c. Pros and Cons


  • No monthly Payment
  • Low amount of paperwork
  • Get great connections
  • Can help to scale



  • Ambiguous terms
  • Loss of a small amount of control
  • Savvy investors
  • Unproven
  • Difficult to convince


Angels Investors Pros and Cons



Venture Capitalist


a. What is it

Venture capitalists are similar to angel investors,

But they are private equity investors,

That is mainly looking for high-growth opportunities, in exchange for a stake in your business,

This is great because they are more open to risky investment giving you slightly better chances of convincing them,


b. How to get it

The process is the same as with angel investors,

You will have to find either a venture capitalist or venture capital fund,

And convince them to invest in your restaurant


c. Pros and Cons

Pros :

  • No monthly payments are required
  • Help you scale
  • Networking opportunities
  • Increased exposure



  • Difficult to convince
  • Pressure to grow faster
  • Funds will be provided depending on your performance
  • Reporting Is required


Venture Capitalists Pros and Cons


Those are 10 ways you can expect to finance your restaurant to meet your financial goals,


This is all great,

But what should you do with all this information,

Well in the next section I’ll briefly touch on a couple of ways that you can compare those restaurant financing options,

And go for the one that fits your particular needs,


Restaurant Financing Comparison


Knowing that you have plenty of ways to get funding is great,

But then what?

You need to analyze them and pick those that are appealing to your own restaurant concept,

Here are the factors that you should consider when comparing restaurant financing options:

  1. Term
  2. Pace of obtention
  3. Payback
  4. Interests
  5. Reputation
  6. Collateral


Let’s briefly go through each one of them and see how to use them.


A. Term

We have touched on this a couple of times previously,

And these are the most important factors to consider,

By the term, I am talking about the requirements that financial institution is giving you in exchange for providing you with funding,

In the case of an angel investor for instance,

The term could be:

“200.000$ for 10% of your restaurant”,

This is very simplified,

But you will need to go through all the term and choose the ones that you think is best for you,


B. Pace of obtention

That simply refers to how fast can you get the funding,

And that again will depend on what you need the funding for

If you have a cash shortage and you need the money as fast as possible,

Then going for a brick-and-mortar loan is not the best option,

Rather considering a merchant cash advance or an alternative loan could be something to think about,


C. Payback

The payback refers to the amount of money that you will need to return to investors,

You also need to analyze the payback that is asked as sometimes financial institutions could ask for a payback that is too high,

On the other hand, the payback period is the period in which you will provide the required sum,

This will have a big impact on the pressure and the stress that you will have,

As the faster the payback period the more pressure you will and you could potentially ruin your operations,


D. Interests

This goes without saying,

You always need to consider interests,

But most importantly,

You need to check if you want a fixed interest rate,

Meaning that the interests fixed on the term will not change over time,

Or a variable interest rate,

This means that the interest could go up or down with the economical situation,

If you think that the interest will go down in the future,

Then go for a variable one,

However, that will require a depth analysis and prediction as this is something that even the best economists struggle to do,


E. Reputation

Always check the reputation of the financial institutions,

You could find yourself dealing with an unregulated entity and potentially go through legal issues that will cost you a lot of money,

Same goes for the angels and venture capitalists,

If an investor has the reputation to invest in a great company and it is proven that he helps them to grow,

Then there would be great investors to work with,


F. Collateral

Not all financing options ask for collateral,

But for those who ask for it,

Your financial situation will be the only one to tell you whether it is a good decision or not,

Again you must go through an in-depth due diligence process to determine which of the restaurant financing options is best for you.


We have covered all the topics related the restaurant financing itself,


I wanted to give you more,

Here is a bonus,

I’ll briefly go through some of the fields that you can expect to work in when managing your restaurant’s financials,


Bonus: Restaurant Financial Management


When you are managing your restaurant’s financials,

There are many fields that you need to understand and consider,

In this section, we’ll briefly go through the important fields of consideration,

And if you want to have more information about each one of them,

There will be a link that will take you to a dedicated article about them,

Let’s jump right into it!


A. Restaurant Financial Statement

Financial statements are the core of any business,

And if you don’t understand them,

You cannot run your business at its full potential,

There are three core financial statements that you must understand as a business owner of any type:


– Restaurant Balance sheet

A balance sheet is a financial statement that lists out the assets, liabilities, and equities of a restaurant,

This document is used to analyze the financial position of your restaurant at a certain point in time,

And it gives you crucial insights into how the restaurant is doing in terms of debts and future cash flows,


– Restaurant Income statement

The income statement is the most important financial document for restaurants,

The reason is that most restaurants find it hards times manage their costs,

And the Income Statement (or P&L), provides you with the revenue generated and expenses incurred during a certain period,

Analyzing the income statement gives you information and insights about your internal operations,

And it allows you to determine:

  • Where you are not performing well,
  • Where your costs are too high
  • Growth over a certain period
  • Seasonality
  • Sales
  • Labor costs
  • Food costs


Any restaurant must have a deep understanding of how an income statement works.


– Cash flow statement

The cash flow statement is divided into three sections:

Operating cash flow: Shows the inflows and outflows of cash incurred due to the operations only.

Investing cashflow: Shows the inflows and outflows of cash incurred due to investing activities such as long-term use of cash

Financing Cashflow: Shows the inflows and outflows of cash incurred due to


B. Restaurant Financial Forecast

Forecasting is a crucial activity for any business,

And when it comes to your restaurant,

You want to make sure that you follow the best forecasting practices,

To provide yourself with valuable data about your future situation,

We will not cover the methods and formulas in this guide,

Yet you can find an in-depth article here with a full spreadsheet that you can download

There are 3 Key fields that you want to forecast here:


– Break-even analysis

It is the point where your restaurant’s revenue equals your restaurant’ expenses, hence not generating any profit,

And there is a way to determine at what level of sale are you breaking even,


– Sales forecast

It is simply the estimates of the sales that you will be generating at a certain point in time,

It is calculated this way:

Number of operating days * Average Guest Spend * Number of guests


– Costs forecast

Here you will be forecasting the future variable and fixed costs that your business will incur,

And we will mainly analyze the labor costs as they can be analyzed and managed in a simple way


C. Restaurant Budget

Analyzing and determining your restaurant’s financial budget is a key part of your financial management process,

If your budget is not properly settled up,

You find yourself incurring more costs than expected thus coming short on many other expenses,

And here are some of the best budgeting practices:

  • Complete your forecasts
  • Set your financial goals
  • Monitor your budget throughout the operating year
  • Test and assess various techniques
  • Monitor and adjust accordingly


D. Restaurant valuation

Knowing how to perform a restaurant valuation is crucial for any business owner,

It allows you to:

  • Understand where the industry is heading
  • Understand how your restaurant’s health is
  • Make adjustments


If you want to evaluate your own restaurant,

Or to evaluate your competitors to gain some insights and valuable data,

Here are a couple of ways you can do it:

  • Concept valuation
  • Profitability Valuation
  • Cashflow Valuation
  • Liquidity Valuation
  • Solvency Valuation
  • Asset Valuation

And here is an in-depth article on each of those valuation methods,




I hope you have enjoyed this ultimate guide on Restaurant Financing,

If you are still reading,

That means that have achieved and that you now know:

  1. What is restaurant financing
  2. The Different Financing options
  3. How to compare them
  4. How to manage your financials


I believe that with the information you now can make a more thoughtful decision about your restaurant,

And hopefully, fulfill your goals,

But now,

What’s next?

After understanding the financing part of a restaurant,

The best practice would be to know how to actually manage the operation,

Here is a whole section about that,

If you have any doubts,

Please feel free to drop us a couple of lines,

We would love to help you out,

Stay safe and see you soon!

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