Running a restaurant is hard work. It is a combination of skills, commitment, and creativity to ensure your restaurant stands up among the competition. This condition sometimes puts restaurateurs in a position where they have to spend a lot of money at the same time to sustain. This could be for expenses such as payrolls, rental, and utility fee, repair or upgrade equipment, or emergency expenses altogether.
Naturally, restaurateurs must be able to cover these expenses on a regular basis. Unfortunately, many restaurateurs don’t exactly come with a hefty amount of fund in their wallets to cover all expenses. They have to prioritize and usually, it will be for regular expenses such as payroll, rents, and supplies, which would then leave them with less fund for other business purposes.
This is where loans would be helpful for your restaurants. However, getting a loan for restaurants from the traditional bank is almost impossible. Fortunately, now non-traditional institutions are available for restaurant fundings. These alternative fundings offer different type of loans, hence why it is important for you to ask these five questions before deciding what type of loan you are going to get for your restaurant:
1. Do I need merchant cash advance?
Merchant cash advance is popular for its easy approval, minimum paperwork and quick funding. Restaurants usually will qualify for cash advance loan easily because merchant cash advance generates their money back from credit/debit card sales volume the restaurant achieved daily. If you need quick money for your restaurant or you don’t have good credit records to get a loan from traditional banks, merchant cash advance would be perfect for you. However, you must consider the fee rates that comes with the quick funding, which presumably would be easily paid off if you are able to maintain your restaurant’s daily sales performance.
2. Is it okay if I use a credit card as the source of funding?
If you have personal or business credit cards, you have immediate access to quick funding. You can use the credit card to cover your expenses as long as it doesn’t exceed the credit limits, then repay the balance based on your financial condition, but make sure it meets the required minimum monthly payments. There are benefits from using credit cards, such as point rewards or credit bonuses. However, this type of funding comes with high-interest rates, on top of other fees such as annual fees and late-payment fees. This type of funding is suitable for medium-scale purchases rather than large investments.
3. Will equipment financing be enough for my restaurant?
Equipment financing gives opportunities for restaurateurs with bad credit history to acquire assets for their restaurants with the intention to grow their restaurant business, and use the acquired assets as collateral in case they fail to make payments. You can get this type of funding through the bank or other financial institutions.
4. Should I go with a short-term loan?
Sometimes you only need to borrow a small amount of money and you are confident you can quickly pay it off. In this case, a short-term loan would be suitable for you. There are two types of short-term loans; business loan and personal loan. If your personal credit is stronger than your business credit, you can get a personal loan and use it for your restaurant business. However, if you fail to repay the loan, your personal credit will be tainted.
5. I need a larger loan, where should I go?
Expansion usually is the next step restaurateurs will take to grow their business. This means you would need a larger loan to fund your expansion. In this case, a long-term loan is the best option because it gives you more time to repay, with affordable interest rates. However, to get qualify for this type of loan is difficult because lenders require you to have strong revenues and cash flows, good personal credit score, or provide collateral.