12 Best Ways To Finance Your Restaurant or Bar [2024]

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Updated: March 18th, 2022

12 Best Ways To Finance Your Restaurant or Bar [2024]

The food service industry is forecasted to reach $898 Billion in sales in 2022, and the industry workforce will grow by 400,000 jobs.

Despite the recent covid-19 pandemic, the demand for restaurant services remains high.

If you have completed your hospitality course or work experience and want to dive into the restaurant industry, this can be a great year to start a restaurant business or expand your current restaurant or bar.

Or maybe, your small restaurant has been doing well, and you want to diversify to a bar and restaurant business so you can accommodate more customers and maximize profits.

Whichever the situation, the next step is pursuing the best restaurant financing options so you can bring your vision to life without the financial stress.

Ideally, restaurant financing provides the capital you need to start, renovate, furnish or expand your business.

Whether you are wondering how to start a new restaurant or looking for the best options to expand your existing restaurant, here are invaluable suggestions for financing your business idea.

In addition, we will provide real examples of restaurant owners who pursued specific funding options and are currently running a successful restaurant.

1. Get an SBA-Backed Loan

The U.S. Small Business Administration (SBA) helps startup founders access business financing by setting guidelines for loans and reducing the lender's risk.

The SBA 504 loans can help you construct or renovate your restaurant and even to furnish your restaurant. If you need working capital to tide you over until the bar and restaurant business becomes profitable, and SBA 7 (a) loan or the SBA express loan are great restaurant loans.

Compared to conventional loans, SBA-backed loans offer more favorable loan terms. These loans have relaxed requirements than the traditional loans, hence suitable for businesses that may not qualify for traditional small business loans.

To get an SBA-backed loan to finance your bar and restaurant business visit and find the loan that suits your need.

Search for a local SBA lending partner and apply for the SAB-backed loan. The lender will approve and help you manage the loan.

How Constantine Stavropoulos is Cooking Up A Success With Help From SBA:

Constantine Stavropoulos, the owner, and CEO of the Tryst Trading Company, which owns The Diner in Adams Morgan is a good example of how to finance a restaurant with help from SBA.

Before starting Tryst in Adams Morgan in 1998, Constantine applied for the SBA 7(a) loan and used the funds to open a coffeehouse/bar/lounge/restaurant.

The business was so successful, that he launched The Diner in Adams Morgan in 2001.

I am the No. 1 fan of the SBA 504 loan, which provides financing for major fixed assets such as equipment or real estate," he said. “I didn’t have to tie my personal assets to this loan.”

In addition, he got a 7(a) loan for additional inventory and equipment.

2. Seek Restaurant Financing From Angel Investors

Angel investors are wealthy individuals who have the money to invest when banks, VC firms, and private equity firms find it too risky to invest.

Restaurateurs can seek cash investments from these individual investors. The angel investors ask for a percentage of ownership in the business based on the investor’s valuation of the restaurant’s worth. Taking the ownership stake in your business means the investor is committed to ensuring your business grows and thrives.

How Corner Bakery Funded Acquisition Opportunity Through Angel Investing

Corner Bakery is a leading operator of fast-casual bakery restaurants across the US.

During their initial acquisition, the bakery was experiencing a difficult economic period, and they needed additional equity infusion.

Rosser Capital Partners, was extremely effective in securing the Corner Bakery acquisition opportunity.

They provided funding and offered guidance leading to the bakery’s ultimate success.

The RCP team was extremely effective in identifying and securing the Corner Bakery acquisition opportunity. Their outstanding support and financial guidance ultimately led to a very successful outcome for Il Fornaio and Corner Bakery." - Mike Hislop – Chairman and Former CEO of Il Fornaio / Corner Bakery.

3. Crowd Funding A Restaurant

With the effects of Covid 19 still fresh in our minds, many restaurateurs are uncertain whether their businesses will ever recover. For others wishing to re-open their bar or restaurants, funding is likely to become a challenge because of defaulted loans and a lack of investors' confidence.

Luckily, equity crowdfunding through platforms such as kickstarter and Wefunder can help you achieve the vision.

Equity crowdfunding platforms offer flexibility in acquiring funding. The business owner will set the minimum goal and a deadline. The campaigns can remain open for up to six months, giving plenty of time for investors to discover your restaurant.

In addition, if your goal is met, some equity crowdfunding platforms create an army of brand ambassadors who promote your business.

How an Award-Winning Chef Saved His Restaurant Through Crowdfunding

Gary Usher, a former bartender and qualified chef went back to Chester to open a restaurant. The ambitious chef had started well, and he was getting good local reviews while his restaurant was packed at the weekends.

Unfortunately, all restaurants have a coming-of-age moment, and his business was not exceptional. His moment came in 2013, and he was facing the "go down fight" head-on.

Determined to survive and thrive, he approached local banks for funding, but they turned him down. He set up a crowdfunding campaign on Kickstarter, through which he shared his plans.

The campaign raised €103,000 from 891 punters in just over a week.

Read his story here

4. Merchant Cash Advance

A merchant cash advance provides small businesses a lump sum upfront repayable with a percentage of the business sales. In most arrangements, the business owner repays the merchant through a portion of future credit card sales.

Since the merchant cash advance is not a business loan, it involves little paperwork, and you can get approval within a day or two. However, you will pay a pre-determined convenience fee, which is often why cash advances are expensive.

The Merchant Cash Advance is only available to restaurants that accept credit card payments.

It is a fast restaurant financing option and often suitable for owners looking for quick cash to finance an asset.

To apply for a merchant cash advance, check out your options here.

5. Fundraise Through Friends and Family

If your family and friends support the idea of opening a restaurant or a bar, consider seeking their financial support.

Since they are already happy with the idea, chances are that they will show up and help you achieve the vision.

If you choose to raise funds from friends and family, be careful not to ruin relationships.

Here are the various ways you can raise money through friends and family:

Launch on Kickstarter
Create a GoFundMe
Write a compelling fundraiser story + pitch video
Fundraise on social media platforms, such as Facebook or Twitter

6. Apply For Unsecured Conventional Bank Loan

If you plan to open a new restaurant or expand to a chain of restaurants, a conventional business loan can be a viable option.

A conventional business loan is a traditional term loan issued by lenders. The repayment terms are pretty straightforward since you are borrowing a fixed amount of money.

Conventional loans with fixed interest rates are appealing to many entrepreneurs. They offer a higher loan limit than government-backed loans and tend to be more flexible in down payment and term length options.

Approach the lenders and request a guide of their restaurant loans with fixed or variable interest rates. However, note that qualifying for conventional loans is subject to a good credit score. The lenders will evaluate your credit score, a prerequisite for improving your candidacy for restaurant financing.

Do keep in mind that you need to observe the repayment periods, or you will ruin your credit score and fail to secure financing in the future.

Here are steps for applying for an unsecured conventional bank loan:

Check Your Credit Score
Evaluate Your Budget
Shop for Lenders and Prequalify
Gather Documentation
Submit a Formal Application

7. Business Line of Credit

Restaurants and bars need to adapt to the changing economic times and cope with uneven cash flow.

Do you need access to ready cash and flexible repayment terms? If so, an unsecured line of credit can be the realistic way to fund your restaurant.

A small business line of credit is different from a small business loan in that there is no lump-sum disbursement to your business account. Instead, the restaurant owner will receive a set of credit limits just like the credit card. Therefore, you have continuous access to the line of credit so long as it remains active.

Like the conventional business loan, a line of credit borrower is subject to the credit rating and financial history.

A business line of credit will help you to cover the cost of kitchen appliances or the cost of renovating the restaurant.

Besides, you can use the business line of credit to meet seasonal demands, expand to new locations or promote your offerings.

What are the advantages of a line of credit over a regular loan?

Borrow only the money you need to finance your restaurant
Interest incurred only on funds you have borrowed
Flexible repayment options
Constant access to funds
Ideal for long-term projects where the final costs are variable

8. Peer To Peer Lenders

Peer-to-peer lending is a relatively new concept where individuals invest money in other businesses through a lending platform like Funding Circle. The peer-to-peer lending platforms feature lower interest rates than what banks charge.

Unlike conventional lenders, peer-to-peer lending platforms generally offer quick lending decisions. In addition, they accept personal guarantees as to the security of small business loans.

Restaurant financing through a peer-to-peer lending platform can be a great option if:

You have collateral, or you are willing to provide a personal guarantee
You operate an established restaurant with a clear record of success over the past years
The requirement for financing is relatively immediate

9. Borrow From 401k To Finance a Restaurant

If neither of the above options seems to favor you, a restaurant financing alternative can be tapping your 401(K) savings.

Unlike a withdrawal, the option allows you to borrow money from retirement savings so you can pay it back to yourself over time.

On the other side, the 401(K) withdrawal removes money from your retirement plan permanently. Besides, you have to pay extra fees and possible penalties for taking out the cash.

Depending on what your employer offers, you could take out 50% of retirement savings or up to $50,000 within a year.

Remember to repay the borrowed money back plus interest within a pre-agreed term.

Key takeaways

Use your 401(K)s to finance only short-term investments where you expect a quick return on investment (ROI.
All interest is paid back to the owner
If the business fails, you are risking your 401(k)s
Check if borrowing your 401(K) involves penalties or income taxes
By choosing to use your 401(K) to finance your restaurant, you do not owe anyone a debt

10. Use Home Equity Loan To Start a Restaurant

Are you tired of working for someone and determined to start a restaurant business? You can convert that home equity into capital for starting your restaurant if you own a home. Ideally, a home equity loan or home equity line of credit involves borrowing against your property for a certain period.

Compared to a conventional loan, a home equity loan is easy to qualify for because of the collateral you provided to the lender. Besides, the home equity loan comes with a higher limit, more than what you would get from a conventional loan.

Decide if using the home equity to start a restaurant business is the right move. If you see success in your restaurant, check if you are eligible for the home equity loan and apply.

Here are important guidelines for using your home equity to finance your restaurant

11. Invoice Financing

Invoice financing, aka accounts receivable financing, is the form of asset-based financing where business owners receive a capital advance in exchange of their unpaid invoices.

Typically, invoice financing allows business owners to access up to 85% of the invoice value.

Since invoices serve as collateral on the amount you borrow, this option is often the easiest to qualify for than other restaurant financing methods.

To apply for invoice financing, you may need to provide:

Basic information about your restaurant or bar business.
Personal and business bank statements.
Business accounts receivable aging report.
Invoices you’d like to finance.
Personal and business credit scores.

12. Personal Savings

If you are looking for ways to open a restaurant without borrowing or bothering friends and family, consider using your savings.

The advantage is that you do not have to worry about repaying any organization or even paying interest.

Financing your restaurant from your savings account is the best option if you are want to test the waters and seek growth financing upon proof of concept.

To learn how to save money to finance a restaurant check out these tips

Key Takeaways

Opening a restaurant is an attractive idea, but you have to fund the business. Financing is one of the biggest hurdles founders have to cross.

We have looked at realistic ways to fund your restaurant or bar. When seeking restaurant business financing, take the time to evaluate all options available to you.

Remember, the idea is to pursue the most affordable and reliable restaurant financing option. That way, you can easily ensure a successful startup and expand your restaurant business.

meet the author

Samantha Walls

I'm Sam Walls, COO of Starter Story - a platform and community for entrepreneurs and future founders to learn what it takes to build a great business. I joined the Starter Story team approximately 3 years ago, with the goal of providing our readers with the best, most valuable, and inspirational content on the internet.

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