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Comparing Restaurant Funding Options

cafe table

It’s no secret that the restaurant business is fraught with challenges, as many restaurants fail within their first year of operation. Now, in an era of dining room restrictions and limited capacities, re-openings, and re-closures it’s become increasingly difficult for restaurant owners to simply keep the doors open, let alone thrive, which is why so many restaurateurs are searching for funding options.

Depending on their situation, restaurant businesses sometimes seek out the backing of a private investor, but this means giving up an equity stake. Alternatively, restaurant owners have other restaurant financing options at their disposal, including small business loans, merchant cash advances, and business lines of credit.

For financing a restaurant, Merchant Growth offers Fixed and Flex Financing solutions. Our financial experts understand the restaurant industry, and can help you open your doors and keep them open. Let us take care of the financing while you focus on preparing delicious food!

[customers eating and drinking in restaurant

How to Fund a Restaurant 

Restaurant financing can help alleviate financial strain but what exactly is it? Restaurant financing refers to outside sources of funding that owners can use to grow their business idea and support their restaurant’s needs including day to day operations. From startup costs to keeping it up to date, many business owners turn to these types of financing:

Restaurant Investors

Business owners can benefit from private investors who are experienced in the hospitality industry and who know how to help your business succeed. Since investors have a stake in the business, they are motivated to help the business’ growth. However, this comes at the cost of handing over equity, and most business owners want to retain as much equity as possible. Also, you and your investor may have very different ideas further down the line about how you want the business plan to evolve. If there are multiple investors, then there can be even more opinions in the mix.

For these reasons, other restaurant financing methods—where you can keep 100% ownership—are usually the preferred choice.

Small Business Loans

Small business loans are a standard financing arrangement in most industries, however, traditional banks and lending institutions often shun restaurant owners. This can be for one of many reasons such as the bank wanting the business to put up collateral, or because of the perceived high risk of the industry. Alternative lenders, such as Merchant Growth, offer small business financing solutions that have helped many restaurant owners get started or stay afloat.

Merchant Cash Advance

A merchant cash advance (MCA) is not a loan. A lender provides an up-front lump sum to purchase a portion of the restaurant’s future sales. A fixed percentage of the amount advanced is added to the amount owed by the restaurant owner. Repayment is automatic; instead of making a monthly payment as you would for a loan, the lender collects the money via an automated clearing house (ACH) deduction from a bank account. It’s a great financing option for small businesses where a significant amount of their sales are done via credit card and debit card such as restaurants.

Business Line of Credit

Like a credit card, a business line of credit provides an open line of credit with a predetermined spending limit. Repayment can be done on a monthly or annual basis, depending on the lender and the business’ financial situation. Small businesses benefit from working capital that’s at their disposal when they need it and for whatever they want. This convenience also allows them to improve their business credit score.

These funding methods increase your cash flow to open a new restaurant or keep your business running with an array of pros and cons.

customers looking at bottle at check-out counter

Why Do Restaurant Owners Apply for Funding?

Any type of restaurant, no matter how successful, is a risk for banks and credit unions because the restaurant industry is notorious for a high employee turnover rate and a thin profit margin, in addition to being incredibly competitive. With fixed assets, high susceptibility to unforeseen circumstances, highly perishable inventory, and high costs, restaurant financing is hard to get from traditional lenders. Even if they did take the risk, the approval process can take weeks or months; this is where alternative lenders, such Merchant Growth, are much more helpful for the restaurant industry.

Alternative lenders understand that restaurants need reliable access to capital in a timely manner in order to succeed. Some common reasons new and existing restaurant owners require funding include:

  • Renovating their existing location
  • Investing in new equipment
  • Hiring staff
  • Opening a new location
  • Redecorating or renovating to improve their restaurant’s look or increase capacity
  • Fixing unexpected problems, such as urgent equipment repairs
  • Expanding into new revenue channels

Whether you’re looking for capital early on or need funds fast, you need to do your research to find the right lender.

A server wiping down table

How Hard Is It for a Restaurant Business Owner to Get Funding?

With Merchant Growth, it’s fast, easy and straightforward.

If your small business meets a few key criteria, you can apply for our business financing solutions. We serve restaurant owners whose business has been operating for a minimum of six months, is located in Canada, and generates a monthly revenue of $10K.

If you qualify, we get started by accessing your financial situation and designing the best solution for your business and you’ll receive your funds within days.

Make Your Restaurant Business the Cream of the Crop

Merchant Growth’s financing options are ideal for restaurants. We help small business owners with pubs, food trucks, bakeries, ice cream parlours, and other types of eateries. Check out our Fixed Financing or Flex Financing solutions.

Still not sure which type of restaurant financing is the right fit for you and your business? Contact us today!

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