Owning a restaurant is rewarding in many ways – professionally, personally, and financially. Additionally, restaurants help fuel the US economy, as the number of people working within the restaurant industry is expected to exceed 16 million by 2026. But the industry is competitive, with high turnover rates. This makes accessing working capital more of a challenge. Restaurant business loans help prop up eating establishments as they fight to succeed in a cyclical industry. With help from a restaurant business operating loan, managers can pay off essential equipment over time. They may even leverage a restaurant startup business loan to supplement cash flow in times of rapid expansion.
From handing out paychecks to a large staff to dealing with seasonal income and food costs, it’s widely known that being in the restaurant industry isn’t cheap. Restaurant business loans can help owners make targeted investments in their food service establishment. Whether you use one to pay off expensive-but-vital equipment over time, or just to pad working capital and even out financial imbalances, a restaurant small business loan should be structured according to your individual needs.
Restaurant business loans are often used to accomplish financial goals including, but not limited to:
• Paying for major renovations
• Upgrading or repairing equipment
• Marketing and advertising
• Meeting seasonal needs
The food service industry is highly competitive. Diners have an unlimited number of options for where to spend their money on food. Meanwhile, establishments are constantly competing with one another for a leg up. Owning a successful restaurant comes down to finding a balance between offering high-quality food and a unique dining experience. But catering to both of those needs and keeping your cash flow positive can be difficult.
Profit margins in the food service sector range considerably from place to place. Even within the category of fast food chains, margins might vary from a high point of 20 percent to barely more than zero. Meanwhile, full-service or “fast-casual” restaurants tend to make just 6 percent more than they spend in an average year. According to a survey from RestaurantOwner.com, almost half of restaurant owners surveyed reported between 2 and 9 percent net income in 2017. Meanwhile, 21 percent either broke even for the year or reported a net loss.
When profit margins are low, investment in the business can suffer. A lack of profit makes it harder to pay for fundamental repairs and purchases, that could translate to higher sales. Even with a steady stream of cash flow, small restaurants can quickly become bogged down in a monthly struggle for survival.
Many people take for granted just how expensive it is to own a restaurant. Professional-grade cookware, like ovens and stovetops, can come with considerable costs that easily reach into the tens of thousands of dollars. Not only do restaurant businesses require specialized equipment that is expensive, it will inevitably need to be repaired, replaced, or upgraded. Plus updating furnishings and decor for the front-of-house, like the dining room or bar area, will require major renovation financing that is costly. All in all, the total cost of equipment and furnishing in a newly opened restaurant may range from $75,000 to more than $350,000.
A restaurant business loan can provide supplementary working capital to help cover initial startup costs and purchases, unforeseen repairs, and additional equipment to meet increased demand.
On the thin margins under which restaurants usually operate, there’s no room for long-term debt or restaurant business loans with faulty terms. Instead, owners should seek restaurant equipment financing that lets them take out small, targeted investments. These can then be funneled directly into needed repairs or replacements. Whether the funds are used for front-of-house furnishings or kitchen essentials, these short-term loans present less risk to the business.
Thin profit margins don’t just make it harder to save for planned expenses. Without ample working capital or a restaurant business loan, covering surprise costs becomes more complicated. And in the restaurant industry, these unexpected expenses can pile on quickly.
For example, consider the cost of food. Keeping shelves and coolers stocked with a restaurant menu’s seasonal ingredients takes considerable time and money. But what if customers simply don’t order as much of one dish as you had planned? In the foodservice industry, inventory is volatile – certain ingredients may expire in days, representing a significant sunk cost. Plus, having the right number of dishes available during the peak seasons of your industry can be the difference between a profit or loss. Without additional allowance in your budget, that could set off a chain reaction that jeopardizes your cash flow.
Restaurants in the startup phase can’t forget about the unforeseen expenses and events that can plague a new location as it prepares to open for the first time. Construction and remodeling, for instance, often take longer and cost more than what is initially budgeted. There’s also a degree of uncertainty involved in obtaining the requisite licenses to operate or train staff members before opening night.
In short, a lot could go wrong. Restaurant business loans can be the solution to working capital shortages. By preserving cash flow and fixing issues as they arise, smarter business financing takes some of the stress out of restaurant management.
Loans for restaurants or small businesses in the food service industry should be more than just another way to get extra cash. They must be structured according to the borrower’s requirements and situation. They need to provide you with the funds immediately and allow for an easy payoff. Most importantly, they need to be accessible to business owners who have bad credit scores or lack the collateral that is required by most traditional bank lenders.
QuickBridge provides restaurants and other small businesses with funding that works. Our application process is easy, our funding is quick, and less-than-stellar credit is not an automatic no.
Opening a financially successful restaurant requires much more than simply having a good recipe. Restaurant business loans from QuickBridge can be a key ingredient in your unique recipe for success. Talk to QuickBridge to learn how our smarter approach to small business loans helps you achieve your goals.