If you have a restaurant, you may have already requested a loan for your business, or you may be considering applying for one. This article will guide you through the process to correctly request the most suitable loan for you.
As a restaurant owner, you must ensure that you always have a good amount of cash at your disposal. When your restaurant has a constant flow of customers and sales are high, your business will generate the capital you need to pay your usual expenses. But sometimes your business has fewer customers and is slower. When this happens, you may also need less money in the restaurant, but you still have to have the necessary capital for fixed expenses such as electricity, rent, salaries and license fees.
A restaurant loan may be the solution you are looking for.
These loans are available in a wide variety of lenders, including banks and financial institutions.
Remember that getting a restaurant loan can be difficult. Lenders need to be sure that the money will be returned to them. A CNBC.com report shows that 60% of new restaurants fail in their first year of operation. For the fifth year, the percentage amounts to 80%. Even if these statistics are a bit of an exaggeration, it is not surprising that lenders are afraid to advance money to restaurant owners.
But here comes the positive part: here are the steps you should take to have a better chance of getting a loan for your restaurant.
4 steps to get a loan approved for your restaurant
1. Organize all your paperwork
The lenders will be calmer if you can support your request with documents. So it’s a good idea to have your tax returns handy to show them to the bank managers. Ideally, prepare copies of the statements of the last three years.
Make sure your bank statements are in order. They provide proof of the volume of your sales and your expenses. If a significant part of your sales is in cash, you can show the deposits you have made in your account and add these figures to your sales records.
During the loan application process, your lender may also ask you for a business plan, a resume of your business and profit and loss statements. To get a complete list of the documents that a bank will normally ask for, read the 5 keys to a successful commercial loan application.
2. Have your credit report ready
Your lender will have access to your credit report. It is important that you familiarize yourself with its content. A first step is to understand the difference between your personal credit and your business credit. Next, you should know how to read your credit report.
Also, if you have late payments or had them in the past, you should be able to explain the reasons. The person responsible for your loan will want to know, above all, how you came to solve the problem.
Obviously, the chances of getting a loan will increase with a higher credit score. A score of 700 or more is considered good. Even if your score is between 600 and 700, you also have a chance to get the loan. However, a lower score will require that it be harder for you to convince your lender of your creditworthiness. Learn here what determines a good credit score.
Do you need to improve your business credit? Learn here the three steps to improve your business credit.
3. What are you going to use the loan for?
This is one of the things that most interests the lender. It is crucial that you are in a position to explain to the lender the purpose for which you are applying for a loan.
You must use the money you borrow within the scope of your business: equipment, dishes, even a marketing campaign that requires additional funds. Think about the benefits that your business can generate with this investment and prepare all the details to show them to the bank manager.
4. Use this strategy to get the loan approved
Getting a loan for your restaurant can be difficult, since lenders know that a large percentage of restaurants fail.
However, the reason why so many restaurants fail is not the lack of customers or profits, but the lack of cash flow. Whether you are considering applying for a loan or not, your cash flow should always be in good standing. To learn more about this matter, know here the keys to optimize the cash flow of your business.
You must convince your bank that your business will succeed.
One way to do this is to tell them the amount you have already invested in your business with your own money. The more you risk your own money, the more chances you have of getting the loan.
For example, if you want to buy equipment for your restaurant, you could pay, say, 30% or 40% of the total price with your own money. Many lenders will be willing to finance the remaining amount. But if you ask for 100% financing, you will have a better chance of being denied the request.
In conclusion, a restaurant loan is an excellent way to start, maintain, or improve your restaurant. But it is also a complicated and risky process. Do not be discouraged! The first step is to gather all the tools you need.
Remember that in Kerbies Financial we are here to help you. Many of our customers own restaurants: we know the peculiarities of your business and understand your needs and the challenges of your company like no other lender. Unlike some of the requirements explained in this article, the only documents we will ask for will be your financial records, and once you are approved you can receive the money in 24 hours. Get to know our small business loans here. If you want to receive an estimate of the cost of your loan, you simply have to fill in this simple application. Or contact us if you have questions. We want to hear from you!