6 Ways to Use a Restaurant Business Loan to Expand

The restaurant industry is not an easy business. Some 60% of restaurants fail in the first year. By year four, that number reaches 80%.

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6 Ways to Use a Restaurant Business Loan to Expand

The restaurant industry is not an easy business. Some 60% of restaurants fail in the first year. By year four, that number reaches 80%.

If you’ve made it past this gauntlet, you might be ready to obtain financing to grow your current location or even open a second one. You’re on the right track if you’re thinking about growth.

But what should you invest your restaurant business loan in? Making smart investments now ensures you keep your competitive edge well into the future. 

BCCUSA aims to be an excellent resource for small businesses, whether through finding the right funding for each of our clients’ unique situations or guiding them to their goals. To that end, we’ve created a list of restaurant business loans and ways to use them.

Types of Restaurant Financing

Restaurants have several options for financing their growth and expansion. Business brokers like BCCUSA can help you obtain the best of these financing vehicles and get great terms.

Term Loans

Term loans come from banks and other traditional lenders. Interest rates are low, and borrowing limits are high, but these loans require excellent credit, strong financials, and collateral. 

Business Acquisition Loans

Business acquisition loans are designed specifically for purchasing other businesses. They work great if you’re opening a franchise location or buying a restaurant from someone else.

The downside is they’re hard to qualify for. Not only do lenders scrutinize your personal and business financials/credit, but they’ll carefully analyze the acquiree business as well. You’ll likely have to hire a business valuation company to appraise the value of the acquiree.

SBA Loans

SBA loans are made by traditional lenders but backed by the SBA, meaning you can get lower interest rates and better repayment terms. However, the SBA requires good credit and collateral for these types of loans.

Lines of Credit

Lines of credit let you borrow money up to a specific limit when you need it and pay it back whenever you want — as long as you pay at least the minimum each month. This financing vehicle is excellent for operational costs and recurring business expenses.

Equipment Financing

Equipment financing is useful for buying new equipment or repairing/upgrading current equipment. This type of loan uses the equipment in question as collateral.

Be careful, though. Equipment loans may last longer than the useful life of the equipment. You’ll then owe debt on an asset that no longer contributes to your bottom line.

Royalty Financing

In a royalty-based financing agreement, you agree to pay a lender a share of your future revenues in exchange for a loan. These are fantastic funding vehicles because you don’t have to pay interest.

It’s good for the lender, too, so you can negotiate better terms. For example, you can ask for a grace period between when you earn revenue and when you owe royalties. You can then use that money to earn more returns before you pay your royalties.

The restaurant industry is notorious for tight profit margins, though. Royalties may not be possible when you’re barely turning a profit.

Ways to Use Your Restaurant Business Loan

1. Renovate Your Space

Start with your current space. Could you rearrange it so that you could seat and serve more customers? That would generate more revenue per day. 

Could you streamline processes (and space) in the kitchen to improve efficiency? Doing so could cut your expenses, help your employees complete orders faster with fewer errors, and increase customer satisfaction.

2. Replace Your Old Equipment

Do you have old appliances that are hogging energy or breaking often? Equipment financing sounds like the restaurant business loan for you.

For example, maybe you have an old oven that’s thirsty for energy. With equipment financing, you can buy a new, energy-efficient model and cut your energy and repair costs.

Aside from energy savings, you could cut your tax bill. You might be able to depreciate your new equipment and get tax breaks for using energy-efficient appliances.

3. Invest in Online Marketing

In today’s world, you need to have a mobile-friendly website that’s helpful to 

MGH, a marketing agency, ran a survey that found that 77% of diners check a restaurant’s website before making a decision. Of that group, about 70% decide against visiting a restaurant based on its website.

If customers can’t find your website — or have a bad experience on it (slow, clunky, etc.) — they’ll dine somewhere else.

So consider investing your loan in your marketing. Revamp your website, or create one if you haven’t yet. Integrate more advanced ordering capabilities, and for delivery takeout, implement real-time order updates.

As for advertising, run paid ads on social media and Google. Invest in search engine optimization so your website appears at the top of Google when customers search “___ restaurants near me”.

4. Buy New Space

Perhaps your restaurant is growing rapidly, and you don’t foresee a slowdown in demand. You might consider opening a new location elsewhere.

Commercial real estate financing can help get you there. There are many sources of commercial real estate financing available, but the SBA 504 loan is one of the most popular.

5. Buy a Restaurant

Perhaps you’re not a restaurateur yet, but you want to break into the business without launching your own (such as opening a franchise location). Or maybe you already own a restaurant but want to own a different one as well.

Here’s where a business acquisition loan would come in handy. 

6. Refinance Debt

Is your restaurant weighed down by debt? Your credit score has likely improved since you first took on this debt.

Refinancing at a lower interest rate could save you thousands of dollars and free up more cash flows.

Succeeding in the restaurant business is challenging as it is. If you’re like most restaurateurs, you don’t have time to research the lending marketplace, pick the best funding source, and deal with lenders. 

BCCUSA handles this complicated process for you from start to finish. We help you better understand business lending as well so you can make informed decisions in the future. Schedule your free 30-minute consultation with one of our experts today.

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