3 Tips to Help You Prepare for a Restaurant Loan
There are a lot of different pieces that go into getting (and keeping) a restaurant up-and-running. From crafting seasonal menus to staff training, restaurant owners have a lot to balance in order to provide top-notch service to their diners. Beyond creating the ultimate guest experience, however, it also takes money to make your culinary venture a success.
Depending on the type of expense you’re seeking to finance, there are a number of loan options available, including merchant cash advances, Small Business Administration loans, invoice financing, and term loans. In this article, we’ll specifically concentrate on why a term loan could be the secret ingredient to take your business to the next level.
The Term Loan and Its Advantages for Restaurants
Term loans can be used to address a host of issues that are unique to restaurants, such as:
● Your oven stops working and you need to replace it quickly to avoid shutting down.
● Business is booming, and you either need to expand your existing premises or open a second location to keep up with sales.
● You decide to extend hours at your establishment so it can turn into a late-night bar, and you need to hire an additional general manager.
● You have the same website from the 90s, and you need to outsource someone to upgrade it.
Term loans are perfect for making an investment in an opportunity that will create a steady stream of cash in the near future. They’re an attractive option for restaurants because they offer leeway; your repayment terms can be as little as three months or as long as ten years. Term loans allow you to plan ahead for future payments and allow time for an investment to begin to increase revenue. They generally offer much higher borrowing limits and much lower interest rates than other small business financing alternatives.
How You Can Prepare for a Restaurant Loan
If a term loan sounds like the right fit for your business, here are some tips to help you get ready for the application process so you can get the best offer, with the least amount of stress:
1. Solidify What You Are Using the Loan for, and How Much Capital That Investment Will Require
Term loans are meant to meet very specific needs. It’s important to consider the value a growth opportunity adds to your business, or the return on investment. Would expanding your dining services to a food truck lead to an increase in sales? Probably, but how does that compare to simply opening a second fixed location? Remember to take into account the upfront cost, the projected revenue, the ongoing costs and the expected profitability of your investment over a one to five-year period.
2. Check Your Personal Credit Score and Credit Report
Analyze your credit. Lenders take into account both your personal credit score and business credit score when assessing the risk of extending credit to your company. The best way to keep your scores in good shape or to improve a low score is to make timely payments. In addition, checking your credit report will allow you to make steps to improve your credit score prior to applying for a term loan.
3. Get Your Finances in Order
Before you submit your financial documents to lenders, it’s imperative to make sure they are up-to-date and accurate. You’ll need your balance sheet and income statement on hand, as these documents are indicative of how effectively you’re managing your small business and how strong your financial position is. If you understand these documents and are able to calculate your debt service coverage ratio, it is much easier to make a case for why you need the amount you’re requesting and why you can be trusted to pay it back.
Restaurant loans can help you fill the gap when you have a short- or long-term financial need. When shopping around for a term loan, pay attention to the interest rates and fees charged by prospective lenders. Additionally, make sure you meet the lender’s minimum qualification guidelines in order to avoid wasting time. The more prepared you are ahead of the application process, the easier securing a term loan for your dining establishment will be.