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So much depends on the background of the person seeking the funds. If the restaurateur is well experienced and has a managerial track record in the restaurant business, the possibility of success will be greatly enhanced.
The most favorable avenue would be establishing a relationship with a banker who has considerable restaurant experience. The failure rate of restaurants is so high that most bankers are reluctant to get involved with the industry. Conversely, an experienced banker would probably structure a loan with the Small Business Administration that would stretch the repayments over a much longer period of time than a conventional loan, thereby taking the pressure off a restaurateur, especially during the start-up period. The Small Business Administration does have different programs depending upon the particular situation as to whether real estate and fixed assets are being financed or whether it is leasehold improvements, working capital, etc. The Small Business Administration works in conjunction with a bank and guarantees 75% of any loan so the bank’s risk is somewhat diminished but, even so, the restaurateur must have a strong restaurant management background for the bank to consider getting involved.
Another avenue to be considered is an economic development authority if the situation warrants. The circumstances must be such that the area in which the restaurant is located must benefit through job creation.
In order to qualify under either of these programs, a restaurateur must expect to have equity of 15% to 30% of the total cost.
Unfortunately, financing a new restaurant is next to impossible for people with limited or no restaurant managerial experience and, even with a strong resume and years of experience, it is difficult. For those in this category, the only options are either (1) family and friends or (2) refinancing other personal assets such as a home. Other types of financing are available but the cost can be prohibitive. For example, everyone is inundated with credit card offers and, of course, the temptation is great since the amount of credit available can be quite large. However, finding success in the restaurant industry is difficult enough without falling into the trap of excessive credit card debt. Of course, the trap is really set whereby one late payment can result in exorbitant costs that are almost impossible to sustain. The refinancing of a home would extend the debt over a long period of time at a reasonable cost so that would be the preferable means of financing a restaurant investment keeping in mind, of course, what could happen in the event of failure.
Otherwise, the fall-back is taking on partners.
The information given is provided for general, non-specific educational purposes only, and should not be relied upon as advice relating to your specific circumstances. For company-specific advice, consult directly with your tax advisor.
James Conniff is the Managing Partner at Bacall & Conniff, P.C., a full service CPA firm that provides industry specific accounting solutions for restaurateurs. Their services include: Weekly flash reports, Monthly financial statements, Web-accounting, Optional bookkeeping & payroll services, and Comprehensive tax & advisory services. They can be reached at 617-367-3250.
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Finance 
