Restaurant owners know that when the recipe calls for four cups of tomato sauce and they only have two cups, the resulting dish will probably not turn out as planned. Having the proper amount of resources is crucial in cooking as well as in the restaurant business. It’s been found that the single most significant reason why restaurants tend to have high failure rates is a simple lack of startup capital. Without the resources restaurants need to pay their bills, even an eatery that’s packed to capacity every night can find itself having to close its doors for good.
The single most significant reason why restaurants tend to have high failure rates is a simple lack of startup capital.
Like any other type of small business, restaurants more than likely don’t start operating in the black. The vast majority of restaurant owners need at least a little help before getting their feet underneath them. That means taking out some form of funding line to keep their businesses running until they can become profitable. Yet obtaining a business loan or funding line isn’t as simple as asking the bank for a line of credit. In fact, banks are notoriously reluctant to lend to restaurants because they’re seen as a greater risk than other types of small businesses.
Fortunately for restaurateurs, there are plenty of other options available to them besides asking the bank for a loan. As long as restaurant owners understand the pros and cons of each type of funding line available to them, they may be better prepared to navigate those first few shaky years and build a stronger business.
For example, working with an alternative lender for working capital may be the best option because it allows restaurants to have quick access to money with relatively small payments. Plus, it helps build their credit scores. On the other hand, these types of funding lines tend to be expensive so it is important to understand the return on investment your business expects to ensure your business will benefit in the long as well as short term.
The following guide breaks down the positive and negative aspects of the most common forms of business loans. A recipe for restaurant success begins with having all the proper ingredients in the right amounts. This can help restaurant owners be sure they have the right amount of capital.