Your passion for the restaurant business is undeniable. You live, breathe, eat, and sleep this industry. It’s always been your goal to open a restaurant someday, but you’re very much lacking the capital to do it. How can you start a restaurant business with no money?
To get your restaurant business off the ground without money, you’ll need to find a source of funding. These include:
- Loans
- Crowdfunding
- Investors
In this article, we’ll talk in more detail about your financial options when trying to open a restaurant. We’ll even give you tips for procuring funding. You’re not going to want to miss it!
How Much Money Does It Take to Open a Restaurant?
Before we get into your funding, let’s begin with a discussion on how much the whole operation is going to cost.
Many factors can make a restaurant more expensive or even less so. Location, the size of your building, and décor are three that immediately come to mind. That’s why we’ll use average median data as published in 2019 by RestaurantOwner.com to paint a clearer picture.
According to their survey, startup costs for a new restaurant average out to $375,000. It’s possible to spend even less money, as little as $175,500 to get your restaurant off the ground. The higher end of the equation is $750,500.
Breaking it down to square feet, you’re shelling out about $450 for each square foot of space in your establishment. Even that’s an average, as costs may look more like $100 to $800 for every square foot.
Your Funding Options for Opening a Restaurant with No Money
Looking at those figures lets you sit down and crunch some numbers so you can figure out exactly how much capital you require to open your restaurant. Perhaps you have some money you can set aside so you only need a couple hundred thousand dollars. Maybe you require the entirety of the figures listed above.
Either way, you’re going to pursue your funding through loans, crowdfunding, investors, or a combination of the three.
Loans
Loans encompass three different types: small business loans, a business line of credit, or a traditional commercial loan. Here’s an in-depth explanation of each.
Small Business Loans
Your first option is a small business loan, such as one through the U.S. Small Business Administration or SBA. With the SBA’s assistance, you can connect with lenders and banks that may be able to offer you the capital necessary to start your restaurant.
The Guaranteed Loan Program is the one future restaurant owners will want to set their sights on. These loans have more rules and guidelines, but they’re intended to make it easier for you to get the funding. Also, there’s less risk to the lender, which is a win-win all around.
If your credit score is at least a 650, then you should get approved for an SBA Guaranteed Loan Program. Your down payment is acceptable at under 20 percent of the loan value, and interest rates don’t skyrocket either.
That some collateral is required may turn you off, as can the long waiting times to obtain this loan (it can take months). Luckily, an SBA loan is far from your only option.
Business Line of Credit
You may opt to open a business line of credit. Think of this as a credit card. You’re granted so much capital to spend at a time. If you spend it all, you have to pay back that sum in full, but if you spend less, you don’t pay more than what you shelled out.
As you accrue a deeper history of use on your line of credit, you may be able to obtain even more credit. This would increase how much money you can spend on your restaurant, which you may need by that point.
A business line of credit may sound almost too good to be true, but it isn’t. Lenders tend to have much stricter standards of who gets a business line of credit, so a borderline good credit score may not be enough to net you a credit line. Make sure you take the time to work on your credit first, then apply.
When you take out money, interest builds on it, and the interest rates can be higher than an SBA loan. You may also find you can’t get more than $100,000 or thereabouts at a time. For some budding restaurateurs, that may be more than enough money, but not for all.
Traditional Commercial Loan
You can also do things the good, old-fashioned way, such as with a traditional commercial loan. If you’ve ever made a large purchase, such as for a house or even a pricy car, then you may have used bank loans before. This one is slightly different though, as it’s on a commercial scale.
You have your pick between short-term and long-term traditional commercial loans. Given the unpredictability of opening a restaurant, many new restaurant owners choose a short-term loan. It may be possible to expand that to a long-term loan if necessary later, but you’ll have to check with your bank.
You need a really stellar credit score to get a traditional commercial loan, so make sure you pay your other bills and debts on time. If you do get approved, you can enjoy interest rates that are sometimes as low as six percent, which is great. You also can get more funding than even with a business line of credit.
That said, commercial loans do have their downsides. It can take as long as six months for the loan to get approved, which can feel like a lifetime if you’re chomping at the bit to open a restaurant. What’s worse is that some form of collateral must be given to incentivize you to pay your loan back on time. This collateral can include business assets, your car or truck, or even your home. You would hate to lose any of those, so you’re very much on the hook with a commercial loan.
Only you can decide if it’s worth it.
Crowdfunding
The idea of taking out a loan may be daunting. You could have even tried and been turned down, perhaps because of your credit or that you were asking for too much money. Either way, a loan is not an option for you.
That’s okay, because you can always explore the world of crowdfunding. What is crowdfunding? It’s a means of earning capital that has become quite popular in the past couple of years.
You’d use an online platform to post your story and implore people to help you. Those who decide they’d like to put money towards your restaurant can donate any amount, from a dollar to hundreds or even thousands of dollars if they wanted.
You set a goal, such as $300,000, and then have a certain timeframe to meet that goal. If you do, the money goes directly to you to spend on your restaurant. Failing to meet the goal does not earn you any money.
Here are some crowdfunding platforms you may sign up for.
GoFundMe
Undoubtedly, the most popular and best-known crowdfunding platform is GoFundMe. People use it for personal and professional reasons all the time.
There are a few steps to follow to get started on GoFundMe. First, you need to register your account and write up your campaign. If you have videos and photos to augment your story, add these.
Then, you want to share the campaign, getting the word spread as much as possible. If people don’t know about your GoFundMe, they can’t donate. Make sure you encourage everyone you know to share the campaign with everyone they know. That will get lots of eyes on you.
From there, you receive donations, thanking donors along the way. Then finally, you get to withdraw the money when the campaign successfully ends.
Indiegogo
If the GoFundMe market seems a little cramped, you can try Indiegogo instead. According to their website, Indiegogo’s campaigns have surpassed goals by a rate of 18,983 percent. The platform has raised over a billion dollars across all its campaigns.
Indiegogo works much the same way GoFundMe does, but they’re a little more centered on small businesses like yours than individuals and nonprofits like GoFundMe.
FoodStart
FoodStart is like the restaurant version of GoFundMe or Indiegogo. It’s made for growing establishments like yours, but only if you have most of your financial backing already in place. As they say on their website, FoodStart is intended for restaurants that want to “raise capital online in small amounts, say, $50 or $250.”
If that’s all the money you need, then certainly keep FoodStart in mind.
Investors
Crowdfunding may produce stellar results, but it can be tough to get your campaign much traction if you don’t have a huge social media following or know someone who does. Besides loans and crowdfunding, you have yet one more option for accruing restaurant capital. That’s relying on the help of investors.
Now, there are investors and then there are angel investors. These are investors with more money to spare. They often support startups, asking for ownership equity and/or convertible debt in return.
There’s no Internet platform we can recommend for finding investors because it doesn’t really work that way. You’d have to dig into your professional and personal networks to see who people know. Hopefully, they can connect you with someone who may be able to help with funding.
You’d then request a meeting with that individual. During the meeting, you’d explain your cause, what your goals and dreams are for the restaurant, and roughly how much money you’d need to make everything happen.
Even still, expect that you’ll have your work cut out for you. Investors are smart people, and they know that most restaurants don’t survive past their first year. Even if they do, few hang on past the five-year mark.
If an investor pours money into a failing venture, that hurts them more than it does you. Although it’s not on you personally, many investors don’t want to work with restaurant owners because of the high potential for failure.
This doesn’t mean you shouldn’t try. You just have to go into the process of procuring an investor with both eyes open and understand that you may be turned down often. If you’re persistent and a little lucky, you may be able to convince an investor to give your new business a try.
Can You Use Your Own Money to Open a Restaurant?
It can be a tough world out there to get funding for your restaurant. This makes you think that maybe you should just take what little money you do have and put it into your restaurant. Should you?
If doing so won’t ruin you financially, then sure. Having a small amount of capital dedicated to your restaurant is better than none. You’d then need a few thousand dollars less to make your restaurant dreams happen. This means you could take out a more manageable loan or ask for a crowdfunding donation that won’t make people balk.
Please don’t bankrupt yourself for your restaurant, though. If your restaurant fails and you’re ruined financially, life is going to be very difficult for you in the next few months, maybe even years.
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Tips for Obtaining Funding for Your Restaurant
As you proceed with funding plans for your restaurant, make sure you keep these tips in mind. They’ll help you get started with the process and hopefully find a viable source of capital that can get your restaurant opened sooner than later.
Start with a Local Restaurant Association
Most neighborhoods and towns have a restaurant association. You can connect with this association through social media or even in person if they have a physical location.
Doing so will prove very valuable to you. Restaurant associations can offer you information on where to find funding and how. You can also link up with other new restaurant owners and ask them questions about how they managed to open their establishment.
Use the National Restaurant Association (For U.S. based businesses)
The National Restaurant Association is a foodservice trade association, the biggest of its kind on the planet. Over 500,000 restaurant businesses are a part of the National Restaurant Association, and that number goes up all the time. The organization seeks to “serve our members by advancing and protecting America’s restaurant and foodservice industry.”
Bookmark their website and check back often. The National Restaurant Association often does webinars and events about funding and growing your restaurant. These can be especially useful as you proceed with your establishment.
Try a Pop-up Restaurant
Pop-up shops are all the rage because they’re only around for a limited time. You can also open a pop-up restaurant on this same temporary basis. This trial run generates many useful metrics, such as who’s interested in your establishment, the kinds of dishes they like, and who will come back for more.
You can run your pop-up restaurant at an old theater, bowling alley, arcade, or even a bar or restaurant that’s vacant. Some restaurateurs even do it out of their own homes, but make sure you have the kitchen space!
Have a Strong Social Media Presence
You can’t open a social media page for a restaurant that doesn’t exist yet, as that will just confuse and even anger people. What you can do is work on building your own social media presence.
If you’re not already on platforms like Facebook, Twitter, Instagram, and even YouTube, you want to change that right away. Each post you make going forward should be to expand your reach and obtain new followers.
Not only does a bigger audience help if you’re trying to crowdfund for your restaurant, but when the day comes that your restaurant does open, you can spread the word to more people.
Use a Restaurant Incubator
Our last tip is to try a restaurant incubator. These are handy for future restaurateurs who lack capital and could maybe use a bit more experience, too. Restaurant incubators are open kitchens, sometimes shared, that you rent for the month or even by the hour.
You’d take to the kitchen, whipping up your favorite dishes. You’d then sell these at kiosks and elsewhere around town. This is another way to spread the word about your food so you can attract more business when your restaurant becomes a reality.
Do be aware that restaurant incubators, as great as they can be, also have pitfalls. A 2016 article in Eater says that, as of 2013, 57 percent of restaurant incubator owners made as much money as they spent, breaking even. Just 39 percent earned enough cash to consider it a profit.
That data is quite old, but it does go to show that restaurant incubators can be double-edged swords.
Disclaimer & Personal Note
Obtaining financing will be the most difficult part of starting your restaurant business and it is the phase where most people struggle to get through because of their fear to sit in front of investors, bank managers or other entities.
This article, as many others in this Blog is written in cooperation with U.S. & Canada based collaborators, but even though, with the information we collect, I want, as always, to incentive and motivate you in order to start researching all the possibilities, regardless of where you live.
I am conscious that the realities from country to country may be different, however I have experienced in many different countries over the years that there is always a way to get financial support.
The world we live in is each year more and more global and despite the bad times we are facing now due to the coronavirus emergency we will at the end be more united.
Business principles are the same in the U.S. as in Europe or in Asia. Organisations such as Food Start or Indiegogo are represented world wide and open a whole new bunch of possibilities. So, don’t let you stop from drowning berries on the map.
It is only a matter of being persistent and always having a professional approach. Getting in contact with the right people and believing in what you are doing will drive you to the solutions you´ll need.
The most important part is to prepare your presentation. You need a clear and detailed business plan. No investor and no bank institute will take your project in consideration if the numbers don’t tell them the right story.
If you struggle with this process I do stress the importance of contacting a professional adviser, who will help you in doing this in the best way. This is probably the first and best investment you are doing to your future business.
If you are going to operate in a foreign country things might seem sometimes more difficult, however investors’ view to new ideas and the willness to approve loans for your restaurant business could be easier abroad than in your home country.
And this is precisely what my mission is about. Encourage you to do good research and be prepared for what will come. Including in your business eventual future “crisis” for example can be a very convenient argument in front of an investor who wants to see guarantees to protect his investments.
You rock!
Conclusion
Opening a restaurant without money is impossible, as you’re missing arguably the most important part of the equation. Through loans, crowdfunding, or investors, you can earn the capital you need. Investors and loans will expect you to pack back what you took, whereas if you can strike big with a crowdfunding campaign, that money should be yours to keep.
The tips and resources in this article have shown you the breadth of options you have. Although it won’t be easy, you’re now ready to begin looking for funding for your restaurant. Best of luck!
