There are multiple ways to obtain restaurant financing. When a restaurant is well established, has good books and records, and provable income, there are many sources of funding. Even when you are acquiring an asset sale (which does not have books and records) that you plan to open as your own new and improved concept, there are lending options. SBA loans have the backing of the Small Business Administration. While the SBA does not issue loans (a common misconception), they do guarantee loans which lowers the risk for the bank. That makes lenders more willing to accept risk since the government is standing behind the deal and guaranteeing as much as 80 or 90 percent of their risk.
Franchises in particular are great candidates for an SBA loan to buy a restaurant, and the Restaurant Brokers have a number of lending resources that specialize in franchise resales. Another option for financing a restaurant purchase is seller or owner financing. This occurs when the restaurant or bar owner agrees to carry a note or personally finance a portion of the transaction. Instead of paying for the entire purchase price up front, the seller allows for some amount (typically 25 to 50 percent) to be paid over time. Sellers performing the function of the bank will still require that there be a purchase note and guarantees from the buyers.
Restaurant buyers often overlook their 401(k) as a source of capital, without realizing there are ways to use 401(k) funds without facing a large tax bill from Uncle Sam. For over 10 years, 401(k) rollover services, also known as Rollovers for Business Start-ups (ROBS), have helped entrepreneurs fund their dream of small business ownership. With ROBS, you can invest your existing retirement funds into a new business or franchise without taking a taxable distribution.
Crowd sourcing or crowd funding is the new kid on the block when it comes to financing a restaurant purchase. It allows family, friends, customers or anyone else to support your business in an online community-funding platform. Online lending is another new way of lending that is driven by the Internet. Just like relationship websites (eHarmony) or retail websites (Amazon), the Internet is a proven ground for bringing parties together. It's no wonder that lending platforms have sprung from this as well. Download our Quick Guide to Financing a Restaurant to learn the pros and cons about each category along with resources for each type of lending.