Are you looking for effective ways to grow your small restaurant startup? Do you have decent credit and a thriving restaurant?
Opening a restaurant is a huge risk: about 75% of all new restaurants close before they reach the five-year mark. Creating a successful restaurant is all about location, great food, and cash flow.
If you don’t have the time to wait for a traditional business loan to clear, you might want to consider an asset-backed restaurant loan.
We’ll explain the ins and outs of an inventory credit line, an alternative to business lines of credit and loans. Then we’ll help you get started with finding funding for your restaurant startup.
What Is an Inventory Credit Line?
Finding the right restaurant loan or line of credit can be confusing. You don’t want to get stuck with a high-interest loan and big payments, but your company may not be big enough to get a good deal from a bank.
An inventory credit line is a good option for restaurants that have been in business for more than one year. You’ll need to have decent credit and be profitable. The amount you need to earn each year varies by company, but is usually about $150,000.
Basically, an inventory credit line offers you a way to build your inventory at any time of year. If your business is busy during certain seasons, you may not have the cash on hand at first. You’ll need a flexible line of credit to buy the food you need.
Getting a credit line to buy inventory means that you’ll be able to put money back into your business: paying employees, rent, and operating expenses.
It’s important to find the right lending company: you should look for one that offers weekly payment options and that allows you to pay only interest for the first several months.
What Do I Need to Apply?
The first thing you’ll need to do is check your credit scores. You may not realize that you have two credit scores: your personal score and your small business score. While your personal credit score can go as high as 850, your small business credit score will be a number from zero to 100.
Next, you’ll need to get all of your financial paperwork in one place. If you have an accountant, ask them to generate a report that includes your current lines of credit and loans.
Print out payroll documents, copy rent receipts, and gather together all of your repair bills for the last year. You should try to figure out how much money you need to buy inventory, and then begin the online application process.
If you’re not sure how much to ask for on a line of credit, talk to the representatives of your funding company. They can help you make sure you have enough cash on hand to get through your busy season.
The great thing about a credit line is that you can re-use the funding as you pay it back. If you have a $20,000 line of credit and you pay back $5,000, you will be able to use that $5,000 again. It’s a handy way to make sure your restaurant is always prepared to do business.
How Should I Use My Funding?
So you’ve taken out a line of credit to cover your inventory. Your lending company is paying your accounts payable, and you’ve got cash on hand.
What’s the best way to use your extra cash? One good way to invest in your business is to make repairs. If you’re losing money due to a temperamental thermostat or a busted boiler, you should go ahead and call the repair team.
You may be reluctant to make repairs, but every repair improves your customers’ experience at your restaurant. As long as they have positive experiences, they’ll recommend you to their friends. In the long-term, making repairs could be the key to creating loyal customers.
Another way to use your cash on hand is to focus on your website. Nowadays, you can create ads that target different customer demographics. If you have a pizza shop, for example, you can run an ad targeted towards college students.
You can create ads that run at certain times of day or in certain cities. You can have your ad show up when people are searching for restaurants on their phones, and you can even include your telephone number.
Expanding your website and marketing efforts is, hands down, always a good idea.
Pro Tips: How to Grow Your Business
There is one pro tip that not everyone knows, and it boils down to one word: outsourcing. You probably don’t need a full-time accountant, human resources person, or computer pro.
The good news is that you can outsource these part-time jobs and save money. Instead of paying an IT professional full-time wages to update your computers once per month, you can access a team of pros who are available when you need them.
The real secret to building your restaurant startup and making the most of your small restaurant startup loans and lines of credit is to save money. Wherever possible, try to find ways to save.
It could be as simple as installing a “smart thermostat” that turns down the heat at night. You could save thousands of dollars each year, just on heat. As you grow, keep looking for ways to save money on personnel and monthly bills.
How to Find the Best Restaurant Loan or Line of Credit
If you’re wondering where to start, give us a call or send us an email online. We’ll help you figure out how much credit you need, how to get started quickly, and your interest rate.
You’re not alone: there are thousands of restaurant entrepreneurs across the country who need to make it work. You may be able to pre-qualify for a restaurant loan or line of credit online, up to $500,000.
Take a few minutes and check out our website and blog for more information. We’re looking forward to helping your restaurant startup hit that five-year mark and keep going!