There are lots of ways to fund your dream of opening a restaurant, especially if you’re willing to think creatively. Loans are one option, of course, be they from financial institutions or private lenders. And there are many others, despite the high risk associated with opening a restaurant—and even with a poor credit rating in your history.

LOANS 

  • Bank loans. The most traditional form of capital, bank loans require collateral and a good credit rating. 
  • Credit union loans. If you’re a member of a credit union, you may have more luck than with a bank, but they typically have the same requirements. 
  • SBA loans. The U.S. Small Business Administration guarantees loans through traditional lenders and works with lenders to get you the money you need, but you have to fit their eligibility requirements
  • Nonprofit microloans. If you think about starting small and growing into a restaurant space gradually, a microloan—typically capped at $50,000 or less—from a nonprofit group might be what you need to get your business off the ground. NerdWallet has a list of nonprofit microfinance organizations.
Piggy bank on white background

GOVERNMENT FUNDING OPTIONS 

  • Small Business Lending Fund Program. This dedicated government fund, administered by the Treasury Department provides capital for small business loans through specific lenders in each U.S. state. 
  • Economic Development Organizations. The groups in these collectives assist with loans and grants. Check out National Economic Development Organizations; states and some local governments have one, as well. 
  • National Association for the Self-Employed offers grants and scholarships to entrepreneurs. 
  • Government Small Business Grants. Industry-specific, a lot can be researched on the SBA site.

ALTERNATIVE LENDING SOURCES 

Some institutions provide loans or lines of credit directly to businesses that qualify, as an alternative to a traditional bank or government loans. Many approve funding within a matter of minutes or hours after candidates, typically existing businesses, apply online. Examples to investigate include: 

  • Kabbage offers quick approvals of a line of credit up to $250,000. 
  • OnDeck requires that businesses be up and running for at least a year with $100,000 in annual business revenue.
  • PayPal provides fast access to business loans up to $500,000 for operators that have PayPal Business accounts and fulfill other qualifications.
  • Can Capital invites businesses to apply for short term (6- to 18-month terms) loans for restaurant equipment financing or other working capital needs.
  • Prosper personal loans aren’t only for business expenses.
  • Fundera promotes the help of a lending specialist to guide applicants through the process.
  • Lending Club dubs itself America’s largest online credit marketplace. 

CROWDFUNDING 

On online crowdfunding websites, you create promotional materials and set up a page for your business or project to accept financial backing from those who visit the site. These sites operate in slightly different ways: Some will only disburse funds if your campaign has reached or exceeded the funding goal you’ve set; others will let you keep any amount of funds raised. Sites also require different minimum investments from individual contributors, from around $10 to $100. And they all have different fee structures, usually a percentage of the amount of money raised. Be sure to read the fine print to decide which one is right for you. Here is a handful to check out: 

  • Indiegogo  
  • Kickstarter
  • Fundable
  • Crowdfunder
  • Crowdcube 
  • GoFundMe 

These and other crowdfunding sites all have their own focus to differentiate themselves. Some are suited for individuals, others for companies and some for both. They also may specialize in a certain area or attract a certain type of project. Kickstarter, for example, is known for helping creative individuals fund projects; IndieGogo tends to specialize in new products, gadgets, and inventions; GoFundMe is used primarily to raise money for social change and advocacy.

Financial graph on computer

ANGEL INVESTORS v. VENTURE CAPITALISTS 

While you’ve likely heard both terms, you may be wondering, “What is the difference between an angel investor and a venture capitalist?” Angel investors are affluent individuals who put up their own money to provide funding for a company, typically during its startup phase. Funding levels can be as low as $25,000, and some angel investors take a hands-on approach to startups—lending not only funds in exchange for equity, but also advice and expertise. Venture capitalists work for companies and manage a pool of funds that are invested in multiple growing businesses to diversify risk. Investments from venture capitalist firms usually start around $500,000 when companies are further along in their development.

INVESTMENT FUNDS 

Investment funds provide an opportunity for individual investors to own shares in restaurant groups. These funds may well be interested in seeing your concept developed to add to their portfolios. Examples include: 

  • Kitchen Fund counts Dan Rowe, founder, and CEO of Fransmart—a franchise development and consulting firm among its leadership.   
  • Enlightened Hospitality Investments is the investing arm of world-renowned restaurateur Danny Meyer’s Union Square Hospitality Group. 

FRANCHISE ORGANIZATIONS 

There are a lot of companies that specialize in developing restaurant brands specifically as franchise opportunities. You may be able to interest one in your concept. Here are some examples (and the International Franchise Association has additional information): 

  • AP Franchised Concepts 
  • Kahala Brands 
  • JAB Holding Company
  • Ballard Brands
  • 4Top Hospitality Group
  • Aurify Brands 

A WORD ABOUT BOOTSTRAPPING 

If you can’t or don’t want to borrow a large sum of money from an institution or formal investor upfront, you may still be able to start your foodservice business through bootstrapping—that is, starting small and operating on a limited scale until you can put together the funds for the restaurant you have in mind.

Natalie Sheild started a catering business out of her home in Springfield, Ore., after taking time off from a career as a chef and kitchen manager to have kids. With an eye on eventually opening a restaurant, she wrote a business plan and not long after saw an ad for a food cart for sale. Using $7,000 of savings and credit card loans as a down payment, Sheild borrowed the remaining $18,000 from an Oregon nonprofit and operated the food cart in several locations until space opened up in Sprout, an incubation/public eating space in town. From there, she was able to open the Pig & Turnip cafe in the space and operate the cart and catering business separately.

Bootstrapping strategies encompass anything and everything you can think of to find money (legally) to use in your business, including:  

  • Friends and family 
  • Business line of credit. An option for people who need cash quickly and have fairly good credit.   
  • Contests. Seriously, if you have a great restaurant concept, why not enter a contest or try out as a contestant on a reality show. Some well-known brands got their start this way. 
  • Using your savings or selling assets.  
  • Using other income to support your business. A lot of restaurateurs start out by catering out of their home kitchens and grow from there.