Dreaming Restaurateur (and hotelier) – Part B

As promised last week I list a few of the possibilities of financing your operation.  Securing a seed funding will bring you one step closer to your dream business (part A is here).

Commercial bank loans.

Ok this is a tough one, if you are attempting to open a restaurant especially in these highly volatile times, you will need to have a proven track record, probably evidence of a good part of the needed funds already in line and a lot of luck to talk to an interested bank manager.  Hotels are a little easier but still without a track record and a well established team and evidence of some investors you will have hard time securing one of those.

Mortgage

Depending the country you are at you could attempt to remortgage your house but that is a risk too high for my own liking.  The interest rates are better than a commercial bank loan but gambling your house away is perhaps a risk too much to take.

Business grants and loans.

Most countries have such a scheme for example in the UK see : http://www.bis.gov.uk/files/file48641.pdf  or for the US see: http://www.sba.gov/financialassistance/ look for small business grants and loan schemes supported by your government, if you are eligible you will find the interest rates are often far better than commercial bank loans

Business Angels and Investors.

Here you must rely on good networking to find people who believe in your concept.  Look for a reputable angel group and be ready for heavy negotiations.  Decide before hand what is the very maximum owner equity you are happy to depart with, Angels can sometime be Devils in disguise…  You can always attempt to attract funds from friends and family but you better be certain your concept is worth it or you may be left not only with holes in your pockets but also in your social life. 

Venture capital firms

There are firms that specialise in small business financing but they are likely to only fund after the  initial seed funding round. In relative terms and compared with other investors, venture-capital firms may often demand a bigger share of owner equity and will have a strong say in determining the company's direction. They expect to see a large return of their investment within a small number of years.

Personal finances.

A personal loan, such as a home-equity loan can provide supplemental funding. Personal savings, Individual retirement (Ira) accounts, Credit cards could be sources of part financing a project.  Personal loans may often carry a high interest rate and the added risk of losing, personal assets.   

Partnerships. 

If your personal finances is not enough a partner may be a good way to raise the capital needed.  A good partner would bring more on the table such as skills that you maybe lacking.  Having said that you could always have a “silent” partner.  You may share the profits but you also share the risks and decision making could get more difficult if you have not found the right partner for you.

Franchise agreements

Although not a financing option per se, a franchise can be a good business set up in ensuring funding.  A good franchisor will have a positive impact in the decision making of banks and investors in lending money to the operation. If a franchisor is of unknown quality seek examples and references.

Above all watch out for great promises of financing, if a deal sounds too good to be true… it probably is….