How To Fund a Restaurant Startup

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Too many startup restaurant entrepreneurs leap before they look. Following passion without doing the necessary research required to actualize their dream of opening a restaurant is a disaster on the horizon. If you want to be a restaurant owner, you need to know two things before you get started, how much it's going to cost to open and how much of your own money do you have to put in. Without this information you have no idea where to start or if you need outside investors or loans. In all likelihood, you'll run out of money before you get out of the gate! This guide shows you how to estimate your personal investment and teaches you how to project total startup investment for your restaurant.

Here are sources of outside funding for opening a restaurant and what you should know about them:

Credit Cards

If you have good credit it’s easy to get credit cards with good interest rates. Many cards offer cash back and rewards. Interest only accumulates if you carry a balance. Your reliable on time payments helps to build your credit score.

Credit Cards can be either personal credit cards or business credit cards, but if you use a personal card to fund your business it’s highly recommended that you do not use the same card for personal expenses.

Personal Loans

If you have good credit, you may be interested in taking out a personal loan with your bank or credit union. Personal loans are easier to obtain than business loans because the standards aren’t as rigorous. Unlike business loans that require collateral, most personal loans are unsecured. However, unlike a business loan, you are personally liable for repayment of the loan.

Business Loans

There are many different options for business loans these days. The bank will look at your credit, collateral, reputation and in the case of a startup, your business plan. The stronger you are in these areas, the better your chance is of being approved. Traditional business loans business loans provide you with a large lump sum of cash that you pay back over an agreed period. It’s important to compare not just interest rates but additional fees between lenders. A lender with lower fees and a higher interest rate may end up being the cheaper loan.

SBA (Small Business Administration) Loans

These are 3rd party personal loans with a portion of the loan amount guaranteed through the U.S. Small Business Administration. SBA loans must conform to certain standards which are more favorable to small business owners, but the paperwork and slow moving time may prove frustrating. To apply for an SBA loan, you must prepare an SBA loan package. More information at

Friends and Family

Unsecured loans typically without interest or equity. These are the people who loan you money because they believe in your vision and want you to succeed. They are also the ones who lose the most if you are unsuccessful. Make it clear to your friends and family the risk and the reward. Because of the social cost of losing your loved one’s money, paying them back soon should be a priority.


Microlending is a new way of securing smaller amounts of cash than a traditional business loan. It’s probably not going to be enough to fund a startup, but it can help you get over a hump, like purchasing a specific piece of equipment or help with remodeling costs. It’s called microlending specifically because the amount the loan is approved for is so small.


Investors are other business people who may or may not know the restaurant industry. Investors may want to be involved with the business or not involved at all. Typically they will invest off the strength of your business plan, reputation, and experience. Taking on an investor is a little like finding a roommate or getting married. Every investor will have some demands. There are different ways an investor can invest in your business. With and without taking equity.

  • Equity Investors take a risk by investing in your restaurant startup without collateral. If the business fails, their money goes with it, and for that risk, they expect a greater reward. It’s only advisable to take an equity investment if you don’t see other options that allow you to maintain your equity. For example, if you anticipate that you’ll need significant funding for the restaurant before you are in the black and, or you don’t have significant collateral.
  • Debt Investment is when you seek investors to privately loan you money. You specify the terms you’re offering for the loan, including collateral and interest rate. One of the ways to entice a debt investor is to offer them free food in the restaurant for the length of the loan!
restaurant startup investors


While crowdfunding is a big buzzword and friends may say “Just make a Kickstarter, and you’ll get a million dollars!” The truth is that not all crowdfunding are the same or would be appropriate for a restaurant startup venture. Here is a short list of online funding and lending sites and a description:

People will be interested when they get something in return, either doing some social good or receiving a finished product in the future. Not really appropriate for restaurant startup capital but if you’re creative, you might be able to use it to sell a product that can help you fund your restaurant.

restaurant startup crowdfunding
  • Kickstarter - Perhaps the most well-known crowdfunding site, post a product, idea or business and elicit pledges from the general public. People will be interested when they get something in return, either doing some social good or receiving a finished product in the future. Not really appropriate for restaurant startup capital but if you’re creative, you might be able to use it to sell a product that can help you fund your restaurant.


  • Indiegogo - Like Kickstarter, it’s a website for pitching ideas for products that either provide a social good or that inspire those who pledge as future customers. If the campaign doesn’t reach its goal, the money is returned, and the project remains unfunded.


  • GoFundMe - This service takes a fee from every dollar pledged. For this reason, it’s not the most practical way to fund a restaurant concept. This format lends itself more to collecting money for charity. To have much of an impact you’d need to reach out to a large network of people willing to donate money to help you open your restaurant.


  • Angellist - This site is technically crowdfunding, but the investors are a bit savvier. They will want to see your business plan, and you’ll need to entice them. This site is heavily oriented toward technology startups, and you may not find a large audience with the investors on the site, who probably don’t know much about the restaurant business.

Peer to Peer Lending

Otherwise known as P2P lending. These sites specialize in loans under $100,000. There are some sites like Lending Club and Lending Tree and Bolstr, but the loan amounts are intentionally small to reduce the lender’s risk. If you’ve expanded other options, this may be the extra boost of cash you need. This is probably the only type of crowdfunding sites that are actually relevant to independent restaurant startup entrepreneurs.

Local Business Groups

A great place to find investors and advice about loans is your local restaurant owner’s organization. Groups like the National Restaurant Association, state restaurant associations and local community business groups like Rotary are a great place to meet other independent business owners who can help you find the funding you need to open your independent restaurant startup.

Personal Credit Scores Affect Restaurant Loan Availability and Interest Rates

It’s important to know your credit score and how it will affect interest rates and what your finance options are. If you can improve your credit score before shopping for loans, it will save you from major headaches and a lot of money.

The following categories are generally accepted credit score ranges:

Below 579 - Poor

580-669 - Fair

670-639 - Median

740-799 - Above Average

800-850 - Exceptional

Only 3% of consumers score in the above average range

For a traditional business loan, you need very good credit. Larger banks are more stringent in their qualifications. Local credit unions and smaller banks may be willing to give favorable terms to someone with high-average credit scores, so make sure to apply to community banks and small credit unions when you are looking for a business loan.

restaurant loan availability

For a traditional business loan, you need very good credit. Larger banks are more stringent in their qualifications.

Get the Lowest Rate You Can

When considering a loan, the amount of money you can save by lowering your interest rates just a few points is truly incredible. Especially on longer term loans, it could be thousands of dollars!

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