Financing your restaurant

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Figures from the Department of Business, Innovation and Skills show that new start-ups are more popular than ever, with 80 new businesses born every hour in 2016.

It is no wonder that new restaurants are popping up all over the UK, all of the time.

Because of this trend, we have created this handy guide to financing and funding your restaurant, café or other eatery.

Despite figures from the Bank of England showing business lending at 25 per cent less to small businesses than before the 2008 financial crisis, there are now more options than ever for new restaurateurs to choose from when financing their businesses.

Before you start

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Before you search for funding, ensure you write a complete business plan.

This business plan should include a comprehensive explanation of your concept, including a profile of your target customer, the food you are going to serve, your location and your long and short-term goals for your restaurant, a full breakdown of the cost of setting up your business and a marketing strategy.

You should also outline any advertising costs for promotional materials such as leaflets and local newspaper adverts, along with any social media accounts you plan on setting up to promote your business.

Go Your Own Way

If you are lucky enough to have adequate savings, there is nothing stopping you from using them to finance your business.

Obviously, this is a large gamble and you should explore all your options before committing to anything. Another option is using the money from re-mortgaging to fund your venture.

Find a Partner

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Finding a partner to split the cost of your restaurant has many obvious advantages; not only will you split the financial burden of your restaurant, you will also split the workload and have twice the capacity to come up with ideas for your restaurant.

However, keep in mind that going into business together may put pressure on the relationship of you and your business partner.

Make sure you and your partner are both clear on what you are each willing to put into the business; it is quite common for some partners to act purely as a financier for the business, in return for a share of the profits.

Business Loans

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Most business loans are from banks and building societies, given to those who want funding to either set up or expand their businesses.

Following the financial crash of 2008, banks are less likely to lend money, which means you must do everything possible to convince them your business is going to be a success.

Ensure your business plan is well thought out and professional, and be prepared for an interview process.

If you are denied a loan from the first bank you approach, do not be put off, sometimes it will take a few attempts.

If you approach several banks and are still unsuccessful, it might be time to rethink your business plan, or look at different types of loans.

If a bank loan is not an option for you, peer-to-peer business loans are worth considering. Peer-to-peer business loans are loans provided by individuals instead of banks.

These can be accessed through online platforms such as Funding Circle and are well suited to small to medium sized businesses.

You will still have to complete an online application process for a peer-to-peer business loan, this usually takes around thirty minutes and if your application is accepted, your loan will be put on the online market place.

The average rate of interest of a peer-to-peer business loan is two to five per cent, compared to regular business loans, which usually start at around four per cent interest. Peer-to-peer loans are paid back in monthly instalments.

Crowdfunding

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Crowdfunding is a way of raising money for a business by asking a large group of people for a small amount of money per person, as opposed to more traditional financing methods, which rely on getting large sums of money from a small number of investors.

Crowdfunding has seen phenomenal growth in the last few years and is projected to be a $300 billion industry by 2025.

Although crowdfunding has existed in various forms for centuries, the internet has increased the popularity of this method of funding, meaning it is now a viable option of financing for anyone with a computer and an internet connection.

The two types of crowd funding that are most common are rewards based or non-equity based and equity based.

Rewards based crowdfunding offers those who pledge an amount of money incentives that often work on a scale system, depending on the amount of money pledged.

For example, someone who pledges £5 might get an invite to your launch event and a free drink, whereas the incentive for pledging £30 could be an invite to the event and a free meal.

Equity based crowdfunding offers a financial incentive to investors, usually in the form of shares or a percentage of the business.

This makes it unsuitable for small businesses, unless you have already raised the majority of the funding and are prepared to sacrifice a chunk of your business.

Crowdfunding for private business should ideally be used to supplement any funding you have already managed to raise.

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It is often used successfully to raise funds to provide things like kitchen equipment, or to repair damage that occurs from events such as flooding.

Kay Johnson, Managing Director of The Larder, a company that uses crowdfunding to open ‘Pay as you feel’ sustainable, cafés and restaurants with locations in Manchester and Liverpool, explained some of the stumbling blocks often encountered with crowdfunding: “People often look to crowdfunding as an easy option to raise money for their businesses and this approach will not get you anywhere.

“You cannot just set up your webpage and wait for the money to roll in, you would not just turn up for a bank interview completely unprepared and expect to get a loan.”

Kay went on to explain why crowdfunding has worked well for her: “Try to find your niche; you need to offer something that is not already there, that people see real value in. For us, it was to offer ‘Pay as you feel,’ which makes our cafés different to ninety-nine per cent of what is already on the high street.

“When you set up your page, you need to start a campaign, use social media, organise a launch event and make it clear what donors are getting for their contributions. You should approach crowdfunding with the attitude of a professional fundraiser, with a plan of what you are going to do before you start.

Kay attributes her crowdfunding successes to a multi-pronged approach to crowdfunding: “Crowdfunding works well when people can see you have already tried your hardest to secure the money by other means.

“Trying to fund a business entirely off crowdfunding is not impossible, but if you can show you have already gone down the traditional routes of funding and you just need that extra help to get your great idea off the ground, you are a lot more likely to be successful.”

Small Business Grants

Small business grants are a great way to gain funding for your business – the primary advantage being that you do not have to pay them back.

Grants of up to £1m are often provided by the government to boost growth in an area. You are more likely to receive a grant if you can prove you are going to provide something specific to a community.

Often grants come with conditions, such as matching the amount of the grant with your own cash. As with gaining any sort of funding, it is essential that you make sure you have a proper business plan prepared before applying for any sort of grant.

A good place to start looking for information about what you may be entitled to is the Support for Businesses pages of Gov.uk. Your local council may also provide grants, so visiting them or checking their website is worthwhile.

Often grants have very specific terms as to how they are spent. If this means that you cannot get one to finance the opening of your business, they are still worth looking at.

Grants for green initiatives, such as fitting solar panels and recycling, as well as grants for staff training, can all help to cut down the running costs of your business, whilst making your venture is more environmentally friendly at the same time.

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