We get it. Your great aunt thinks opening up a taco spot is the world’s worst idea. But maybe the only bad move would be holding back on your long-held dream.
Starting a restaurant takes guts. It also costs money.
Even getting to opening day is a win. Opening a restaurant is a high-risk business venture, and sadly, most investors won’t touch restaurants with a ten-foot pole, especially if you don’t have a solid restaurant business plan.
And typically, the cost of opening a restaurant is just too high to shoulder on your own.
So what are are some creative ways to access restaurant funding? In this article, we take a look at the options.
And you can read the full guide on how to open a restaurant if you're looking for more info on going from idea to open.
1. Start in a restaurant incubator.
If you have no money and no business experience, it might be a good idea to explore restaurant incubators in your area.
Pilotworks, for example, is a food business incubator, allowing enterprising entrepreneurs to rent commercial kitchens in six cities.
“Pilotworks participants benefit from affordable commissary and co-working space, tailored mentorship programs and workshops, flexible working hours, and, most importantly, community of supportive culinary professionals looking to achieve the same goal: change the way we think about food.”
Many other cities have similar programs, including:
- Pittsburgh, PA - Smallman Galley is a launch pad for new restaurant concepts, showcasing four innovative restaurants, a full bar, and coffee & espresso bar in the 6,000-square-foot space.
- Baltimore, MD: R. House is home to ten chefs who believed that coming together to launch their restaurants was better than going it alone. Their kitchens surround a 350-seat food hall with roll-up garage doors, booths, communal tables, and a neighborhood bar at the center of it all.
- Dorchester, MA: CommonWealth Kitchen is a collaborative community, providing shared kitchens and business assistance to help aspiring entrepreneurs build great food companies, create jobs, improve healthy food access, and strengthen our regional food economy.
- San Francisco, CA: La Cocina provides commercial kitchen space and technical assistance focusing on low-income women and immigrant entrepreneurs who are launching, growing and formalizing food businesses.
Finally, some existing restaurants have incubator programs as well. Wink & Nod in Boston, MA, for example, has a rotating kitchen. Every six months, they invite new restaurant groups to run the kitchen and experiment with dishes to complement their cocktails.
2. Apply for restaurant loans or explore capital opportunities.
We've written about restaurant financing before, and it’s always a tricky subject to tackle. There are Small Business Association (SBA) loan programs that allow partnering lenders, community development organizations, and micro-lending institutions to invest in small businesses.
There are peer-to-peer lending services that match lenders with borrowers. However, there is a risk of the borrower defaulting on the loans taken out from peer-lending websites.
And there are of course, bank loans, which usually have low interest rates but long approval processes.
3. Find an investor — or even better, an angel investor.
As we mentioned before, many investors will not invest in restaurant businesses. They’re risky, often with low financial returns.
You could go through the process of finding an investor that shares your passions, with pitch meetings, site visits, and of course a solid business plan.
Or you could try to find an angel investor. An angel investor is a person who helps finance an idea or business plan. They may be one of your restaurant mentors. Or they may simply be a friend of a friend inspired by your story.
Whatever the case, remember to lean on your existing network; your family and friends might know someone who's looking to lend their money to support local businesses.
Restaurant Business Plan Template
A restaurant business plan explains in detail how the restaurant will operate once doors are open. Organize your vision and ensure that nothing is overlooked with these free template from Toast.
4. Get creative with crowdfunding.
Many restaurateurs have started their second or third locations through crowdfunding sites like Kickstarter, FoodStart, Indigogo, GoFundMe, and Angellist. If you already have customers who know and love your brand, why not ask them to spend a few bucks to fund your next location? In return, they can receive a gift card, a tote bag, some swag - you name it.
Successful restaurants that have crowdfunded are:
- Field and Vine in Somerville, MA, started as a pop-up restaurant. When the team secured a location for a brick-and-mortar restaurant, they started a Kickstarter. They raised $27,832 towards their goal. On their Kickstarter page, they shared exactly what they would be using the money towards, as well as offered cooking classes and even guitar lessons for higher bids.
- Swah-Rey, a dessert bar in St. Petersburg, FL, raised money for their second restaurant via Kickstarter. They raised $7,673 and included a promotional video at the top of the page showcasing their brand. Owners Leslie Ann and Gregg shared their story, as well as what to do after donating, which spurred many to share the campaign in their community. Some of their pledge rewards include cupcakes (of course), dog murals, and invites to their pre-opening party.
Joanne Chang, Charles Bililies, and Emiliana Puyana on Funding a Restaurant
When it comes to funding a restaurant, there are many ways to get your hands on capital. In this episode of The Garnish, we spoke with three restaurateurs about how they gained funding for their now-successful concepts.
5. Consider starting with a pop-up, food truck, or catering business first.
Many restaurateurs get their feet wet with pop-up restaurants, food trucks, or catering businesses before investing in a brick and mortar restaurant.
Pop-up restaurants are a low-cost way to test out running a mini-restaurant business. Pop-up restaurants are temporary restaurants hosted in various spaces like existing restaurants, bars, abandoned arcades, bowling alleys, theaters, or even chef's homes.
Oisa Ramen in Boston, MA, recently opened a location after three years of pop-ups at professional kitchens, homes, and parties. Chef Moe Kuroki wanted to share her favorite childhood food, tonkotsu ramen, with the world, and now has her own location in downtown Boston.
6. Ask your landlord for options.
When you find restaurant real estate, ask your landlord what your options are regarding the restaurant buildout. Your landlord may reduce your rates if you offer him a share of your restaurant. He or she may also offer a tenant improvement allowance. Often referred to as TIA or TI in a letter of intent or lease agreement, the tenant improvement allowance is typically a dollar amount multiplied by the square footage or size of the space.
Many restaurants have contentious relationships with their landlords. Make sure, up front, that everything is in writing, and if you can, work with a lawyer or restaurant real estate adviser to request a tenant improvement allowance in the letter of intent.
7. See if your local restaurant association can help.
Finally, ask your local restaurant association. Many local restaurant associations have forums where restaurateurs can ask for advice about loans and funding from fellow restaurateurs, as well as links to local restaurant consultants who can help you navigate the restaurant funding space.
Other local groups may help you meet people with similar passions. Rotary, for example joins people from all continents and cultures to exchange ideas while making a difference around the world.
How did you raise funds for your restaurant?
What are your creative ideas for raising funds for a new restaurant? How did you raise money for your last venture? Let us know at firstname.lastname@example.org or by sharing this article.
The Cost of Opening a Restaurant
How much does it cost to open a restaurant? Find out using this interactive calculator from Toast.