April 18

Financing Options for a Restaurant Acquisition [SBA Financing]

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Are you an experienced restaurant manager looking to take the leap and become a business owner? Perhaps you've found the perfect building for your non-franchise restaurant, but are unsure about financing options. In this article, we'll explore financing options specifically for restaurant acquisitions and discuss how the Small Business Administration (SBA) can assist you in achieving your dream of restaurant ownership.

Understanding Your Options

If you've been in the restaurant industry for 16 years and have management experience, you likely have a good understanding of the financial aspects of running a restaurant. However, when it comes to financing a restaurant acquisition, you'll need to consider how much equity or cash injection you'll need for the down payment, as well as prepare a solid business plan and three years of projections.

SBA Financing for Restaurant Acquisitions

One financing option that is often recommended for first-time business owners is SBA financing. The SBA provides a variety of loan programs to help small businesses, including restaurants, acquire the funding they need to get started. Two popular options are the SBA 7(a) and the SBA 504 loan programs.

SBA 7(a) Loan Program

The SBA 7(a) loan program is a flexible financing option that allows borrowers to use funds for various purposes, such as working capital, equipment purchases, and even business acquisitions. This loan program provides a guarantee to lenders, allowing borrowers to obtain financing even if they don't meet traditional lending requirements.

One advantage of the SBA 7(a) loan program is that it allows borrowers to finance up to 90% of the total project costs. This can include the cost of the building and any necessary renovations, as well as working capital and employee salaries. Additionally, the SBA 7(a) loan program typically has longer repayment terms and lower interest rates compared to traditional loans.

SBA 504 Loan Program

The SBA 504 loan program is specifically designed for real estate and equipment purchases. This program allows borrowers to finance up to 90% of the cost of the building or equipment, with the remaining 10% being the borrower's equity injection. This program also has longer repayment terms and lower interest rates than traditional loans.

One downside of the SBA 504 loan program is that it cannot be used for working capital or employee salaries. Therefore, if you're looking to finance those aspects of your restaurant acquisition, the SBA 7(a) loan program may be a better fit.

Preparing for SBA Financing

To qualify for SBA financing, you'll need to have a solid business plan and three years of projections. The SBA recommends seeking assistance from their Small Business Development Centers (SBDCs) or SCORE.org to help you prepare these documents. These organizations can provide free resources, such as counseling and training, to help you put together a successful business plan and projections.

Conclusion

As an experienced restaurant manager, you have the knowledge and skills to run a successful restaurant. However, when it comes to financing a restaurant acquisition, it's important to understand your options and prepare a solid business plan and projections. SBA financing, specifically the SBA 7(a) and SBA 504 loan programs, can be a great option for first-time business owners. Good luck on your journey to restaurant ownership!


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