If you own a restaurant, you must know how hard it is to keep a restaurant business running in the black. There are more than 600,000 restaurants in the U.S. which means that the competition is fierce. Last year alone, nearly 11,000 independent restaurants served their final meal. If you don’t keep up with the competition, it won’t be long before you are forced to lock the doors and walk away.
In order to compete with other businesses, you may have to offer new recipes or extend your marketing efforts, purchase new equipment or renovate your dining room. To do that, you need a large, fast infusion of capital. In many cases, a business loan will be your best option. However, before you apply for a business loan for your restaurant, read these tips to increase your chances of getting approved.
1. Get your documents ready
Documentation is an essential requirement for fast business loans and working capital. When applying for a business loan, be sure to have all your documents ready ahead of time. Banks will ask you to provide documents that support your claim. Your personal tax returns and bank statements should be in order. The bank will require proof of your expenses and sales volume.
During the business loan application process, the bank or the lender may also require you to provide the profit and loss statement and other financial statements to determine the profitability of your business.
2. Maintain a good credit score
One of the main reasons for a business loan rejection is a poor credit score. Banks consider both business credit and personal credit, which makes it difficult for some borrowers to qualify for a business loan. Therefore, as a restaurant owner you should maintain a good personal credit score to help you get approved for business loans as well. Don’t let your personal credit score get in the way of a business loan approval.
3. Prepare the collateral
Banks will require you to provide collateral to get a business loan for your restaurant. Collateral can be your personal assets like your house or car, or it can be your business assets. You should be prepared to provide collateral because without it, the bank will not approve your business loan application. But consider carefully before putting something up for collateral – if disaster strikes and your business has to close, you may risk losing your car or house as well. Whenever possible, use business assets to secure business loans.
4. Purpose of the business loan
Why are you taking out a business loan for your restaurant? Banks will ask you to state the purpose of the loan. You should prepare yourself to explain your reasons for needing the loan. You may require the loan to buy business equipment or for marketing campaigns that require additional funds. Whatever the reason, clearly explain it to the banker and show them that the investment will bring profit. This will improve your chances of getting approved for a business loan.
Qualifying for a business loan for a restaurant isn’t easy. However, by following the advice provided above, you can improve your chances of getting approved for a business loan from a bank. If you are having trouble getting approved for a bank loan for your restaurant, you may consider other financing options like business lines of credit or revenue advance, or look to alternative lenders who often provide more flexible lending options and requirements.
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