Editorial Team
7 min read
For any business owner, funding and capital tend to be a recurring concern. According to the Guidant Financial Top Small Business Challenges report, 16% of small business owners consider lack of capital/cash flow to be their top challenge, while 23% state that inflation and price increases are one of their biggest concerns.
If you’re interested in opening a restaurant business with no money, it may be helpful to know you’re not alone if you’re facing funding issues. Even if you have little to no capital to start with, becoming a restaurant owner can become a reality with some thoughtful strategies and creative financing solutions.
While it always takes money to open a restaurant, it doesn’t have to be your money.
Define your culinary vision
The first step in starting any business is to define your restaurant concept. What is a restaurant concept? It’s a vision that describes the solution your restaurant presents for the diners you identify as your target audience. It outlines the competitive advantages that will help your business succeed, and it is an essential part of writing out a restaurant business plan.
Whether you’re opening a restaurant, starting a food stand business, or considering a food truck, before you open, it’s helpful to:
- Analyze the local restaurant industry
- Identify gaps and opportunities your business can address
- Evaluate competitors
- Understand your target customers’ preferences
- Gather insights on pricing strategies and menu development
Once you have a vision and business strategy for your restaurant, it’s easier to address funding and get the amount of money you need to open a restaurant.
Creative solutions for financing a restaurant
There are a lot of ways to find capital to open a restaurant. In some cases, you may be able to start a restaurant with zero out-of-pocket expenses, by exploring options like the following:
Small business loans and grants to open a restaurant
A small business loan is money that you borrow and then pay back with interest. Grants are a form of gift aid that small business owners don’t have to pay back.
The U.S. Small Business Administration (SBA) partners with lenders to improve business loan accessibility. There are various loan types available. For example, 504 loans are long-term, fixed rate loans that can be used to purchase restaurant equipment or other fixed assets, such as real estate. There are also 7(a) loans available for up to $5 million and microloans available for $50,000 or less.
The SBA also has a variety of small business grants. In addition to SBA grants, there are various grants and scholarships available to small business owners in specific demographics, which also include free financial aid that doesn’t have to be paid back, including:
- Small business funding for Black women entrepreneurs
- Scholarships for young entrepreneurs and business owners
- Entrepreneurship toolkit for business owners with disabilities
- LGBTQ+ business grants and resources
Use your business plan to determine how much capital you need to realistically start and scale your business.
Crowdfunding and peer-to-peer lending
Crowdfunding and peer-to-peer lending are other funding options to consider. With rewards crowdfunding, the person/business asking for money typically solicits funds from a group of people and offers a reward or something in exchange for the money. For example, in exchange for a $20 investment to help get your business off the ground, you might promise the investor a free appetizer once you’re open. There are also non-rewards crowdfunding sites that simply solicit donations from the public.
You can set up crowdfunding through an online platform, such as Kickstarter, but be aware these sites typically take a percentage of what’s raised. Some sites are “all-or-nothing” fundraising. That means that unless you raise your specific goal amount, you won’t get any funding, and your backers won’t be charged for their pledge.
Peer-to-peer lending works slightly differently. With this type of restaurant financing, there are also typically digital platforms involved. These platforms connect the borrower (you, the restaurant owner) with individuals who are providing the loans. These sites typically offer relatively low interest rates but may have more stringent terms if you default on a loan.
Crowdfunding and peer-to-peer lending provide alternatives to more traditional loan options. With crowdfunding, you can make the public feel like they’re a part of helping your business get off the crowd, which could help you build strong relationships with future customers. But there’s also the risk of disappointing funders if your business doesn’t deliver what you promise through the campaign site, which is something to consider.
Restaurant investors or partnerships
Another way to get money up-front to open your restaurant is to find an investor or partner who can provide funding. Investors provide capital upfront in exchange for a percentage of the restaurant’s ownership, or for a future return. With investors, they typically aren’t involved in the day-to-day decisions of the restaurant, but you will likely sign an agreement with them about the terms of the return on their investment.
Partners are typically more involved in the decision making of a restaurant. There are different types of partnerships to consider, from 50/50 partnerships where you split ownership of the restaurant, to more limited partnerships where the partner isn’t as involved.
If you consider an investor or partnership, think about how much control you want to retain over the restaurant strategy and operations. If you prefer full control, a partnership or investment that involves operational control may not be the best choice.
Cost-saving tips for a restaurant setup
Once you enter the startup phase for your restaurant, there are other ways to save money as you get up and running. Some tips include:
- Optimize the location selection based on affordability and potential foot traffic
- Explore cost-effective restaurant interior design and décor options
- Consider refurbished restaurant equipment and furniture to reduce startup costs
- Prioritize essential equipment
- Avoid unnecessary purchases
- Create seasonal menus for more cost-effective produce costs
- Explore leasing restaurant equipment options for expensive machinery
- Consider buying used equipment from reputable sources
You can start with a lean mentality, and as your business generates revenue, make upgrades to equipment, décor, and other parts of your restaurant. For staffing, you can also put in sweat equity yourself to decrease staffing costs, at least in the beginning.
Building customer loyalty
To ramp up sales and turn your restaurant into a profit-making operation, it’s important to welcome each customer in and provide excellent customer service that can turn them into a repeat diner. Train staff to provide exemplary service so customers will want to return.
You can also create and implement loyalty programs and promotions that reward customers for repeat business. It’s easy to do this with the right restaurant point-of-sale (POS) system, so when customers pay, they automatically accrue loyalty points and can cash in on rewards on the spot.
Also, ask for customer feedback so you can keep doing what you do well and improve on any issues. Wondering how to encourage customer feedback? Mention at checkout that you’re a new business and would love to hear what customers thought. You can also mention review sites you have a presence on, such as Google and Yelp, to let customers know you always appreciate honest reviews for your new business.
Launching your new restaurant is easier with the right tools
A powerful tool that can help your restaurant launch be successful is your POS system. Clover’s restaurant POS features support entrepreneurs who are starting a food business, with capabilities such as:
- Easy restaurant ordering and modification, with instant connection to the kitchen
- Secure payment acceptance for a variety of platforms
- Table mapping to coordinate order delivery
- Data and insights for team performance, sales, and other financial categories
- Inventory management
- Online ordering
- Automatic scalability as your business grows
Why wait? Get started with a Clover POS system today to elevate your business.
This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.
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