Bar & Restaurant News: When Does Alternative Funding Make Sense for a Restaurant?

Securing funding for a restaurant can be particularly challenging, especially when traditional bank loans — which offer favorable repayment terms — are difficult to obtain due to the perceived high risk associated with the industry. 

As reported by Bar & Restaurant News, restaurateurs who find bank loans unsuitable have alternative financing options available, such as term loans, Small Business Administration loans, online lenders, merchant cash advances, private equity lending, peer-to-peer investors and crowdfunding. These alternatives often provide more flexible terms, such as “amortization light” structures that reduce cash flow burdens and “pay-in-kind” interest features, which allow restaurants to defer interest payments until they are more financially stable.

However, the convenience and flexibility of alternative funding usually come with higher interest rates, making it more appropriate for larger restaurant groups that need significant capital for acquisitions or partner buyouts. Smaller or single-location restaurants might benefit more from local community banks, which offer lower rates and personalized guidance. While private equity firms and direct lending can bypass some bureaucratic processes, they require restaurateurs to share ownership and profits, which may not align with every business owner’s goals. Those who wish to maintain full control over their business might prefer traditional bank loans or explore online lenders and lines of credit instead.

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