As you plan to start your bar, you will face many financing challenges. Bars are risky for lenders and many bars fail within months of startup. In today’s economy, getting the funding to start a new restaurant bar is harder than ever. If you don’t have startup capital saved, where can you turn to get financing?
Consider equity financing. There are thousands of companies financed each year by private or "institutional" investors in exchange for an equity ownership stake. They range from the less sophisticated "friends and family" type, to high net-worth private investors known as "angel investors," all the way up to the sophisticated professional venture capitalists.
Friends & Family – Family loans typically are made in small amounts without a lot of hassle or legal expense, but be careful. Treat the loan professionally, with a formal loan contract and repayment schedule.
- Convenient, no nonsense
- Fewest contractual strings attached
- Available quickly
- Limited one-time source of funding
- Strained family relationships and communications
Angel Investors – There are more than 250,000 high net-worth private investors in the United States that fund 30,000 small companies each year. "Angels" have earned their name by typically being friendly and patient about their investments and by providing their business wisdom and valuable relationships along with their money.
- More than money, they invest business smarts and networking opportunities
- Larger amounts of cash available than family or personal loans
- Patient about return on investments
- Often difficult to find
- Can be hard to manage the divergent interests
Venture Capitalists - If you are beyond the startup phase of your bar and have revenues coming in that encourage you to expand or replicate your bar business, you might be ready for venture capital. VCs look to get their money and profits out as quickly as possible.
- Invest business guidance and experts in addition to money
- Typically have more money if you need more to grow
- Must be a “fast growth” startup business (not for most neighborhood bar establishments)
- Must be interested in selling the business or going public
- Must be prepared to share control
It’s hard to find financing in this economy, but it’s not impossible. Get creative with the way that you plan for funding your bar and be open to different options outside of traditional debt financing. If you look carefully, you should find the right financing options to start your bar business.