The Restaurant Funding Playbook: Capital Strategies from Industry Insiders
In the competitive world of restaurants, securing the right financing can make or break your culinary dream. As restaurant consultants who've been in the trenches ourselves, we at Craft and Counsel understand that raising capital is often the most challenging part of launching or expanding your restaurant concept.
The Financing Landscape: More Options, More Complexity
The days of simply walking into your local bank for a business loan are long gone. Today's restaurant entrepreneurs face a dizzying array of financing options—some beneficial, others potentially toxic to your business's long-term health. Let's cut through the noise and examine the key funding strategies available to restaurant owners in today's market.
Traditional Equity Partnerships: Sharing the Dream (and the Profits)
Taking on partners remains one of the most common ways to fund a restaurant. Partnerships typically come in two flavors:
Active Partners: These individuals contribute both capital and sweat equity, often taking on operational roles within the business. An active partner might manage front-of-house operations, handle the books, or even chef alongside you.
Silent Partners: These investors provide financial backing but stay out of day-to-day operations. They're betting on your expertise while expecting a return on their investment.
Pros:
No debt payments that strain cash flow during critical early months
Partners often bring valuable expertise and connections
Shared risk means you're not bearing the entire financial burden alone
Cons:
Diluted ownership means sharing control and profits
Potential for relationship strain when business challenges arise
Complex exit strategies if partnerships deteriorate
Remember that any equity arrangement requires clear documentation of ownership percentages, profit distribution, decision-making authority, and exit strategies. A handshake deal with your brother-in-law might feel comfortable today but can lead to disaster tomorrow.
SBA Loans: The Government-Backed Option
Small Business Administration (SBA) loans remain one of the most favorable financing options for restaurants with qualified owners. These government-guaranteed loans typically offer more favorable terms than standard commercial loans.
Pros:
Lower down payments (often 10-20%)
Longer repayment terms (up to 25 years for real estate)
Competitive interest rates
No balloon payments or prepayment penalties on most programs
Cons:
Extensive paperwork and longer approval process
Personal guarantee requirements
Strict eligibility criteria
Collateral requirements
SBA loans work best for operators with strong credit histories, some collateral, and the patience to navigate a more complex application process. The payoff comes in terms of more manageable repayment terms that won't strangle your early cash flow.
Traditional Bank Loans: Higher Bar, Better Terms
Conventional bank loans have become increasingly difficult for restaurants to secure, particularly for first-time owners. Banks view restaurants as high-risk ventures, and their lending criteria reflect this caution.
Pros:
Competitive interest rates
No equity sacrifice
Building valuable banking relationships
Potential for future credit lines as the relationship develops
Cons:
Typically requires 20-30% down payment
Extensive collateral requirements
Strong personal credit and industry experience usually required
Often includes personal guarantees
Most successful bank loan applications involve experienced operators with proven track records or significant personal assets. First-time restaurant owners often find traditional bank loans out of reach unless they have substantial collateral or stellar credit.
Alternative Lending: Fast Cash at a Price
When traditional loans aren't available, many restaurateurs turn to alternative lenders. These include merchant cash advances (MCAs), revenue-based financing, and various online lending platforms.
Pros:
Quick approval process, often under 48 hours
Less stringent credit requirements
Minimal paperwork compared to traditional loans
Accessible to newer businesses or those with credit challenges
Cons:
Significantly higher costs—effective APRs can range from 30% to over 100%
Daily or weekly payment structures that can strangle cash flow
Often include aggressive collection practices
Complex fee structures that obscure the true cost
The appeal of alternative lending lies in its accessibility, but the high costs can create a debt cycle that's difficult to escape. These options should generally be considered short-term solutions for specific growth opportunities rather than long-term financing.
POS Provider Financing: Convenient but Costly
Many point-of-sale providers now offer financing options directly through their platforms. Companies like Toast Capital, Square, and Clover provide funding based on your processing history.
Pros:
Streamlined application process integrated with your POS
Funding decisions based partly on your actual sales data
Repayment automatically deducted from daily sales
No fixed payment amounts—you pay more when sales are strong, less when they're weak
Cons:
Generally higher costs than traditional loans
Limited funding amounts based on processing volume
Creates dependency on staying with that specific POS provider
Automatic deductions can complicate cash flow management
These options work best for existing restaurants seeking smaller funding amounts ($5,000-$100,000) for specific needs like equipment upgrades or minor renovations rather than major projects or startups.
Crowdfunding: Community-Backed Restaurants
Platforms like Kickstarter, Indiegogo, and specialized restaurant crowdfunding sites have helped launch numerous dining concepts. This approach lets restaurateurs pre-sell experiences, merchandise, or small equity stakes to many investors.
Pros:
Creates built-in customer base before opening
Validates concept before significant capital investment
Can generate marketing buzz and community connection
No repayment required for reward-based crowdfunding
Cons:
Success typically requires substantial marketing effort
Most campaigns raise relatively modest amounts ($20,000-$50,000)
Rewards fulfillment can become burdensome
Equity crowdfunding involves complex securities regulations
Crowdfunding works best when combined with other financing sources and when you have a concept with strong emotional appeal or a robust existing community to activate.
Equipment Financing and Leasing: Asset-Specific Solutions
Rather than financing your entire operation through one source, equipment financing allows you to spread the cost of specific assets over time.
Pros:
Preserves working capital for operations
Often requires minimal down payment
May include tax advantages
The equipment itself serves as collateral, potentially eliminating personal guarantee requirements
Cons:
Higher interest rates than traditional loans
Eventually costs more than purchasing outright
May include maintenance contracts and other requirements
Early termination can be expensive
Equipment financing makes particular sense for high-cost items with long useful lives, while leasing often works better for technology that quickly becomes obsolete.
A Better Way: inKind Capital
After helping dozens of restaurant clients navigate the complex world of financing—and funding our own restaurants—we've found one standout option that deserves special attention: inKind Capital.
Unlike traditional loans or merchant advances, inKind offers a fundamentally different approach to restaurant financing. Instead of debilitating interest rates or equity sacrifices, inKind purchases "Food and Beverage Credits" from your restaurant upfront.
Here's how it works:
inKind provides capital (typically $50,000 to $1 million) by purchasing credits at your restaurant
These credits are sold to local diners and professionals through inKind's app
Credit holders become your most valuable regulars, visiting repeatedly and often spending above the credit amount
You maintain 100% ownership and control of your business
There are no daily or weekly payments to make—credits are redeemed gradually over time
Pros:
No fixed payments that strain cash flow
Brings in new, high-value customers who visit more frequently
No personal guarantees required
Keep 100% ownership of your business
Quick funding process (often under two weeks)
Marketing support from inKind's platform with a network of over 1.5 million guests
Cons:
Not suitable for pre-opening concepts (you need some operating history)
Best suited for full-service restaurants with higher check averages
Requires commitment to excellent hospitality for credit holders
What makes inKind truly revolutionary is the dual benefit: financing that doesn't burden your cash flow paired with marketing that drives new business. Restaurants only pay the cost of food and beverage (typically 30-40% of credit value) as customers redeem their credits, making it the lowest cost of capital in the industry.
Over 1,800 operators—from independent restaurants to large enterprise groups—have partnered with inKind, receiving over $200 million in total funding. The model allows restaurants to service credits over time, typically over a 3-year period, while avoiding the burdens of traditional debt.
We've personally used inKind for our restaurants and have seen remarkable results. Beyond the initial capital infusion, the program creates a base of regular customers who typically spend 30-40% above their credit value and become genuine brand ambassadors.
Making the Right Choice for Your Restaurant
The "best" financing option depends entirely on your specific situation, including:
Your experience level and track record
Personal credit and assets
The specific concept and market
Your growth timeline and exit strategy
How much control you're willing to sacrifice
As restaurant consultants who've helped launch and scale dozens of concepts, we've learned that the financing decision is about more than just getting cash in the door—it's about setting your business up for sustainable success.
Toxic funding that drains your daily cash flow can kill even the most brilliant restaurant concept. Conversely, the right financing partner can provide not just capital but valuable expertise and connections that accelerate your growth.
Next Steps in Your Financing Journey
If you're ready to explore financing options for your restaurant concept, we're here to help. Our team at Craft and Counsel offers comprehensive consulting on:
Crafting investor pitch materials
Developing realistic financial projections
Structuring partnership agreements
Navigating SBA loan applications
Assessing alternative financing options
And yes, we can also introduce you to our partners at inKind if their model seems like a good fit for your needs. We've vetted them personally through our own restaurants and numerous client introductions, and we're confident in recommending their unique approach.
Financing your restaurant dream doesn't have to mean crushing debt or giving away the majority of your business. With the right strategy and partners, you can secure capital that supports rather than constrains your vision.
Contact us today to discuss how we can help you navigate the complex world of restaurant financing and find the capital source that truly serves your concept and goals.
