A Guide to Financing Restaurant Equipment by NuMarket
In the realm of food and bev entrepreneurship, securing the necessary equipment for your brick-and-mortar restaurant is a critical step toward success. While traditional loans have long been the go-to option, an increasing number of small businesses are turning towards community financing. This guide will help you navigate the world of restaurant equipment financing, comparing traditional options to newer community-led options.
Exploring Financing Options for Restaurant Equipment
For small business owners in the food and beverage industry, acquiring essential restaurant equipment often involves exploring various financing options. Traditional routes such as bank loans and credit union financing are commonly considered. Additionally, government-sponsored loans, including those offered by the Small Business Administration (SBA), can provide favorable terms and competitive interest rates for restaurant equipment loans.
The Complexity of Restaurant Equipment Loans
Securing financing for restaurant equipment is an important moment for any culinary entrepreneur. While loans have been the conventional choice for years, it's essential to delve deeper into the intricacies and challenges they present. Restaurant equipment loans can often become a complicated journey filled with potential pitfalls.
1. The Long, Difficult Approval Process
One of the primary challenges with traditional restaurant equipment loans is the prolonged approval process. Unlike other forms of financing, where you might secure funding relatively quickly, loans often entail extensive paperwork, credit checks, and negotiations. This extended timeline can lead to delays in acquiring the equipment you need promptly, potentially hampering your business’s launch or expansion plans.
2. Tough Eligibility Criteria
Loan approval hinges on meeting specific eligibility criteria, which can be quite difficult to meet. Financial institutions typically require businesses to have a well-established credit history, a substantial down payment, and valuable collateral. For newer culinary ventures, restaurants or food businesses or those with limited credit histories, meeting these criteria can be a considerable obstacle.
3. Collateral and Personal Liability
Many traditional lenders require businesses to provide collateral as security against the loan. This collateral can encompass valuable assets such as property, other equipment, or even personal guarantees. While collateral provides security for the lender, it places substantial pressure on business owners who risk losing their assets in the event of default. Personal liability is a weighty consideration that entrepreneurs must carefully assess.
4. High-Interest Rates
Interest rates for restaurant equipment loans can vary significantly depending on the lender, your creditworthiness, and the current market conditions. For businesses with less-than-perfect credit scores, securing favorable interest rates can be a daunting challenge. High-interest rates can inflate the overall cost of borrowing, impacting your business's profitability in the long run. In 2024, interest rates are higher than they have been in years.
5. Limited Flexibility
Traditional loans often lack the flexibility that food and beverage entrepreneurs require. These loans typically come with fixed repayment schedules and terms, leaving little room for adjustments based on your restaurant's cash flow or seasonal variations. This lack of adaptability can strain your finances, especially during slow periods or unexpected emergencies, as was seen from 2020 onward.
Want to dive deeper into the different borrowing-based financing options available for equipment? Check out this great guide by Toast!
NuMarket: Redefining Food And Bev Financing
NuMarket is a refreshing alternative for food and beverage business owners seeking equipment financing. This innovative crowdfunding platform offers a departure from the rigidity of traditional loans, providing a more inclusive and flexible approach to funding restaurant equipment needs.
NuMarket's crowdfunding model revolves around community support, where contributors become your biggest supporters in your culinary journey. Instead of a loan, contributors receive 120% of their contribution back in credits to spend at your business, distributed over six months. The model is designed to be mutually beneficial for the business and their community.
Here’s why the model works so well for community-driven businesses:
Business owners get to give back to their community instead of a bank.
The amount raised is paid back on the cost of delivering the good instead of cash.
Credits are distributed over time, encouraging repeat customers.
Most customers spend more than their credits available when visiting, ultimately leading to extra revenue with every visit.
Credit usage is spread out over time, providing more flexibility than a fixed loan repayment schedule.
Success Stories with NuMarket
To illustrate the power of NuMarket, let's look at some real success stories from culinary businesses that have utilized the platform. Mamaleh's, a renowned Boston deli, raised an impressive $75,293 to fund a Rational Combi Oven. They offered their community the opportunity to be part of their growth by crowdfunding specialized ovens for speeding up their ability to make latkes and so much more.
New York-based Pica Pica, led by Chef Nadia Agsen, secured $10,801 to keep growing her intimate dinner and pop-up series and allowing her to purchase a Hobart Mixer. New England’s Tiny Arms Coffee used NuMarket to raise $21,882 to expand their coffee roasting production by purchasing a larger coffee roaster. Buenas raised $37,245 to build the Super Bien, a conceptual space for their grocery-bar, which needed equipment like a new fridge.
These businesses not only successfully funded their equipment needs but also strengthened their ties with the community and supporters who believed in their vision.
A real team that’s here to help
We have a policy on our small team of not pushing you towards a solution that isn’t right for your business. And as much as we love when businesses choose to work with NuMarket, we frequently connect businesses with other financing options when it’s the right solution for them. If you’d like our help figuring out if NuMarket is right for you, go to numarket.co and click “Get Funding”!