How to Open a Restaurant With No Money

Alternatives to Traditional Business Financing

How to open a restaurant with no money
How to Open a Restaurant With No Money. Pexels via Pixabay

Say you have a fantastic idea for a restaurant. Something that no one has tried yet. This dining concept is going to be huge. It’s going to amaze people and be worth a million bucks, you can feel it in your bones. The trouble is you don’t have any money (or not nearly enough) to open a new restaurant. Thanks to the recession, your credit isn’t great. What should you do? Keep your nine-to-five job and save up?

Seek out investors? Set up a table in your front yard and a sign that reads ‘open for business’?

There are ways to open a restaurant when you don’t have much money or if your credit isn’t awesome. Banks may not be willing to finance your dream, but there are others that may agree with you that your idea is great and worth investing. Sometimes it’s not what you know, buy rather who you know.  Willingness to rethink your restaurant idea into a different concept can also help you get started. By starting small with a food truck or a self-catering company, you can still think big and demonstrate to the banks, investors, the world at large, that you are serious about this dream and have what it takes to make it a success.

Costs of Opening a New Restaurant

Opening a new restaurant starts at about $50,000 - $75,000 minimum. That is for a small, simple restaurant – like a café or a diner. If don’t have that much cash laying around, you may be able to borrow on the equity of your home or other property.

 Traditional banks are probably not going to finance your restaurant dream if you have bad credit. The good news is that there are others  that may look beyond your credit score and offer you financing.  

Angel Investors

Have you ever heard of the term ‘Angel Investor’? It refers to a wealthy person who helps finance an idea or business plan.

Traditionally an angel investor will give you a certain amount of money for your business venture in exchange for ownership equity. Despite the angelic name, these types of investors don’t just give money away just to be nice. They see the value in your business idea and feel they will get something in return if they invest in it.

Angel investors don’t always have to provide cash. My second restaurant had an angel investor who helped offset the cost of our start up by refinishing the basement of an old shoe shop that he owned into a beautiful restaurant location. In return, we signed a five-year lease with him, ensuring that he had a long term tenant in the building that would then attract other tenants.

Asking family or friends for a loan or to act as silent partners in your business is another way to finance a new restaurant. However, think carefully about this option. Being in business with a family member or friend inevitably changes the dynamic of your relationship. Of course, there are lots of family run businesses that are hugely successful, so the model does work.

Have a Business Plan Ready

Is there a well known business person in your area that invests in real estate or other ventures?

He or she may be the person to reach out to about your restaurant idea. But before you approach them, do you homework first. Have a well written business plan that outlines your concept, target audience, start up cost and projected sales. This should include the type of restaurant you want to open, your identified target audience, and a detailed budget. Also include your own qualifications as a business owner. If you don’t have any restaurant experience what other types of experiences are you going to bring to your role as owner? Are you a seasoned manager? Are you great with numbers and have experience keeping books? Are you a phenomenal chef? An outgoing people person who will work the front of the house with ease and grace? Remember, you aren’t just selling your restaurant idea to potential investors; you’re also selling yourself.

 You need to demonstrate that you are capable, reliable and knowledgeable about this potential business idea.

How About a Food Truck?

A little less daunting than opening a new restaurant is starting your own food truck. Food trucks still require an initial investment: anywhere between $5000 -$25,000 for a used truck to over $100,000 for a shiny new truck. The beauty of a food truck concept is that there is low, low, low overhead. You don’t need to pay rent or electricity. You don’t need to keep a bar full of liquor stocked or hire a dozen cooks and servers. Marketing can be done exclusively on social media, negating the need for a website or any other traditional advertising material. Food trucks are still a lot of work and require the same attention as any small business, but the initial start-up costs are far less than a traditional restaurant. Learn how to use social media to effectively promote your food truck business.

Start With a Catering Business

Opening a new restaurant requires a lot of planning and implementation, along with a lot of money. To that end, it’s really important that you are fully committed to being a restaurant owner. An easy way to ‘try on’ owning a restaurant is to do some self-catering jobs. Catering events, even small home parties, still requires all the elements of running a restaurant including menu planning and pricing, marketing, budgeting, food preparation, customer service, as well as insurance and bookkeeping. If, after a couple of catering jobs, you still feel excited and committed to opening your own restaurant, then go for it!

Opening a new restaurant doesn’t have to cost a lot of money or require traditional bank financing. Reaching out to potential investors is one way to secure the necessary capital for a restaurant. Starting smaller with a food truck or a catering business is another avenue that will put you on the path you’re your own restaurant. Remember, no matter which route you choose to get your new restaurant opened, but the real secret to success lies in ​keeping it open.