Restaurant owners interested in scaling their business are met with a variety of avenues to explore. While each comes with its own distinct set of advantages and hurdles, being cognizant of these opportunities empowers restaurant owners to make informed decisions and lay the groundwork for their business’s growth. Five effective ways to secure funding and drive the expansion of your restaurant include:

1. Seeking funding from family and friends

   The most common method of funding the expansion of a restaurant is raising equity from family and friends who share in the restaurant’s vision. With this approach, you are able to maintain complete control over the business and you avoid accruing interest and fees. However, it is important to acknowledge potential drawbacks, such as the strain it may place on personal relationships and the fact that everyone does not have substantial capital, which may limit your access to funds and hinder the rate at which you can grow.

2. Partnering with individuals for capital, expertise, or resources

   Another way to obtain funding for a restaurant is through a partnership where you share the risks and rewards of running the business. A partnership allows those involved to leverage each other's networks and reputations, amplifying the restaurant’s reach and credibility. While this form of funding often provides the most flexibility in balancing risks, rewards, rights, and obligations, it is essential to recognize the potential tradeoffs. This includes sharing decision-making power and the distribution of profits, which can give rise to conflicts or disagreements among partners.

3. Exploring bank loans

   Traditionally, well-established restaurants with robust business plans use bank loans as a source of financing for expansion. Banks particularly feel more comfortable lending to franchised brands. With bank loans, restaurants can borrow money from a bank or other financial institution and gradually pay it back with added interest. Typically, bank loans offer competitive advantages, such as lower interest rates and extended repayment terms, setting them apart from other options. However, securing a bank loan often entails providing collateral, making guarantees, and meeting strict eligibility criteria.

4. Considering selling a stake in your business for private equity funding

   Private equity funding is a form of financing that involves relinquishing a portion of ownership in your restaurant to investors who expect high returns and exponential growth potential. Private equity investors are generally only looking at opportunities that already produce operating cash flows of $2 to $5 million. Private equity investors are drawn to brands with rapid momentum and scalability. By opting for private equity funding, you can gain access to substantial capital and leverage the investors’ expertise and connections. Conversely, private equity funding requires giving up significant ownership and control over your business and introduces heightened pressure to meet lofty expectations and performance targets.

5. Utilizing support offered by local associations

   Harnessing the support of local associations and organizations is a valuable opportunity for restaurant owners looking to expand within a certain area or community. These associations are dedicated to fostering the development and growth of local restaurants and may extend support through grants, loans, mentoring programs, training initiatives, or networking opportunities. Tapping into the local knowledge and resources offered by these associations can benefit both restaurant owners seeking to expand their businesses as well as the social and economic well-being of the area. Nonetheless, it is important to realize that local associations may operate within limited financial means and scope, and they may impose specific requirements or expectations upon members.

Citrin Cooperman’s Restaurants and Hospitality Industry Practice is skilled in helping clients assess options to drive growth and achieve their strategic goals. If you are looking to expand your restaurant business and would like to discuss funding strategies, reach out to Bob Gilbert at rgilbert@citrincooperman.com or your Citrin Cooperman advisor.