Working Capital Access Defines the Success of a New Restaurant Venture

Starting a new business venture can be a daunting task in any arena, but opening a new restaurant has its own specific "roadblocks". Most all relate to rumors of failure and the lack of adequate working capital from the start. A budding restaurateur must focus on the funding necessary to not only acquire the necessary equipment and location accoutrements, but also the working capital that will buy time as word spreads about the quality of his enterprise.

Lack of adequate funding is the number one reason why new business ventures fail in their first year or in the few years that follow. Conventional wisdom maintains that only one in five ventures makes it through its first business cycle, a sad statistic that unfortunately influences most available funding sources in a negative fashion. The new and potential restaurant owner must also contend with an "urban myth" that continues to influence bankers, although studies from time to time refute the notion of 90% failure rates in the first year for restaurants.

Recent studies confirm a figure closer to 23%, or one out of four, nearly mimicking failure rates for all small businesses in the first year. After three years, the level of closures falls in the 45% to 60% range, far below the "rumored" 90% figure, and franchise models actually follow the same "rule-of-thumb". Risk-averse bankers that should be avoided in the first place perhaps perpetuate the lingering effect of the higher number. However, small business loans are available from regional development funds and community bankers with access to federal guarantees, but these may require collateral and be restricted to equipment, leasehold improvements, and inventory purchases only.

Your working capital needs can be met to a degree by what is called a merchant cash advance. This novel approach is not even considered a business loan, but it is cash advanced based on the volume your daily electronic payment history. Your merchant processor will deduct principal and interest over time from your daily receipts at a rate that works for your budget, and a good payment history will entitle you to additional funds in the future. This funding method grows as your business does, a prudent access to working capital.

Starting a restaurant requires experience and adequate access to capital. Make sure you address both factors before pursuing your life-long dream. Never forget to add another important ingredient during your endeavor, passion and fun! But note that owning your own restaurant is not only one of the most rewarding endeavors one can take part in but something that can be passed on to generations within your family for many years to come.