So you’ve decided to become a bar owner, congratulations! Now, you find yourself in the same dilemma many creative, business-minded entrepreneurs know all too well: You need additional funds to make your dream come true. What to do?
Lucky for you, there are several options you can look into. Let’s examine each one to see which one is the right move for you.
Take out a personal loan
This is a popular option among budding entrepreneurs because it has a higher success rate and offers a greater degree of flexibility. This is your best bet if you are starting a bar from scratch or if you don’t have an established business history yet.
Unlike a business loan, a personal loan will not require you to put down collateral or provide proof of cash flow. After all, it’s difficult to show income if you don’t have it yet. Business loans also have major restrictions on how the loan is used, but a personal loan gives you more freedom.
Your personal financial history and credit score will determine your eligibility and the rates and terms of your loan. A credit score of 600 puts you in an excellent position to qualify. Documents you need to submit include but are not limited to personal identification, bank statements, W-2 or pay stubs, and tax return.
Keep in mind that personal loans are generally smaller compared to a business loan so you may need to look into more options to acquire the rest of the funding you need. We discuss more below.
Look for investors
This is an excellent solution to share the financial burden with someone else. Investors provide startup money and can bring their business management expertise to the table. For this to work, you’ll have to get comfortable with splitting profits and giving up a share of your business.
If you wish to retain control of your bar, silent investors are great because they get out of your hair after providing the funding. They might be involved in big-picture dealings and will offer help if needed, but other than that, they stay in the background and leave the daily management to you.
The catch? They might pressure you to turn a profit sooner rather than later though. They may get restless and force a sale.
Active investors will generally be more involved in the day-to-day operations of your bar in an effort to enhance the return of their investment. They can also be helpful to first-time entrepreneurs looking to make industry connections and learn the tricks of the trade.
While active investors bring their business to the enterprise, you will definitely have to give up a degree of control. Some investors might agree to simply advance capital in exchange for collateral and payback with interest or a percentage of your profits.
Turn to your friends, family, and peers
Use your connections! Do you know someone who has the resources to spare? You can start reaching out to your peers in the industry or even to friends and family. This fast-tracks your funding process by skipping the legal entanglements typically involved in a traditional loan.
If you go the family and friends route, the pitch probably isn’t going to be all that complicated. But keep in mind that money and family sometimes don’t mix. If your bar fails to take off, things might get ugly. Especially with equity involved, put everything in writing and bring in a business lawyer as a safety net.
Reach out to the world through crowdfunding
If you’ve exhausted all your connections to no avail, the internet might be your savior. Yes, you can raise money for your new bar from strangers online through websites like GoFundMe, Patreon, and Kickstarter. How great is that?
Needless to say, you will have to convince these people why they should fund your bar. Tell your story and make sure to let your passion shine through.
Transparency will get you far down this route. Be specific on how you intend to spend the money they give you and provide updates. You would be surprised at how many people would be willing to donate their own money to help you with your venture.
Depending on your campaign, you can give these backers perks or rewards in return. However, if you choose to do it via equity crowdfunding, which will easily attract investors, you are selling off a degree of ownership control over your company.
Know that you will also need to actively market your campaign, so it can be seen and gain traction fast. This will take a lot of patience and hard work.
Use your 401(k)
If you are looking to ditch the 9-to-5 life in favor of being your own boss as a bar owner, this might be something to consider if you have saved up enough from your previous jobs.
You’re staking your retirement savings here, so make sure you are 100% certain of your bar idea. Most people can get overconfident for their own good. Consult a tax attorney, if needed, and look at all angles before you take the leap.
Consider the other options presented in this article first before cracking your 401(k) nest egg.
Get funding for expensive equipment
Equipment is an essential investment for any bar operation that comes that a premium price. A lender or bank can help you purchase the required furnishings to get your business up and running through equipment financing.
Here, you receive the entire amount based on a price quote you provide to the lender. You can’t use the funding for anything other than the equipment you intend to buy.
The collateral here is the equipment itself, which is great because you won’t have to worry about paying off more in the unfortunate event that your bar goes under.
When securing your bar equipment, it is important to anticipate your needs and choose the right configuration for your establishment. For a bar, you’ll need equipment such as keg coolers, undercounter refrigerators, and commercial ice makers.
While it can be tempting to go for second-hand items, buying brand new equipment can benefit your business in the long run. Used equipment can lead to unpleasant surprises that might cost you way more than the savings you initially had. Replacement parts for last-generation models will likely be very hard to find, thus halting your operation longer than it should.
Plus, it can be difficult to find out how well it has been maintained and the service life it has left. With any luck, you might be able to track down the original invoice and check the warranty it comes with.
With brand new equipment, you enjoy more savings and peace of mind that your business runs as it should. Benefits include:
• For the higher price tag, you get equipment that is less likely to break down to avoid disruptions that can cost you precious business, especially during peak hours.
• New units are generally more energy-efficient and environment-friendly than older models
• They go for much higher resale value, especially for well-known brands
• You can count on a more responsive service department for servicing and readily available replacement parts
We are committed to protecting your investment. We have an excellent selection of brand new and highly durable products from Manitowoc ice makers to Beverage Air refrigerators that come with excellent warranties and unrivaled customer support. We make sure your purchases work their best beyond the initial quality control.
Explore the benefits of a business credit card
This is the perfect option for buying ingredients and supplies. You’ll only need your credit score as qualification, and it doesn’t have to be all that impressive either. If you are at 600, you have a good chance of getting approved. Plus, the application process is easy.
You know how you get some perks and rewards every time you swipe your personal credit card? You can enjoy the same for your bar here. You can get excellent cash back and credit for business expenses.
Consider credit card receipt financing
There are some lenders that partially base their loan on receiving part of the credit card receipts from your customers. The process basically involves selling your future credit card sales in exchange for a cash advance. A portion of each credit card sale is taken out as payment. This can be an interesting approach but can also interfere with your finances.
Financing your new bar the right way
As a rule of thumb, you should have at least six months of expenses available in the bank when you start. Most businesses fail because of a lack of financing. So either do it right from the beginning or hold off until you can.