Opening a restaurant can be an exciting and profitable venture, but it’s not cheap. Particularly in markets like Toronto, where restaurant real estate can come at a premium, bringing your entrepreneurial dreams to life will require a focused financial strategy.
On paper, business finances and personal finances are technically two different things. However, they’re not completely separate in practice – especially when it comes to getting your restaurant up and running.
In this blog, we’ll look at how your personal credit score could impact your business goals if you’re looking to buy a restaurant.
Searching for the right place to bring your vision to life? Click here to browse our selection of for-sale restaurants.
What Exactly Does it Mean to Have Bad Credit?
Before we fully dive into the basis of restaurant financing let’s look at what it actually means to have bad or poor credit. “Bad credit” is one of those terms that can mean different things to different people. However, when it comes to personal credit, it’s usually a reference to someone’s individual credit score.
A credit score is something that banks use to determine how trustworthy or reliable a loaner will be. Following a points system, credit scores can range from 300 to 900. The higher your score, the more creditworthy you’ll be in the eyes of lenders. So, if you have a less-than-ideal credit score (below 560) you could have bad or poor credit.
Finding out your credit score is fairly easy. You can contact your bank directly or use a reputable third-party reporting service.
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- Everything You Don’t Understand About Restaurant Real Estate
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How Restaurant Financing Works
Financing a restaurant (or any type of small business for that matter) can get pretty intricate. Unlock other major purchases you may have made before such as a car or a house, there’s a lot more involved than simply saving up your extra pennies and taking out a simple loan.
Instead, securing the financial resources for your restaurant can be a fairly involved process. Your bank will be closely scrutinizing your (not to mention anyone else you may be working with) goals, plans, resources, and relevant experience before deciding if they want to offer you the money needed for your restaurant. So how does personal credit play into this?
Your credit score is one of many factors that your lender will analyze as part of your application. It’s not the only deciding factor in how much financing you qualify for, but it is very influential nonetheless.
Should You Fix Your Credit First?
When it comes to restaurant financing, making a good first impression with lenders can go a long way. The good news about personal credit is that your score is never set in stone. So, if possible, it’s a good idea to improve it before you go looking for a loan or line of credit.
There are a number of ways you can do this. For instance,
- Pay your bills on time.
- Reduce and manage your credit card balance(s).
- Don’t apply for other credit products.
- Don’t close out old credit accounts.
What Else Will the Bank Look at?
Right now, lenders are being even more selective when it comes to small business financing in light of ongoing economic trends like inflation, changing interest rates, and fluctuations in labour supply. So, on top of your personal credit, the bank will also consider a handful of other factors before determining whether or not they’d like to work with you.
First and foremost, lenders will want to know about you. They’ll be interested in your specific business goals, experience in the industry, your entrepreneurial track record, and more. In other words, they’ll be looking to verify that you have the knowledge and drive to run a successful restaurant once you have the money.
After that, they’ll want to know what you’re working with in terms of capital. More specifically, how much money are you able to contribute upfront? The more capital you have, the lower the degree of risk they’ll face as a lender.
Finally, the bank will take a close look at your business plans. Highly successful restaurants don’t happen by accident – they require careful planning and preparation. The bank will want to see a well-thought-out business plan to ensure they’re making a solid investment.
Buying a restaurant soon? Explore these blogs for more advice.
- Everything You Need to Know About Buying a Restaurant With an Apartment
- Buying An Existing Restaurant? Here Are 5 Questions To Ask
- How Long Does it Take to Build a Business From the Ground Up?
Making a Seamless Restaurant Purchase
Having great credit is just one piece of the puzzle when it comes to successfully opening a restaurant. Whether you’re approaching your first-ever culinary venture or have a few previous businesses under your belt, finding the right place to realize your restaurant dreams will require guidance from professional experts. That’s where we come in.
As professional specialists, we know the unique ins and outs of commercial real estate and Canada’s restaurant industry. Not only can we help you find the perfect spot to bring your dreams to fruition, but we’ll also serve as your long-term advisor on all things restaurant-related
Looking to open a restaurant? We can help! Click to send us an email or give us a ring at 416-618-0054 to get in touch.
