Funding Tips for Food Sector Businesses

The food sector, unlike the beleaguered retail sector, is currently doing really well in the United States.

As urban populations swell, the consumer demand for convenient takeout as well as fine dining is rising. Opening a new restaurant or a home bakery can be lucrative if done right. As with all businesses, food sector businesses need to work hard to secure funding.

Investors are more scrutinizing when it comes to funding food businesses, compared to bankable IT start-ups. If you are thinking about opening a food business, here are several important tips for securing funding:

Write a Business Plan before Seeking Investors

Restaurateurs are typically chefs who know their cuisine well, but not necessarily the fine art of doing business. It’s easy to pitch a food business idea as a “new chicken joint,” or an “affordable French place.” Investors, however, are looking for more than that. The food sector is saturated with all kinds of businesses. So investors would want to know why your idea is good, and also workable. Therefore, write a good business plan before you start. If you are a decorated chef with little experience running a business, a good business plan would make you look responsible in front of investors. Remember, investors are not only looking for great chefs. Investors are looking for great businesspeople who can turn a profit, says Jason Sugarman, veteran financier, and restaurant investor. So you must show your business skills with an investment plan.

Try Doing a Pilot Test

Sometimes a business draft may not satisfy investors. Chefs who are inexperienced in anything other than cooking will find it very difficult to convince investors to shell out funding. If this is the case with you, try offering proof that your business idea is workable with a pilot test. You can, for example, serve the dishes you hope to sell out of a food cart, or as a custom-order specialty. If the menu sells well in this manner, then you can convince investors that people will definitely come to a restaurant you open.

Microloans are Great for Fast Food Restaurants

Microloans are very small loans suitable for opening very small restaurants like fast food joints. You don’t need to seek investors if you are hoping to start a small venture. A microloan is a good way to fund small food businesses without being overwhelmed with debt. Also, there are heftier SBA 7(a) and 504 small business loans that larger establishments can benefit from. These comprehensive loans are suitable for ambitious restaurants or expansions.

Crowdfund Locally

Crowdfunding is a very popular method to find money for various types of businesses, but mostly for IT companies. Food businesses may be able to crowdfund as well but on a more limited capacity. People often fund businesses online only if they get access to the product. Gadget inventors often have crowdfunding success because they can ship the item to their funders regardless of where they are located. Restaurants don’t have this option. Therefore, instead of looking for international crowdfunding, try to seek donations from locals who might be able to visit your restaurant.

Start the investment plan in stages. First obtain the necessary amount to open the food business, and then seek more funding as the business expands.