Bars and nightclubs can be fairly lucrative businesses, and the best part is, you’re only open for limited hours. However, if you’ve been thinking about opening a bar or nightclub, there are a lot of things to think about.
The biggest hurdle is the startup costs associated with this type of business. Costs can range from around $20,000 for a small neighborhood bar to seven figures for a combo bar/restaurant, depending on the location.
The good news is that you have options for financing your venture. In this blog, we’ll explain 7 options, including various business loans.
Top 7 Loan Options
When considering your financing options, it’s important to understand that not all loans are created equal. Here are a few business loans you may want to consider:
A term loan is a traditional type of funding. You can obtain these loans through a bank, credit union, or online lender. If approved, you will receive the entire amount upfront and will pay it back over an agreed-upon term. This type of funding can be challenging, especially if you’re just getting started. However, most of the time, the interest rates are competitive, and the terms are flexible.
The SBA, or Small Business Association, partners with lenders to offer low-interest and lengthy repayment terms on business loans. This is possible because the SBA guarantees a portion of the loan in case the borrower defaults. There are several loan programs, offering up to $5 million and up to 25-year terms. These loans have many benefits but an extensive application process- typically requires good credit.
Once you have found a space for your business, unless you have purchased a turnkey operation, you will need to buy equipment. This will include things like:
- Draft lines for beer
- Brewing tools
Even if you purchase used equipment, it’s not cheap. Equipment loans are designed to cover the cost of equipment. Therefore, the equipment is the collateral used to obtain the equipment and you’ll likely qualify even if you don’t have good credit.
Business Line of Credit
While business loans are outstanding for helping you get started, it’s important to keep in mind that bars and nightclubs are typically seasonal. You will have times when you are so busy you can hardly keep up and other times when business is slow. A business line of credit will allow you to have access to funding to cover things like payroll and other expenses during these times. This type of funding is similar to a credit card. You will have access to a set amount of money. You use what you need and only pay interest on what you borrow instead of the full amount.
Commercial Real Estate Loans
The location of your bar or nightclub has a lot to do with the type of customers you will attract. Spaces in trendy or appealing areas will typically cost hundreds of thousands of dollars. Therefore, a commercial real estate loan can help you with your purchase. You can use it to purchase the space or renovate an existing space.
Merchant Cash Advances
If you’re already established, a merchant cash advance may be a good option. The lender will advance funds based on your credit/debit card sales and a percentage of those sales will be used to pay it back over time. This type of funding is much easier to get, and funding is faster than standard business loans. However, the interest rates and other fees are typically higher.
Finally, when seeking funding for your existing bar or nightclub, you may want to consider invoice factoring. This type of funding requires you to sell your unpaid invoices to a factoring company. They will advance up to 80% of the invoices upfront and they will collect from your customer. Once the customer pays, you will be given the remaining 20% minus their fee. This type of funding doesn’t require good credit- but can also be expensive.
Need Funding for Your Bar or Nightclub?
While it’s true that bars and nightclubs can be lucrative, it’s important to note that it can be expensive to get started or grow your business. The good news is, you have several business loan options that can help. If you are ready to get started, contact Scarlan Capital Group today. We can help you review your options and choose the right one to fit your needs.