We Asked: “How Did You Fund Your Restaurant?”

A version of this post originally appeared on April 22, 2024, in Eater and Punch’s newsletter Pre Shift, a biweekly newsletter for the industry pro that sources first-person accounts from the bar and restaurant world. Subscribe now for more stories like this.

One of the biggest challenges of opening a restaurant is finding the money. For some, family money or a single deep-pocketed investor is the answer. But for most hopeful entrepreneurs, finding a handful of smaller investors, securing bank loans, and crowdfunding are the only realistic options. In the interest of transparency, we reached out to restaurant owners around the country to find out how they funded their projects, learned to get savvy with loans, leaned on community, and, in some cases, have continued to operate debt-free. Here’s how they did it.  

Jumping through hoops to get an SBA loan

“We saved up as much money as we could over the 15 years we dreamed of opening Atoma, but $100,000 isn’t enough to open a restaurant. We went to a handful of banks, who basically laughed in our faces. We tried with some private investors, some folks that we knew in our network, but that was a tough road. What we ended up landing on was an SBA 7(a) loan, or a startup business loan.

Most banks will not lend to folks who don’t have two years of very successful history owning a business. But the SBA is a government-backed loan. You can get that through banks, but the government cosigns your loan with you. They guarantee 50 percent of your loan. If we were to go belly-up, the bank will still get at least 50 percent of the money back. So it’s a great option for people who haven’t been in business previously.

There are a couple of things that are tricky, though. You do have to have a 15 percent down payment, which for us looked like $150,000. We ended up borrowing from our 401(k) to make that happen. And then we jumped through the million hoops that are required to get the loan. It’s a variable rate loan, meaning the interest rate is high. We’re currently paying about 10.25 percent interest, which is enormous. But we really wanted the opportunity to be able to keep 100 percent equity, to keep control, and the SBA loan allowed us to do that.” —Johnny and Sarah Courtney, co-owners, Atoma, Seattle

Fundraising through private investors

“To call [fundraising for Claud] difficult would be an understatement. [Co-owner Joshua Pinsky and I] didn’t have experience asking for funding, so it felt scary and unwieldy. How do you go about asking people for money without a proven track record at your own business? Sure, we’d operated restaurants, but nothing of our own. We reached out to a mixture of friends, regulars, and others in our personal and professional networks. We had roughly a 15 percent success rate after reaching out to over 100 people.

We were still in the process of receiving signed agreements when the pandemic first hit, so we lost all the money we had raised to that point. Both the initial raise and our re-raise [for Claud] were brutal and humbling experiences that required a lot of acceptance in the face of rejection. Penny, our walk-in seafood spot upstairs, was a different approach. We were able to primarily use the same investor class as Claud. It felt less like starting from scratch. Our investors had seen us open one restaurant and they were down to be a part of the second one. Fifteen percent of them passed because of liquidity, and we replaced them with regulars who had come to us expressing interest.

Developing relationships with people who believe in you is critical. In some ways, the decade-plus we worked in this industry before we opened Claud [was] also spent finding people that could invest in us. I wasn’t even consciously doing this — I was simply trying to be the best sommelier I could be and take care of guests. You network through instinctual care and the ability to find that thing that makes the person feel special. Once they see that in action, they see the potential in their investment.” —Chase Sinzer, co-owner, Claud and Penny, New York City

Using a regulation crowdfunding platform

“Alma started with an SBA loan with an interest rate of 4.6 percent, nine years ago. Our landlord also gave some money for the construction because he wanted to do a whole renewal of a very historic building in Baltimore. After seven years, we paid off the loan and we were very rigorous about it. Then, while writing our arepa cookbook, the space next to Alma’s new location became available.

We’ll be opening Candela, an arepa bar, hopefully this summer. We’re doing a combination of a Crowd Fund Baltimore and another SBA loan. We love this democratic idea of crowdfunding, where people are giving a promissory loan instead of a donation. [Editor’s note: The terms are a $100 minimum investment, with 6 percent simple interest over six years, to be paid back to investors quarterly.] People being able to participate with an investment of $100 opens up a whole new world. It’s not just the banks that are profiting—it’s also the community that is profiting and enjoying a sense of belonging.

A lot of people confuse the Crowd Fund with a donation, like on GoFundMe, but it is an investment. Because when you invest, you want to make sure that it’s going great. You bring your friends and that develops more community. And it makes the business thrive. Especially in early stages, when money’s tight, having people that surround us be part of it is very cool.” —Irena Stein and Mark Demshak, co-owners, Alma Cocina Latina, Baltimore

Wonho Frank Lee

Piecing together several smaller loans

“Niki [Vahle] and I started Little Fish as a pop-up out of our house during COVID and, in December 2023, we opened a breakfast and lunch location in Echo Park. The space was ready to walk in, so we didn’t have to really figure out money for [build-out]. We just bought two fryers, which are $1,500 each. That’s not nothing, but I also worked full-time in advertising up until December of last year, so we did have income to support those smaller costs. But it is so, so expensive to start: to pay for all of the product, pay for all of the staff, pay for workers’ comp, for general liability insurance. And so before you have income, you’re tanking your credit to get open. You’re scrounging together as much money as humanly possible.

Now, we are working on a lunch and dinner location on Melrose, which is a full construction project. We’re using a combination of investments from individuals, which is a pretty small percentage, along with bank loans, small business loans, and alternative funding options, like the app InKind. [Editor’s note: InKind buys food and drink credits from restaurants and sells the credits to diners. This way, restaurants receive funding without losing any equity and diners get deals from using the app.] It’s pretty rare to find somebody who got one loan for $750,000, so piecing together smaller loans that are better deals makes sense. There are all of these non-bank, non-investor ways to piece together funding for a restaurant that don’t involve giving away equity, which has become the most valuable thing to us at the moment.” —Anna Sonenshein, co-owner, Little Fish, Los Angeles

Living lean and paying in cash

“We have three owners. Drew [Delaughter] was a GM and the two of us were chefs de cuisine, so we had good experience, but we didn’t have much money. We found an old pizza place in the Bywater of New Orleans that just sang to us. We tried to go the traditional route of finding an investor to be our fourth partner and back the restaurant, but that person ended up dropping out unexpectedly after we had already gotten the building.

We figured out the bare-bones budget we needed, if we were willing to do as much of the construction ourselves. It was a pretty small amount of money, so we started cold-calling friends and family and anybody we knew—raising $5,000 at a time until we got enough. The investors have a small amount of equity, but we only sold about 10 percent total. It actually worked to our advantage to not have a single, big investor because all of a sudden that person starts to influence your decisions.

Before we opened, we each had our own apartments, but the three of us actually moved into a three-bedroom apartment together with the idea that our collective living expenses would be smaller. For the first five to six months after opening, we only paid [ourselves] enough to cover our personal rent. We didn’t pay ourselves more than that because there wasn’t enough money to also pay all our employees while covering our expenses. We also didn’t allow ourselves to have an option for any additional debt in the restaurant. If we didn’t have the money to buy a product, then we would get something else. We paid cash-on-delivery for everything. We know for a fact that we never owe anyone money.” —Trey Smith and Blake Aguillard, co-owners, Saint-Germain, New Orleans

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