April 1, 2019 | Last Updated on: July 18, 2022
Seemingly everyone has had that moment of absolute clarity when they decide nothing on earth could be a better idea than owning a bar. Everyone loves spending time with their friends and family at a pub. What could be more fun or satisfying than being the one who runs the place? It can be hard work, but if you’re truly prepared to put in the work, you can get a loan to open a bar no matter who you are.
Successful bars know what they are. They usually cater to a specific population to create a vibe. Your choices on purchasing a bar, building a new one, renovation, and inventory should all revolve around just what type of place you want to own.
Do you want a more family-friendly restaurant and bar? A rowdy sports pub? A nightclub with lots of space for dancing? An intimate cocktail bar with high-priced liquors? Do you want to start a brewery? Make sure you’re keeping in mind exactly what type of bar you’re looking for when you’re getting the loan you need.
When it comes to financing your bar, the first thing you need to do is decide whether you want to build your own bar or purchase an existing establishment. There are benefits and drawbacks to both approaches.
If you’re building a new bar, you’re probably going to need more money from the outset. That’s a big drawback. Building a new bar means purchasing property, designing the space, contracting costs, electricity, plumbing, and decor even before you start considering licensing, hiring, and inventory. That’s a ton of expenses right from the get-go.
On the other hand, buying an existing bar saves a considerable amount of money. But there are still questions you’ll need to consider. Why is this bar available now? Is it turning a profit? How is foot traffic?
If you do decide to purchase a bar, remember you may need to purchase, update, improve, or replace equipment like ice makers, refrigerators, or beer keg storage. You may need to think about renovating your bar, particularly if you’re looking to put a personal stamp on the space.
If you’re asking yourself if you can get a loan to open a bar, the answer is a clear “yes.” But depending on whether you’re choosing to buy an existing bar or build your own, you’ll need to choose from a variety of sources of funding to best match your needs, your credit history, and your plans.
United States government-backed Small Business Administration (SBA) loans can be an excellent option for those starting out. Getting an SBA loan can mean borrowing up to $5 million for any number of business uses, including land purchases, equipment expenses, hiring, and more. If you meet the eligibility requirements, SBA loans are low-interest and flexible on your spending.
Less flexible on purpose are equipment loans. If you’re renovating an existing bar and know you need to replace the walk-in refrigerator in order to keep your beer and wine nice and cold, you can apply for an equipment loan. The lender will hold the new equipment as collateral, which keeps the interest rate low. And if you fail to repay the lender, they will repossess the equipment, minimizing their risk.
Once your bar is up and running, you may want to consider taking out a business line of credit or getting a business credit card. Life as a bar owner is unpredictable. You might be in the middle of a hectic late-night rush and discover your ice machine is busted. If you’re known for your burgers, you might open up shop one day to find your flat-top grill no longer works. With a credit card or line of credit, you can get those issues fixed quickly and at minimal long-term cost.
Merchant cash advances are another option that can be appealing to bar owners. Merchant cash advances consist of an up-front payment to the borrower, who pays back the lender using a set percentage of every credit or debit card transaction. Bars are prime candidates for MCAs since so much of their business is conducted with cards. MCAs are fast (again perfect for those unpredictable emergencies), but can be more expensive than a traditional loan or line of credit.
Finally, some bar owners think it’s wise to try to raise funding with friends and family or personal loans. Using personal loans for business is a dubious strategy for any business, but particularly for a bar owner, as bars can come with financial difficulties.
It’s a fact of the business: bars need a steady stream of customers to make money. Other businesses can have the sort of massive sales or orders that keep the company afloat over the course of a year, but bars aren’t likely to have that sort of leeway. You must have people in the bar regularly in order to pay your mortgage, repay your equipment loans, and meet payroll.
On top of payroll, you’ll need to keep and eye on food and drink cost, which is the ratio of the money you spend on the food and drink in your inventory to the amount of revenue you’re bringing in. Food and drink cost is vitally important to keeping your bar afloat. If bartenders aren’t being careful with their pours or they waste drinks, you can find yourself essentially buying bottles of liquor that aren’t being sold to customers at all. And if your food cost is dangerously low, how are you going to continue paying back loans or meeting payroll?
So make sure when you’re getting your loan to open the bar, you’re showing the lender why you’re the right person to lend money. Your business plan should be thorough, professional-looking, realistic, and holistic. It should show why this type of bar is a good fit for the area, why your specific establishment is going to succeed, and how you can prove those facts.
But make no mistake, bars take hard work, which requires a sharp mind and keen eyes on profits and expenditures.
Research what makes a successful bar and be able to present lenders with a professional business plan that shows them that you know who you are. You know what type of bar you want to run. You know why people will keep coming back.
