Funding a restaurant remodel

Two budgets, not one

Price the build and the disruption separately. Owners who budget only for construction often run short during the closure.

The construction budget includes design, permits, demolition, finishes, kitchen changes, furniture, lighting and signage. Add a contingency, because older buildings tend to reveal surprises behind walls.

The disruption budget is the gross profit you will not earn while you operate at reduced capacity or close entirely, plus fixed costs that continue: rent, utilities, insurance and loan payments. Staff retention is a third line. If you send your team home, some will not return, and rehiring costs money.

Illustrative example: a restaurant earns $90,000 a month and keeps about 30 percent after food and direct labor. A four-week full closure forgoes roughly $27,000 of gross profit while $40,000 of fixed costs still comes due. The closure alone needs about $40,000 of cash on hand.

What the remodel has to earn

A remodel should raise revenue, lower costs or both. Set a target before you sign, then check it against the spend.

Ways a remodel pays back: more seats at peak hours, a bar that lifts average check, a faster kitchen line that increases table turns, a better takeout station, or energy-efficient equipment that cuts utility bills. It does not pay back if it only looks nicer.

Illustrative example: a $120,000 remodel adds 20 seats and a bar. If 20 seats turn twice on 5 busy nights a week at a $35 average check, added weekly sales are about $7,000, or around $30,000 a month. At a 25 percent contribution margin that is roughly $7,500 monthly, so the project could pay back in about 16 months. Those are example figures. Use your own average check, turns and margin. For more on restaurant growth, see how to boost restaurant sales.

Matching funding to each part

Use equipment financing for kitchen gear, a term loan for build-out, and working capital for the closure period.

• Equipment financing: ovens, hoods, refrigeration and POS systems, secured by the equipment. See also restaurant equipment financing.
• Term loan: fixed payments for the construction and finishes.
• Working capital: rent, payroll and utilities during reduced sales.
• SBA loans: lowest cost for large projects but slower. If your timeline is flexible, they are worth comparing.

Leasehold improvements are a special case. If you rent, check how your lease treats improvements and how many years remain, since a loan that outlasts your lease is risky.

Phasing the project to protect sales

Remodeling in phases keeps revenue coming in, and it lets you borrow in smaller pieces.

Many operators remodel the kitchen first during the slowest season, then the dining room in a second phase. A line of credit can fund phases as they start, so you pay interest only on the amount drawn. See business lines of credit for how drawing and repaying works.

Schedule the reopening around a strong stretch, such as a holiday week or local event, so the new space has traffic from day one. Avoid starting a remodel just before your busiest period.

What it costs and what to compare

Compare total payback, term and monthly-equivalent payment. A cheaper rate with a shorter term can strain cash more than a longer, costlier one.

Equipment financing and term loans often carry lower costs than short-term working capital, but approval takes longer. Working capital is faster and more flexible, with a higher price. Blend them by need. Put the long-lived assets on longer terms and the short disruption costs on shorter terms.

Convert daily or weekly payments to a monthly figure and compare with expected profit from the remodel. Our daily payment conversion guide shows the arithmetic.

Permits, contractors and timeline risk

Delays cost money every day you are closed, so lock the schedule before you lock the loan.

Remodels slip. Permits take longer than expected, inspections get rescheduled and materials arrive late. Each week of delay adds to lost gross profit and fixed costs. Ask contractors for a written schedule with penalties or incentives tied to the reopening date, and check that they are licensed and insured. Get at least three bids that break out labor, materials and equipment.

Talk to your landlord early about approvals and rent concessions during construction. Tell your staff, vendors and regulars the plan. Regulars often return when you reopen if you have kept in touch, and a short social media countdown costs almost nothing. Fund the schedule you can realistically hit, plus a buffer of a few weeks of fixed costs.

Qualifying with restaurant revenue

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue, with a complete file of the application plus 3 months of bank statements.

Restaurants usually show steady daily deposits, which suits revenue-based review. Application is online, takes a few minutes, uses a soft credit pull and carries no obligation. Funds ranging from $5,000 to $5,000,000 are available in all 50 states, and on approved, complete files working capital can reach your account the same business day.