Giving Up Equity in Your Restaurant? Run This Math First

Growth Capital

October 23, 2026 · 11 min read · Build&Fund Team

You found the space for a second concept, or the patio that would pay for itself by July. The bank wants more collateral than you have. Then a regular who loves the place leans across the bar and says it: I will put in $150,000 for 30%.

Here is the honest short answer. Equity is the cheapest money a restaurant can take if the restaurant fails, and the most expensive money it can take if the restaurant works. An investor who owns 30% does not get repaid. They get paid. Every year, out of your profit, for as long as they own the stake, plus 30% of whatever a buyer pays if you ever sell.

Run the math on a restaurant that clears $100,000 a year (illustrative). Thirty percent is $30,000 a year. Your investor has their $150,000 back by year five, has collected $300,000 by year ten, and $600,000 by year twenty. A Small Business Administration 7(a) loan for the same $150,000, even at the highest rate SBA allows today, costs about $268,800 in total. Then it is over (Build&Fund calculation, shown below).

Below: how investors get paid, the full math, the fine print, how equity stacks up against debt, and when a partner is the right call. Still comparing every source of money? Keep our guide on how to get funding for a restaurant open in another tab.

How restaurant investors actually get paid

Debt is rented money. Equity is a sale. In a straight split, selling 30% of your restaurant means the investor owns 30% of the company: 30% of every profit distribution and 30% of the proceeds if the restaurant is ever sold. There is no payment schedule and no payoff date. The stake lasts until you buy it back, on terms they accept.

Many restaurant deals are not straight splits. A December 2025 guide from Davidoff Hutcher & Citron, a New York hospitality law firm, lays out the common add-ons: a preferred return paid before the owners share profits (its example is 6 to 10% a year on the investor's capital), and a return of capital, where investors get their money back before profits are split.

And your investor is probably someone you know. In the Federal Reserve Banks' 2026 Small Business Credit Survey report on employer firms, just 2% of small employer firms received an equity investment in the prior 12 months. Among the firms that did, 58% got it from friends or family and 23% from angel investors (firms could name more than one source). That makes the math harder to say out loud, and more important to run.

What equity gets right

No monthly payment. A slow January cannot trigger a missed payment, because there is no payment.
The investor shares the downside. If the restaurant closes, a pure equity stake is not a debt you owe back.
The right partner brings more than cash: a chef, an operator, a landlord relationship, or a following.

Run the math: what 30% really costs

Start with what the investor is really buying: your profit. The National Restaurant Association's 2025 Restaurant Operations Data Abstract, built from more than 900 restaurants, reports a median income before taxes of 2.8% of sales for full service and 4.0% for limited service. At 4%, a restaurant doing $2.5 million in sales clears $100,000. That is our example: $150,000 raised for 30%, $100,000 a year in profit, held flat. Growth only makes equity more expensive.

Thirty percent of $100,000 is $30,000 a year. That is a 20% cash return on the investor's $150,000, every year, with no end date. Now the debt route. SBA caps the variable rate on a 7(a) loan of $50,001 to $250,000 at the base rate plus 6.0%, with its maximums pegged to the prime rate. The Federal Reserve's H.15 release showed prime at 7.00% on October 19, 2026. At that 13% ceiling, a $150,000 loan over 10 years runs about $2,240 a month and about $268,800 in total, including about $118,800 in interest (Build&Fund calculation). Your negotiated rate can be lower.

Build&Fund calculation, illustrative: $150,000 for 30% equity, $100,000 flat yearly profit, cumulative payouts to the investor. SBA bar: 7(a) at its rate cap, prime 7.00% (Federal Reserve H.15, Oct. 19, 2026) plus 6.0% (SBA), 10 year payoff, principal plus interest. Sale proceeds excluded.

Key Insight

With 30% of $100,000 a year, your investor is made whole in year five. The equity payout passes the full cost of a max-rate SBA loan in year nine. Every year after that, plus 30% of any sale, is pure price. Debt has a finish line. Equity does not.

Then there is the exit. Whatever a buyer pays for your restaurant someday, 30% goes to your partner: $30,000 of every $100,000. And $150,000 for 30% quietly values your whole restaurant at $500,000, five times our example profit (Build&Fund calculation). If no buyer would pay that today, the investor may be offering a fair price. The real question is whether 30% stays cheap after the money does its job.

Restaurant owner in a chef coat leaning on the kitchen pass at the end of the night, looking out at the empty dining room — The check solves this year. The stake prices every good year after it.

The fine print that turns 30% into more

1

Capital back first

If the deal returns the investor's capital before profits are split, run the numbers again. In our example, if every distribution goes to the investor until the $150,000 is back, you take home no profit distributions for 18 months. Then the 30% split starts. Total paid to the investor by year ten: $405,000 instead of $300,000 (Build&Fund calculation). Add a preferred return and the number climbs.
2

Owning 30% is not controlling 30%

The Davidoff Hutcher & Citron guide puts it plainly: control comes from your governance terms, not your percentage. Investors may hold veto rights over major decisions such as a sale, new debt, or additional locations, even as minority owners. Read every line on who approves what.
3

Taxes on profit you never paid out

In a partnership, or an LLC taxed as one, the IRS instructions for Schedule K-1 say a partner may be liable for tax on their share of partnership income whether or not it is distributed. Reinvest the profit in a second location and your investor still owes tax on 30% of it. Expect them to ask for cash to cover that bill. If your entity setup is not settled, read LLC vs. S corp for restaurant owners first.
4

Selling equity is selling securities

The SEC says raising capital from investors involves selling securities, which must be registered or exempt. Many exemptions limit or exclude buyers who are not accredited. An individual is accredited with a net worth over $1 million, not counting their home, or income over $200,000 ($300,000 with a spouse or partner) in each of the prior two years. Your favorite regular may not qualify. Use a securities lawyer.
5

There is no payoff button

You can retire debt early. SBA lists prepayment penalties only for 7(a) loans with maturities of 15 years or longer. Equity has no payoff amount. Buying a partner out takes their agreement, or a buyout formula you wrote in before you signed.

The cheapest money if you fail. The most expensive money if you win.

Equity vs. the alternatives

Option	How you repay	What it costs	Paid from
Investor, 30% equity	Never repaid. They own 30% until you buy them out	30% of every distribution and of any sale. In our example, $300,000 by year 10, and it keeps going	Your profit and your exit
SBA 7(a) loan	Monthly payments, 10 years or less for most loans	Capped at prime plus 6.0% for $50,001 to $250,000 (13% today). About $118,800 in interest at the cap	Your bank account, monthly
Merchant cash advance	Daily or weekly debit until a fixed payback is met	A factor rate sets the payback up front	Your daily sales
Capital + Customers	Only as new diners come in and redeem food and beverage credit	No interest, no factor rate	New guests, never a daily card pull

Sources: SBA 7(a) terms, conditions, and eligibility (updated September 2026); Federal Reserve H.15, prime rate 7.00% on October 19, 2026. Equity and loan figures are Build&Fund calculations on the illustrative example above.

The trade is plain. Debt demands a payment in your worst month and ends on a date. Equity asks nothing in your worst month and never ends. Match the money to the job. If your restaurant already rings steady sales, compare the options that leave your ownership alone before you sell a slice: our breakdowns of merchant cash advance alternatives and revenue-based financing for restaurants walk through the costs.

See where your restaurant lands.

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See If Your Restaurant Qualifies

When giving up equity is the right call

Take the investor only if most of these are true

The restaurant does not exist yet, or has no cash flow to cover a monthly payment.
The partner brings something money cannot buy: a chef, an operator, a lease, or a following.
You ran the payout at double your projected profit and still like the deal.
The agreement spells out control, the order of distributions, tax distributions, and a buyout formula.
A securities lawyer has reviewed how you are raising the money.

Skip it when you run a proven restaurant and need growth capital for a defined project: a patio, a renovation, a slow season. That is a cash problem with an end date, and it deserves money with an end date. Start with our guide to restaurant working capital, then size the project before you size the check.

Host welcoming a group of new guests at the front door of a busy restaurant on a weeknight — New diners are the engine of Capital + Customers. You repay only as they come in and redeem, never from the sales you already ring.

The other way to fund growth: repay with new diners, not your sales

Build&Fund backs great restaurant operators with new customers through their doors and the capital to handle them. Through our capital partners, qualifying restaurants get access to $10,000 to $50,000+ in initial funding, in exchange for future food and beverage credit. You repay only as new diners come in and redeem that credit. Not a percentage of the sales you already ring. Not a daily card pull. Never a cash payment.

One document starts your review: your POS sales report. Decisions move fast, and approved operators are funded within days. For qualifying operators, second rounds can quickly scale to six figures. No credit check. No personal guarantee.

Who qualifies: $500K+ in annual sales and a 4.0+ Google rating. Every food and beverage establishment can qualify: full service, quick service, bars, and cafes.

From application to funded

1

Confirm you clear the bar

$500K+ in annual sales and a 4.0+ Google rating.
2

Submit one document

Your POS sales report. No credit check, no personal guarantee.
3

Fast decision

Decisions move fast. No weeks of back-and-forth.
4

Funded within days

$10,000 to $50,000+ to start, through our capital partners.
5

Repay only as new diners redeem credit

Food and beverage credit, never in cash.
6

Scale as it proves out

For qualifying operators, second rounds can quickly scale to six figures.

You back your regulars every night. Let us back you.

Funding through our capital partners, repaid only as new diners come in and redeem, never skimmed off the sales you already ring. See if your restaurant qualifies to be backed.

Apply to Get Backed

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Frequently Asked Questions

Should I give up equity in my restaurant?

Only if the deal still works at double your projected profit. In a straight split, an investor who owns 30% of a restaurant earning $100,000 a year collects $30,000 a year with no end date, plus 30% of any sale (Build&Fund calculation, illustrative). Equity fits a new concept with no cash flow, or a partner with skills money cannot buy.

How much equity should I give an investor?

Divide the check by what your restaurant will be worth after the money comes in. $150,000 for 30% values the whole business at $500,000 (Build&Fund calculation). Davidoff Hutcher & Citron, a New York hospitality law firm, describes a typical pattern in independent restaurants where founders keep a controlling stake, for example 60 to 80%.

What is a fair percentage for a silent partner?

There is no standard number. A silent partner adds only capital, so price the stake on what the restaurant is worth today and compare its 10 year payout with the total cost of a loan for the same amount.

How do restaurant investors get paid?

Through profit distributions and a share of any sale. Many deals add a preferred return, which Davidoff Hutcher & Citron illustrates at 6 to 10% a year on contributed capital, or return the investor's capital before profits are split. In an LLC taxed as a partnership, IRS instructions say a partner may owe tax on their share of income whether or not it is distributed.

Is a loan cheaper than giving up equity?

In our example, yes. A $150,000 SBA 7(a) loan at its current 13% rate cap costs about $268,800 in total over 10 years, while a 30% stake passes that amount in year nine and keeps paying out (Build&Fund calculation). If the restaurant fails, the loan is still owed and the equity is not.

Do SEC rules apply if a friend invests in my restaurant?

Yes. The SEC says raising capital from investors involves selling securities, which must be registered or exempt. Under the Rule 506(b) exemption, you can sell to no more than 35 non-accredited investors in any 90 days and must file Form D within 15 days after the first sale. Have a securities lawyer paper the deal.

Is there restaurant funding that is not repaid from card sales?

Yes. Through our capital partners, Build&Fund backs qualifying restaurants with $10,000 to $50,000+ in initial funding in exchange for future food and beverage credit, repaid only as new diners come in and redeem it. It is not a daily card pull and never a cash payment. There is no credit check and no personal guarantee. You qualify with $500K+ in annual sales and a 4.0+ Google rating.

Build&Fund Team

Accountants are historians. We are hunters. Build&Fund finds the money hiding in your restaurant, bar, or club.

Build&Fund helps restaurant, bar, and hospitality operators recover and grow capital. This article is educational content, not financial advice. Costs, fees, and terms vary by provider and by your restaurant's numbers. Confirm any figure with the provider and a qualified financial professional before you sign.