Few people can afford to open a restaurant out of pocket, but since there are always new eateries popping up, where does the money come from? Some particularly brave restaurateurs have sold everything they own and started their businesses with their own money. Others seek out business partners to invest. Restaurant loans are a third way to raise money, and they’re a great way to launch a restaurant. Explore your options for a restaurant loan and the things you should think about if you want to open a fancy restaurant or a laid-back diner by reading on.
What are restaurant business loans?
Business loans specifically tailored to the specific requirements of restaurant operators are known as restaurant loans. Loans for restaurant businesses can be used to finance both immediate and long-term objectives.
While some restaurant loan programs are best suited for newly established restaurants, others are designed for entrepreneurs who have at least one to two years of experience running their businesses.
Repayment terms and qualification requirements can differ significantly depending on the lender and kind of small business financing you choose. However, keep in mind that, generally speaking, loans for restaurant businesses can be more difficult to obtain because lenders may consider the restaurant industry to be riskier than other business categories. However, there are restaurant financing options available with less stringent income or minimum credit score requirements.
Restaurant loans: common use cases
When used to finance restaurants, business loans have the advantage of being extremely customizable to meet almost any kind of need. Some of the most common use cases include:
When launching new services or opening a new location, get a restaurant business loan.
If you’re prepared to expand, restaurant loans can be a huge assistance. For instance, to meet the growing demand from customers, you might want to open a pop-up restaurant to test some of the new recipes you’re developing or establish a brand-new location across town. Alternatively, you might want to consider going into the catering business as a side gig. In these cases, financing options for restaurants, such as loans, could be used to acquire a new location, purchase equipment, or fund a publicity campaign.
Remodeling an existing location
When you want to update the interior or exterior of your cafe, restaurant, or bistro, knowing how to obtain funding for a restaurant with a loan is also helpful. A restaurant business loan can assist with a wide range of projects, from time- and money-consuming ones like adding an outdoor patio, a new logo for the signage, or a banquet room, to more complex ones like painting or new drapes.
Upgrading your kitchen equipment
The operations of your restaurant behind the scenes depend heavily on your equipment. You couldn’t keep providing your customers with the food they want without it. It can be costly to replace ovens, ranges, stand mixers, refrigerators, coolers, espresso makers, or other appliances. You can pay for the costs of maintaining, upgrading, and repairing equipment when necessary by using a restaurant loan, particularly one designed for financing restaurant equipment.
Using a restaurant loan to grow your staff
Being a restaurant owner means that you depend heavily on assistance. You may rely on managers, chefs, wait staff, bartenders, busboys, dishwashers, and host staff to keep your patrons satisfied and coming back for more. With the help of a restaurant loan, you can hire and train new staff members if your business is growing faster than you can manage or if you’re expanding geographically and need all hands on deck.
Handling seasonal fluctuations in business
While many restaurants have seasonal ups and downs, some are consistently busy throughout the year. Loans and other restaurant financing options can be helpful in both situations. For example, you may use a working capital loan to cover your overhead costs during the slow season. These costs can range from rent and payroll to utilities and insurance. You could use a restaurant loan to hire employees or stock up on inventory as the season starts to pick up.
Restaurant financing: what are your options?
There’s more than one type of restaurant financing. Here are six loan options that you may want to think about if you’re in the market:
A term loan is a loan with interest that must be repaid over a certain period of time. Restaurant owners can use term loans to finance longer-term investments in their company or to cover short-term costs.
Term loans can have fixed or variable interest rates and may or may not require collateral. Terms of repayment can range from three months to five years. Generally, you can borrow between $25,000 and $500,000, though some online lenders will let you borrow as little as $5,000 or as much as $1 million.
If you have an urgent cash flow gap that needs to be filled, like paying an outstanding invoice to a vendor or paying insurance premiums, a short-term loan might be a good choice for financing your restaurant. If you can pay back this kind of business term loan in less than a year, that’s preferable. However, if a restaurant needs to borrow more money or needs more time to pay it back, or if it wants to refinance some existing debt, a long-term loan might be a better option.
Restaurant equipment financing
Restaurant equipment financing, as the name implies, refers to loans that assist restaurant owners in purchasing equipment. It is typically possible to borrow up to 20100% of the cost of the equipment, which acts as collateral for the loan. Upon complete repayment of the loan, interest included, the equipment becomes the sole property of the business.
Certain loans for equipment might have long repayment terms of ten years or longer. That sounds good if you want to keep the payments manageable while taking out a larger loan. The drawback of this restaurant financing option is that you could end up paying more in interest over the course of the loan if you extend the repayment term.
Inventory financing
Inventory is necessary for your restaurant to run, but the cost of food and drink can significantly reduce your cash flow. With a short- or medium-term loan, inventory financing is intended to be a source of funding for restaurants, enabling you to buy the inventory you require when you require it.
The inventory itself acts as the collateral for the loan. That’s both an advantage and a disadvantage. It’s advantageous since no other assets need to be pledged as collateral. However, this may make it more challenging to be approved for inventory financing because lenders will want to be sure you can sell the inventory to make money to pay back the loan. Another possible drawback is that, in comparison to other forms of restaurant business loans, inventory financing may have higher interest rates.
Working capital loans
For restaurant owners who can pay back a loan quickly, working capital loans are a flexible financing option. These loans are intended to cover urgent expenses like making payroll or paying suppliers and vendors. You might be able to borrow up to $500,000 in working capital, depending on the lender, but these loans might have higher fees or interest than other restaurant loans.
Business lines of credit
If you need to raise capital for multiple restaurant projects, a business line of credit might be a good choice. A line of credit is a revolving line that, so long as you have available credit, you can draw against over time in place of a lump sum of funding.
In that regard, a business line of credit might be the restaurant industry’s most adaptable financing choice. You only pay interest on the amount of your credit line that you use, and you can use it as needed. In terms of operation, it functions similarly to a business credit card, but a line of credit might have a higher limit and a lower interest rate.
But, there are downsides. You have the option to keep your line of credit open or draw against it by paying an administrative fee. Moreover, a business credit line might only be available for a certain amount of time. Your credit line might then be closed, and in order to use it after that, you’ll need to apply for a new one.
Small Business Administration (SBA) loans for restaurants
New and existing restaurants can apply for loans backed by the Small Business Administration. With a maximum loan amount of $50,000, microloans are typically preferable for new businesses or eateries with lower capital requirements. Restaurants can obtain up to $20 million in capital for the purchase, construction, or renovation of commercial real estate through SBA 7(a) loans and the CDC/SBA 504 program.
It’s crucial to remember, though, that qualifying for SBA loans can be difficult, and receiving funding could take months. You must meet minimum credit score requirements and provide collateral and a personal guarantee in order to be eligible for this kind of restaurant business loan. To be considered a small business, you must also meet the size standard, which is determined by your net worth, yearly revenue, and number of employees. Furthermore, your eatery needs to have a valid license, run in the United S. , and in order to be eligible for an SBA loan, you must have run out of other financing options.
Merchant cash advances
You can borrow money against future debit and credit card receipts for your business by using a merchant cash advance. If credit and debit card sales at your restaurant are consistent each day, this is a convenient method of financing.
The flexibility of merchant cash advances allows you to borrow anywhere from 50 to 250 percent of the average credit card sales for your restaurant. Merchant cash advances have a fairly easy payback schedule: daily payments are deducted from your credit and debit card sales. Funding can be obtained within one or two business days, and it might give you more purchasing power than a credit card or loan.
That convenience may come with a high price, however. The cost of loans for merchant cash advances is calculated using a factor rate as opposed to an annual percentage rate. In comparison to other borrowing options, the effective annual percentage rate (APR) may be significantly higher depending on the amount borrowed, the factor rate, and the time period allotted for repaying the advance.
How to prepare to get funding for a restaurant
When requesting restaurant financing, there are two main things to consider: the loan terms and the qualifying requirements.
Qualifying for a restaurant loan
Decisions about the approval of restaurant business loans can be influenced by a number of factors. When thinking about how to finance a restaurant, it’s critical to bear in mind some of the requirements that lenders have. These include:
- Your restaurant’s operating history
- Revenues and profitability
- Personal and business credit scores
- Collateral
Examine your personal and business credit before applying for a restaurant business loan to gain an idea of how risk-averse lenders may view you. Organize your financial statements, such as the profit and loss and cash flow statements, which give lenders an idea of your capacity to repay loans. If your restaurant is more recent, check your business plan to ensure that you have included a clear strategy for turning a profit.
Shop around with different lenders to compare terms. Specifically, zero in on:
- How much you can borrow
- How long you’ll have to repay a loan
- The interest rate and fees
- Collateral requirements
- Personal guarantee requirements
The annual percentage rate (APR) is the best way to assess your restaurant financing options because it can be challenging to compare different loan products (like a term loan and merchant cash advance) on an apples-to-apples basis. The APR is essential for choosing the best loan offer because it provides you with the annual percentage rate, which includes all fees and service charges.
Last but not least, you should think about how soon a restaurant loan can be funded. You might not have time to wait two to three weeks for the review and processing of your loan application if your restaurant needs money right away.
Restaurant business loans from Funding Circle
Restaurant owners who have been in operation for at least two years can apply for term loan funding from Funding Circle. Take out a loan with flexible conditions and pay it back over a period of six months to five years.
After submitting your documentation, loan decisions can be made in as little as 24 hours, and money can reach your account in as little as 10 days. Funding Circle offers transparent fees and rates along with fixed monthly payments for restaurant term loans.
Apply right away if a Funding Circle term loan seems like a good fit for your eatery. Or, learn more about how we compare to other lenders.
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The author, writing in her personal capacity, is the only source of the views and opinions expressed in this article. They don’t claim to represent Funding Circle’s viewpoints or opinions.
This content is not intended to be used as financial, tax, legal, or HR advice; rather, it is provided for informational and educational purposes only. It is not intended as a substitute for professional advice.
All loan offers and requirements are contingent upon credit approval and are subject to change at any time.
Loans to residents of California are made by FC Marketplace, LLC in accordance with its California Financing License (No 6054785).
FAQ
How much of a loan can I get for a restaurant?
Loan amountsUp to $5,000,000Starting interest ratePrime + 3. 00%Term%20lengthUp%20to%20300%20monthsMinimum%20time%20in%20business24%20months%20(recommended) Minimum%20credit%20score680%20
Can I use SBA loan for restaurant?
SBA 7(a) loans and SBA 504 loans are the two loan options available to restaurants from the Small Business Administration (SBA). The most common kind of SBA loan are 7(a) loans, which have a maximum amount of $5 million. They work best for more established, larger restaurants that require less expensive financing for commercial real estate.
How much money do you need to get a loan to start a business?
A traditional lender, such as a bank, will only fund projects with an annual revenue of at least $100,000, though most lenders have higher standards. If your income isn’t that high, you still have options. Some alternative lenders will take as little as $33,000 to $50,000 in annual revenue.
What is the quickest way to get a business loan?
Working with a lender that provides fast business loans is the fastest way to obtain one. A loan can normally be approved and funded by these lenders in as little as one to two business days. Online lenders usually offer the fastest lending times.
Read More :
https://www.fundingcircle.com/us/resources/restaurant-business-loans/
https://www.webstaurantstore.com/article/74/restaurant-startup-loans.html