Your Guide to Restaurant Business Loans

Written by Banks Editorial Team
9 min. read
Written by Banks Editorial Team
9 min. read

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Some people dream of starting a restaurant and serving delicious food to customers. However, the restaurant industry is also challenging due to heightened competition and narrow profit margins facing pressure due to inflation. Restaurants operating under seasonal business cycles do not generate consistent cash flow to address operating costs, salaries, and other expenses. Many restaurants fail within the first few years because of inadequate financing.

However, restaurant owners have an alternative route if they do not have enough money in the bank to cover expenses. Restaurant loans allow small business owners to get the financing they need. You can use the capital to start your first restaurant, maintain current operations, or expand your business. This guide will explore the best loan options for restaurant businesses, how to qualify for one, and where to apply.

Mulligan Funding - Small Business Loans
Access loans up to $2,000,000 to cover almost any business-related expense. Competitive, flexible terms, and a manageable payment structure. Work with Human Underwriters for Lower Rates, More Capital and Higher Approvals.

Reasons for a Restaurant Business to Get a Loan

You should not rush to get a loan for the sake of it. Understanding how you will use the funds maximizes how you utilize the capital. A clear plan helps you achieve an ROI and keep everything running smoothly. Here are some of the common reasons small businesses get restaurant financing:

  • Open A New Location: Expanding your operations can be a great experience, but it can also be costly. A restaurant loan can help you cover expansion costs, such as acquiring commercial real estate, purchasing new equipment and inventory, hiring more staff, and marketing your brand.
  • Hiring More Employees: As your business thrives, you need more chefs, waiters/waitresses, bartenders, mixologists, and dishwashers to meet your growing demand. Putting too much work on your current staff can result in some people quitting and creating more gaps in your workforce. Hiring more employees ensures your restaurants can run efficiently and provide customers with a great experience. Whether your business is growing fast or you want to open a new location, a restaurant loan can help you hire and train more staff. 
  • Stocking Up on Inventory: Having enough inventory is crucial to keep your restaurant business going. Restaurant owners know they can profit from inventory, but they may need financing to obtain the necessary goods. A restaurant business loan gives you the capital you need to be prepared for the busiest times of the year. Then, you can use the proceeds from busy seasons to repay the loan.
  • Renovating or Remodeling: A commercial property can go through wear and tear over the years. Renovating or remodeling your restaurant can create a more pleasant environment for customers or add more room to shorten wait times. These modifications can also create a more productive atmosphere for employees and improve storage capabilities. With a restaurant business loan, you can do basic updates from painting to adding an outdoor patio. 
  • Buying or Upgrading Equipment: Old equipment eventually stops working, and there’s always something new in the restaurant industry. Purchasing new kitchen equipment, such as ovens, fryers, or dishwashers, is pretty expensive. Whether you’re looking to purchase a new piece of equipment or need an upgrade, a restaurant equipment loan will help you get the equipment you need to keep your business running smoothly.
  • Paying Operational Expenses: As with any other business, restaurants have operational expenses to cover, which can be high sometimes. Narrow profit margins in the restaurant industry make it more difficult to make ends meet, especially when emergency expenses arise. However, with a small business loan, restaurant business owners can cover these expenses with ease. You can get a flexible loan term that simplifies repayment instead of falling behind on operational expenses.
  • Managing Seasonal Needs: Many restaurants experience seasonal ebbs and flows, making it difficult to maintain a positive cash flow year-round. A restaurant financing option like a loan can help meet your seasonal needs. You can use a loan during the slower months and repay the balance during your busier seasons.

Rebranding and Marketing: Marketing is a critical expense for business owners that attract customers to your restaurant. Marketing also helps you retain existing customers and increase the average lifetime value of each person who walks into your restaurant. Running marketing campaigns or social media ads can be expensive. There’s also a steep learning curve if you create campaigns on your own. You will save time and probably get better results with a social media marketing professional, but those services will create more strain on your budget. With a restaurant business loan, you can rebrand and market your new business to bring in new customers and maintain current ones.

What Loans are Best for Restaurant Businesses?

A restaurant owner can use a loan to cover various expenses and gain market share. Once you know the purpose of your loan, it’s time to get financing. There are several restaurant financing options for new restaurants and established brands. 

SBA Loans

One of the most popular loans for restaurateurs is SBA loans, especially micro-loans and the SBA 7 (a) loan. 

The U.S. Small Business Administration backs these loans, meaning you have the regulatory protection you need for your startup or established business. SBA microloans are ideal for startups or restaurants needing small capital of up to $50,000. SBA 7 (a) loans have a much higher loan limit of up to $5 million.

However, it’s important to note that SBA loans are difficult to qualify for. As a restaurant business owner, you must meet various strict requirements around your revenue, experience, credit score, and other factors. Only U.S. for-profit businesses that have exhausted other financing options and have invested equity can apply. The SBA also has revenue and employee standards that you cannot exceed to qualify as a small business. The SBA’s small business standards vary for each industry. 

Even if you qualify for an SBA loan, it will take longer to get funding. The loan application process can take 30-90 days before you receive funds if you get approved. Mulligan Funding offers SBA Bridge Loans that provide financing while you wait for your SBA loan application to get approved. If your application gets rejected, you will have to repay the bridge loan in a year. 

While the SBA 7(a) loan is one of the most popular loan choices, the U.S. Small Business Administration has other types of loans. Some of the program’s loans help socially disadvantaged individuals qualify, as defined by the SBA, for financing.

Small Business Term Loans

A small business term loan is a funding solution that gives you access to money repayable within a set period of time plus interest. Restaurant business owners can use term loans to meet their short-term and long-term goals. 

A small business term loan through Mulligan Funding is one of the most flexible forms of financing. With a seamless online application, you can get approval as soon as a few hours. (1) The funding you need can be had as soon as one business day after approval. (1) Mulligan Funding lets business owners borrow any amount between $5,000 and $2 million on a 3-24 month term. You can increase the loan’s duration to strengthen your cash flow but pay more interest in the long run. Business owners can also opt for a shorter loan duration to get out of debt sooner, but this will result in higher monthly payments.

Mulligan Funding - Small Business Loans
Access loans up to $2,000,000 to cover almost any business-related expense. Competitive, flexible terms, and a manageable payment structure. Work with Human Underwriters for Lower Rates, More Capital and Higher Approvals.

Equipment Financing

Restaurant equipment financing is a loan program that can help restaurateurs purchase the equipment they need. Typically, the equipment acts as collateral for the loan, and lenders can seize it if you default. But once you repay your loan in full, you own the equipment outright.

Equipment financing is optimal for restaurant owners who plan to stay in the same area for many years. It costs more money and initially has more risks, but once you own your equipment, you no longer have to pay equipment leases. In addition, financing your equipment will free up a lot of your cash flow. While extra cash flow is very important for any business, it has greater weight in the restaurant industry, where profit margins are already low. Getting durable equipment will help you save on replacements, and if you have too much equipment, you could lease some of it to other restaurants.

Inventory Financing

Your restaurant business can’t operate without inventory. Inventory financing provides the funding you need to stock up on food and other goods. In addition, the inventory itself serves as collateral for the loan, making it easy to qualify for this type of financing. Business owners who get loans with collateral incur more risk, but these financial products have low-interest rates compared to other types of business loans.

Invoice Factoring

If you have outstanding invoices from your customers, you can sell them at a discount to a third party, usually an invoice factoring company. The invoice factoring will give you a lump sum of cash for your invoices equal to a percentage of the invoice’s face value. Your customers’ payment history, credit scores, and other details will determine how much of the invoice’s face value you receive. 

The factoring company will reach out to your customers and collect payments. This strategy lets you save time from reaching out to customers who sent invoices and gives you more capital for your restaurant. The invoice factoring company won’t even care about your credit score. Invoice factoring lets you receive invoice proceeds early instead of getting into debt. You can get paid now instead of waiting months for invoice due dates to arrive.

Working Capital Loans

A working capital loan is a short-term loan that offers businesses fast access to cash for everyday operations. Business owners often use these loans to cover payroll, rent, taxes, and other overhead costs. You can qualify for a working capital loan through Mulligan Funding and get the funding as soon as one business day after approval. (1) Want some even better news? You don’t need hard collateral to back up the loan, and Mulligan Funding works with borrowers with imperfect credit. You can borrow up to $2 million on a 3-24 month loan.

Traditional lenders may request at least two years of experience and other requirements, but Mulligan Funding primarily wants to see that you have made $120,000 in revenue over the past 12 months. Combine that with a good credit score, and you could get competitive rates from your loan.

Business Line of Credit

Business lines of credit are very similar to business credit cards, where you can borrow up to a certain limit and pay interest when you borrow against the limit. If you’re unsure how much loan you need for your restaurant funding needs, a business line of credit might be a good option to consider since you can draw as little or as much money on a needed basis. 

You won’t have to worry about borrowing more money than you need and still facing high-interest payments on any of the unused capital. You also won’t have to worry about an insufficient loan amount. You can seek a higher loan amount with a business line of credit, knowing you won’t have to pay it until you borrow against the credit limit.

One thing to keep in mind is that business lines of credit often have variable interest rates. A variable rate can make payments less predictable, as a sudden jump in the rate can significantly impact how much interest you owe. A line of credit gives you an extra financing option that you don’t have to use right away. It’s a nice addition for many restaurant owners.

Merchant Cash Advance

Merchant cash advances let you use a percentage of credit and debit card sales to repay the principal. These loans use a factor rate instead of an interest rate to determine how much you will pay over time. The factor rate depends on your industry and overall business health, but this factor rate, combined with fees, can get expensive. 

Loans and merchant cash advances both provide your restaurant with more capital, but you should consider other types of restaurant business loans before opting for a merchant cash advance. Merchant cash advances only apply to businesses that frequently get credit and debit card sales. If most of your customers pay with cash, it can be more difficult to get a merchant cash advance for your small business.

Is It Hard to Get a Loan for a Restaurant? 

Restaurant business loans can be difficult to get since many lenders, especially mortar banks and credit unions, perceive the restaurant industry as volatile. While financial institutions make it more difficult for restaurants, you can still get the financing you need for your company. It’s easier to qualify for a restaurant loan through online lenders because of their lenient requirements. Online lenders still have requirements around your credit score, revenue, and business plan. However, the barrier to entry is lower for online lenders. They are more accommodating to businesses, and looking for an online lending solution will increase your chances of getting small business financing.

How To Qualify for Restaurant Loans

Business loans are plentiful, but lenders don’t give them to everyone who asks. You must satisfy certain requirements to qualify for a restaurant loan. Some of the common requirements that affect restaurant business loan approval include the following:

Business Operating History

The first thing lenders look at when evaluating your eligibility for restaurant financing is how long you’ve been in business. Businesses with more years of experience have navigated multiple economic cycles. They have had to make important financial and budgeting decisions during economic slowdowns and survived. Therefore, having more years of business experience increases your chances for approval. Generally, lenders prefer to work with small business owners that have been operating for one to two years. 

Proof Of Revenue/Profit

Lenders require proof of business revenue to verify that you’ll be able to repay your loan. So you’ll need to provide your lender with 12 to 24 months of business bank statements or profit and loss statements. You should review a lender’s requirements before applying for a loan. You don’t want to go through a complicated loan application process only to discover your revenue and profit numbers are not in line with the lender’s requirements.

Personal and Business Credit Scores

Your personal and business credit score also determines whether you qualify for a restaurant loan or not. The minimum credit score requirements vary by lender, but high personal credit scores and business scores improve your odds of approval. Even if you have a sufficient credit score to get a loan, you should still work hard on improving your score. Small business owners with higher credit scores can get higher loan amounts and lower interest rates. A high credit score will help you in many areas of your life, not just business.

Personal and Business Documents

Lenders also want to see your personal and business paperwork to verify that the business belongs to you. This can include tax returns, current profit and loss statements, business licenses along with other certifications. Some lenders have more requirements than others, but you can expect this request from any lender.

Collateral and Business Plan (for some)

Depending on the lender, you may need collateral to back up the loan. Although collateral increases your risk, it can increase your chances of approval and help you secure a lower interest rate. Some lenders even require a comprehensive business plan detailing company objectives and how you plan to use the funds. A business plan will make a lender more confident to give you funds since they would get to discover the direction of your company.

Where To Apply for Restaurant Loans

You can apply for a restaurant loan through traditional banks or credit unions. However, these financial institutions find lending to restaurant business owners risky. They also take longer to process your application and send funds to your bank account. Luckily, there’s an easier way to get the financing you need. With online lending partners like Mulligan Funding, though, you will get fast approval for restaurant financing. (1) You can get a small business term loan or a working capital loan as soon as one business day after approval. (1)

Ready to get the money you need for your restaurant? You can request a free quote for restaurant financing options through Mulligan Funding today. (*)

Mulligan Funding - Small Business Loans
Access loans up to $2,000,000 to cover almost any business-related expense. Competitive, flexible terms, and a manageable payment structure. Work with Human Underwriters for Lower Rates, More Capital and Higher Approvals.

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Approval and funding speed refer to applications submitted during normal business hours (Monday-Friday, 7 AM – 5 PM PT.) Most approvals happen within a few hours on completed submissions. Delays could occur due to unforeseen circumstances or if additional information or verification is required.

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Approval and funding speed refer to applications submitted during normal business hours (Monday-Friday, 7 AM – 5 PM PT.) Most approvals happen within a few hours on completed submissions. Delays could occur due to unforeseen circumstances or if additional information or verification is required.

×

Approval and funding speed refer to applications submitted during normal business hours (Monday-Friday, 7 AM – 5 PM PT.) Most approvals happen within a few hours on completed submissions. Delays could occur due to unforeseen circumstances or if additional information or verification is required.

×

Approval and funding speed refer to applications submitted during normal business hours (Monday-Friday, 7 AM – 5 PM PT.) Most approvals happen within a few hours on completed submissions. Delays could occur due to unforeseen circumstances or if additional information or verification is required.

×

Approval and funding speed refer to applications submitted during normal business hours (Monday-Friday, 7 AM – 5 PM PT.) Most approvals happen within a few hours on completed submissions. Delays could occur due to unforeseen circumstances or if additional information or verification is required.

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Final loan decision may be subject to underwriting by FinWise Bank.

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