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How To Find and Evaluate Restaurant Business Loans

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

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It takes a lot of time to run a restaurant and stay on top of everything. Unfortunately, the high pace of the industry doesn’t give every restaurant owner enough time to find and evaluate restaurant loans. Rushing to get financing can result in unfavorable terms, and forgetting to take out a loan can put your restaurant in a financial bind. But that type of financing can help you build or expand your restaurant. With proper financing, you can focus on the perfect menu, the best ingredients and compelling marketing that diners cannot resist. This guide has what you need to evaluate which restaurant loan makes sense for your operation.

Get Started With Restaurant Financing

Get funding in as little as 24 hours. See your prequalified offers by filling out a quick online form. No industry excluded. SBA financing is available.

What Are Restaurant Business Loans?

You may be wondering, what are restaurant business loans? In short, they are virtually any type of business loan used to buy a restaurant. These loans can also cover supplies and equipment you need to operate a restaurant. In order to be considered for a restaurant business loan, you will need to estimate how much money you need and have good credit. Most lenders also want you to have a thorough business plan that clearly explains your goal to run a successful restaurant. Even if the lender doesn’t ask for a business plan, it’s a good idea to create one for your business. 

What Can the Restaurant Loan Funds Be Used For?

Take a look at the many ways you can use restaurant loan funds.

Hire and Pay Employees

A restauranteur starts the restaurant with a vision. The founder monitors trends and stays on top of the industry. A restaurant founder is a leader who can guide the company to a bright future, but every restauranteur needs employees to serve customers and ensure everything runs smoothly. You can use a restaurant loan to hire and pay employees. It can be expensive to hire the right people, especially hospitality crew and chefs. You will need these people on day one before your restaurant has made a profit, and you will continue to need their services. Financing can help make it possible to hire and pay staff that will keep customers happy. The revenue you generate from customers can offset salaries and loan payments over time.

Stocking Up on Inventory

Restaurants are judged by their food and beverage, so stocking up on inventory can be a key reason to get a restaurant loan. If you run out of inventory, you will have to turn away customers or present them with less favorable alternatives. Restaurants in seasonal locations often use loans to load up on inventory before the busy season. Restaurants in these locations may make the bulk of their revenue within three months. Having enough inventory for this quick surge in demand can help a restaurant stay afloat.

Purchase and Upgrade Equipment

Lenders will offer financing to restaurant owners who want to purchase and upgrade equipment. Once your restaurant business loan is paid, you will own the equipment free and clear. You can also obtain equipment by leasing it, but the monthly lease payments never go away until you give up the equipment and use financing to buy equipment instead. Monthly equipment loan payments may cost slightly more than equipment lease payments, but eventually, removing loan payments from your budget helps with profit margins.

Repairs and Remodels

Any property endures wear and tear. Restaurants are no exception. Keeping your restaurant up to date with repairs and remodels makes it a pleasant place for customers. Not addressing structural flaws can discourage customers from returning and hurt the property’s value. You can also make renovations that increase your restaurant’s capacity, such as creating a space for outdoor dining. A restaurant business loan can provide the financing you need to make these investments. You won’t have to wait to raise enough funds through cash flow to make necessary updates and repairs.

Handle Seasonal Fluctuations

Many business owners handle seasonal fluctuations with restaurant loans, such as working capital loans. As with most businesses, there are ups and downs with sales at restaurants, especially if you offer outdoor seating during certain times of the year or specialize in a type of cuisine that is appealing to diners on a fluctuating basis. Therefore, you need capital throughout the year, even when business is slow. A restaurant loan can cover the gap during slow months, so your restaurant thrives during busy seasons.


Marketing channels put your restaurant in front of new customers and can re-engage previous customers. You can explore several marketing channels yourself or add a marketing expert to your team. Marketing campaigns need cash, and a restaurant loan can provide the resources you need to beef up your marketing plan. Adding social media posts to introduce special menu items or announce the opening of a new restaurant is just the beginning. You might choose to advertise in local publications or sponsor youth athletic teams. This sort of marketing can add up, and financing can help you cover the expenses.

Are There Any Loans Specifically for Restaurant Businesses?

You’re not alone if you’re asking, what type of loan do I need to buy a restaurant? Unfortunately, banks and credit unions may make it difficult to get loans specifically for restaurant businesses because the restaurant industry is considered risky. That said, there are business loans available for you to buy an existing restaurant, open a new restaurant or finance improvements to your current restaurant.

Restaurant Business Loan Options

How do you finance a restaurant? Consider these restaurant business financing options when deciding which type of loan is best for you. There are pros and cons to think about, no matter which type of business loan you choose. Your lender can help you find financing that works for your restaurant or other small business.

SBA Loans

SBA loans are guaranteed by the U.S. Small Business Administration. You receive funding from banks and other approved lenders to offer SBA loans. There are actually different types of SBA loans available to restaurant owners. For example, microloans available for a maximum amount of $50,000 are good for startup restaurants, food trucks and more. SBA 7(a) loans are the most common type of SBA funding. They are available up to $5 million in capital for your restaurant business. SBA loans are considered some of the most difficult to qualify for, and it can take several months to receive approval and funding. If you can wait that long, interest rates and loan terms for SBA loans are usually lower than other types of restaurant business loans. However, you will need to offer collateral that can be seized if you are unable to make loan payments. Also, you will need to demonstrate strong business results and also have a good personal credit score. Businesses that qualify for SBA loans must be licensed to operate in the U.S.

Get Started With Restaurant Financing

Get funding in as little as 24 hours. See your prequalified offers by filling out a quick online form. No industry excluded. SBA financing is available.

Term Loans

With term loans, you get the funding upfront to use to buy or expand your restaurant business. Interest rates and loan terms can vary depending on the lender. Restaurant owners like having steady payments for the duration of the term loan, which can be up to five years or longer. You may be required to offer collateral in exchange for a business term loan. Traditional banks and credit unions retain strict control of their financing by accepting small businesses with long track records and excellent credit scores. Online lenders are more flexible and able to provide funding more quickly than other financial institutions.

Working Capital Loans

You need capital to operate your restaurant, which is exactly what working capital loans are designed to do. Working capital loans are short-term financing you can use to cover your operational expenses. Other uses of working capital loans include hiring staff, buying inventory and covering one-time business expenses. Look for a lender that offers flexible payment options like daily, weekly or biweekly. In general, working capital loans are designed to be paid off faster than term loans. As a result, it may take longer to get working capital loans approved by banks and credit unions. But many online lenders are equipped to approve your application for working capital almost immediately and offer funding by the next business day.

Commercial Real Estate Loans

Commercial real estate loans can be used to acquire, develop, and construct your restaurant. You might think of a commercial real estate loan, or CRE, as borrowing money to buy a home, but the loans are quite different. For example, terms on a commercial real estate loan are much shorter, usually less than five or six years, but occasionally longer than 10 years. Interest rates are usually higher for commercial real estate loans than home mortgages as well. It is common for a bank or online lender to require that you be in business for at least 18 months and demonstrate strong annual revenues to qualify for commercial real estate loans. But banks may take longer to provide funding than online lenders.

Equipment Financing

Restaurant equipment financing is a loan used to buy the equipment you need to operate your venue. You can use equipment financing for all sorts of restaurant equipment, not just heavy-duty ovens or walk-in refrigerators. For example, use an equipment loan to acquire restaurant supplies, office equipment, cash registers, card readers, chairs and tables and vehicles for restaurant food delivery. Once you have made all the required loans and interest payments, you own the equipment. Equipment financing may be easier to qualify for than other types of restaurant financing options because the amount you borrow is tied to the value of the equipment you are purchasing rather than your personal credit score. Also, the equipment itself is used as collateral, so you don’t need to worry about offering other assets as collateral for your equipment financing.

Inventory Financing

With inventory financing, you can purchase the inventory you need, such as food and alcohol. Inventory financing allows you to buy what you need when you need it, and it’s usually considered a short-term loan. Interest rates for inventory financing tend to be higher than other types of restaurant business loans. The inventory is used as collateral for the loan, which means you don’t need to present other assets as a guarantee that you’ll make payments. On the other hand, inventory financing may be harder to qualify for since the lender will want proof that you’ll be able to sell the inventory in order to make payments. For example, they may want sales records to know that your restaurant has strong sales.

Business Credit Cards

You may use business credit cards for some transactions related to your business. Your business credit card is not intended for personal use but rather can be an easy way to keep your business and personal expenses separate for bookkeeping and tax purposes. Business credit cards are easier to apply for than non-revolving business loans from banks and credit unions. It’s convenient to have a business credit card, but be mindful that interest rates and late fees can really add up and negatively affect your personal credit score. You usually need good credit to qualify for a business credit card, so expect the issuing bank to require a score of 670 or higher. Business credit cards that allow borrowers with bad credit to apply will charge a higher interest rate on any balance you carry. However, using this card responsibly can improve your credit score and help you qualify for a higher loan amount in the future.

Business Lines of Credit

Expenses can get unpredictable as the prices of goods and services go up, and surprises add up. You may want to invest in repairs but are not sure how much it will cost or don’t want to pay interest prematurely. A business line of credit is a useful way to fund your restaurant without making interest payments right away. Restaurant owners only pay interest on business lines of credit when they borrow against the credit limit. While a credit card also runs on a business line of credit, you can usually get a lower interest rate with a line of credit that is not connected to a credit card. 

You can pay a business line of credit back at your own pace as long as you make the minimum monthly payment. Once the draw period ends, any remaining balance on the credit line converts into a loan. Most lenders set up a monthly payment schedule for the converted loan. Lines of credit usually do not have collateral and come with variable interest rates. 

Merchant Cash Advances

Merchant cash advances provide companies with quick financing even if they don’t have the best credit scores. Restaurant owners repay these cash advances with a small percentage of each debit and credit card transaction. While a merchant cash advance can speed up the process and give your restaurant the capital it needs, you could get stuck with an APR above 100%, but you can get better financing from some lenders. So while this type of financing is an option for your restaurant, it’s better to pursue other financial products before resorting to merchant cash advances.


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