Restaurant Business Loans: What You Need to Know

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Chances are that at some point in running your restaurant, you will need a small business loan for various reasons. Knowing what loan types are available and what kind of lender to borrow from is crucial in securing funding to keep your operations running smoothly.  

What is Restaurant Financing?

Restaurant financing is obtaining funds to cover a variety of expenses involved with starting or operating a restaurant. As a restaurant owner, it’s vital to have working capital to allow for growth and successful operations. 

Who Can Get A Restaurant Loan?

Whether you’re starting up a brand-new restaurant, buying an existing one, or making costly changes to a restaurant you already own, you can apply for financing with a variety of lenders. Each may have its own guidelines, with credit standing and available collateral as important factors. 

Reasons to Get Restaurant Loans

There are many reasons to secure a restaurant loan. Your restaurant needs to have cash on hand to cover regular and unexpected expenses, as well as short-term and long-term goals. 

Open a Restaurant

Opening a restaurant can be extremely costly. In addition to the rent/mortgage, you will be facing costs such as a security deposit, inventory, utility deposit, licenses, and insurance.  

Expand your Restaurant Group

You may be doing well enough to open a second location, which comes with costs such as paying for the site, new staffing, equipment, and inventory. 

Renovate Your Restaurant

It’s essential to keep up with appearances and customer needs. Examples are new flooring, lighting, or updating the structure of your building (knocking out a wall for expansion) to allow for more space.

Rebranding Your Restaurant

Change is inevitable; your restaurant image doesn’t have to stay the same. You may need to change things up to stand out from the competition, freshen up your image, or pivot to keep up with the times. Rebranding can be costly as you may need to revamp your menu offerings, design, interior, and marketing. 

Purchase Equipment

You may need to replace outdated equipment, add additional equipment, or start from scratch. Restaurant equipment financing covers items such as payment systems, freezers, ovens, and refrigerators. 

Add a New Line of Business

Perhaps you’ve decided to take on a new channel of revenue. Offering catering services or selling packaged customer favorites such as sauces, salad dressings, and desserts for purchase outside of their dining experience will have new expenses. 

Cover Operational Costs

Along with the initial startup costs of your restaurant, you are going to incur regular operating expenses such as:

  • Rent and occupancy costs (utilities, insurance)
  • POS system
  • Marketing
  • Inventory
  • Food 
  • Liquor
  • Staff (wages, taxes, benefits, uniforms)
  • Equipment 

Get Consulting Services

Restaurant consultants review your current process and provide insight into being more efficient and profitable in the foodservice industry. They can be valuable in guiding on improving operations such as:

  • Staff hiring and training
  • Design and branding
  • Marketing
  • Starting a new restaurant
  • Ways to cut costs
  • Evaluating your menu

Types of Restaurant Loans

Not all restaurant loans are the same, so it’s important to review your needs first. Terms and rates, what you are allowed to use the funds for, and how quickly you receive the funds can vary. 

Traditional Commercial Loans

A traditional commercial loan is a term loan where you make monthly payments to the lender. You receive a one-time lump sum of funds, on which you will pay interest. The application process tends to be longer than others and will typically require collateral.  

Business Lines of Credit

This loan type works similarly to a business credit card. It’s not a one-and-done influx of funds like a term loan. You’re given a set spending limit, allowing you to use funds as you need them. You can repay and reuse the funds as needed, and you only pay interest on what you have borrowed. These are helpful for short-term needs and allow for quicker access to funds. 

Small Business Loan Administration (SBA) Loans

The Small Business Administration works with lenders to help small businesses obtain financing and guarantees a portion of your loan. If you need quick access to funds, be aware that it could take months before receiving money, as the application process can be lengthy. The application process could take months to receive your funds.

SBA loans are considered more accessible, less stringent on qualification factors, and more affordable for borrowers than other lending options. Due to the detrimental impact, Covid has had on the industry, they offer a restaurant revitalization fund that does not require repayment if guidelines are met.

How to Qualify for a Restaurant Business Loan

Depending on the lender and type of restaurant loan you opt for, qualifications can vary. 

Do Your Research

With various restaurant business loan options to choose from, it can be a confusing process. You should review requirements, interest rates, types of loans offered, the lender’s reputation, fees, and the speed of receiving the funds once approved. 

You can simplify the process by using Lendio to do the legwork for you. They offer a multitude of restaurant financing options, and by submitting one simple form, Lendio will send applications to multiple lenders in their network. You are under no obligation to accept any offers, and your credit score will not be impacted. 

Prepare Application Information and Documents

Although documentation requirements can vary among lenders, you will typically need to provide the following:

  • Past bank statements
  • Tax returns (both personal and business)
  • Financial statements (e.g., Balance sheet, Cash flow statement)
  • Business license, certificate, or permit 
  • Business legal documents (e.g., Articles of Inc, DBA registration, partnership agreement)
  • Proof of collateral
  • Business debt schedule (Information of other active business loans)
  • Business plan

Submit Applications to Lenders

Increase your chances of approval for a restaurant business loan by applying with more than one lender. Lendio simplifies the business loan application process by sending your one-time application to its extensive network of lenders. The application is completed online and takes only 15 minutes. Lendio will notify you of your approval offers, and you can pick the one that is right for you.

Choose a Restaurant Loan

Review your approval offers. Look at the rates, fees, payback terms, collateral requirements, length of time to receive funds, and required documents. 

Get Your Restaurant Loan Funds

Depending on the lender, the length of time it takes to receive your funds can vary. Some will electronically deposit the money into your bank account and provide immediate access to online draws from a business line of credit, while others may issue checks. Ask about funding options when interviewing potential lenders to avoid any surprises or delays in receiving your much-needed funds.

How to Get a Restaurant Loan Through Lendio Business Lending Marketplace

Lendio is an online small business loan marketplace. They send your loan application to their large network of lenders, which helps you avoid applying with each lender. They offer an easy, 3 step business loan application process online:

  • Apply in as little as 15 minutes
  • Review and compare the approval offers
  • Choose your lender and receive funding in as little as 24 hours 

FAQs About Restaurant Loans

Can you get a restaurant loan with bad credit?

Although credit is a strong factor taken into consideration, yes, it is possible to obtain a restaurant loan with bad credit.

What can restaurants use business loans for?

Depending on the loan you choose, you may use the funds for various reasons such as: establishing the restaurant, remodeling, equipment, repairs, inventory, expansion, operating expenses, purchasing a commercial property, staffing.

Is it hard to get a restaurant loan?

It depends on your qualifications and the lender. You may find that traditional banks view restaurant loans as riskier and therefore are more stringent in their guidelines, while online lenders and SBA loans are more accessible.

How can you finance a small restaurant?

Small business loans for restaurants can be obtained in various ways, such as traditional financial institutions, Small Business Administration (SBA), small business alternative lenders, investors, crowdfunding

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