Restaurant Business Loans

What is a restaurant business loan?

A restaurant loan is any form of financing you can get to fund your restaurant business's operations. Most restaurant loans can be used for working capital, but some may be tied to a certain purpose. These loans are usually paid back monthly over several years, though there are alternatives to restaurant loans, which we’ll cover shortly.

Best restaurant loans for small business

BlueVine

✔ Funding: Borrow $5,000 - $250,000
✔ Minimum Credit Score: 600
✔ Loan term: 6-12 months
✔ Funding turnaround: 24-48 hours

With BlueVine, borrowers can get approval as fast as 24 hours and obtain a business line of credit for short term capital needs while only paying interest on the funds you borrow.

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SBA 7(a) loan

✔ Funding: Borrow up to $5,000,000
✔ Minimum Credit Score: 650
✔ Best For: SBA loans
✔ Funding turnaround: Varies.

The SBA 7(a) program features lenders such as Wells Fargo in their network and provides capped interest rates and long repayment term flexibility. Term loans and lines of credit access available. Typically, collateral will be required with a personal guarantee. Funding times vary and may be longer than most other lenders.

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BlueVine

✔ Funding: Borrow $5,000 - $250,000
✔ Minimum Credit Score: 600
✔ Loan term: 6-12 months
✔ Funding turnaround: 24-48 hours

With BlueVine, borrowers can get approval as fast as 24 hours and obtain a business line of credit for short term capital needs while only paying interest on the funds you borrow.

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How do restaurant business loans work?

Most restaurant loans you get by applying to a lender for a lump sum amount. If approved, they’ll deposit the funds in your account for you to use for any business purpose. You’ll then pay back the loan, plus interest, over a term of months or years.

What are common restaurant expenses?

All restaurant loans can be used for all or some of the following:

• Purchasing kitchen and bar equipment
• Purchasing furniture
• Renovations for theming or updating
• Marketing and advertising
• Food costs
• POS systems
• Liquor and beverages
• Inventory variance
• Website and internet costs
• Utilities
• Rent
• Paying for temporary staff in busy seasons
• Menu development

Why do restaurants apply for financing?

In many cases, borrowing money to fund your business growth will allow you to continue your daily business operations without taking working capital out of the business to fund your expansion. Some of the reasons restaurants apply for financing are:

• To start a new business
• Renovate a current location
• Expansion to a new location
• New branding
• Operational expenses
• New equipment
• Pay for seasonal staff
• Invest in a marketing campaign
• Expanding into a new area, such as packaged foods or sauces, catering, or a food truck

What kind of loan do you need to open a restaurant?

To start a new restaurant, you’ll need to consider loans that are suitable for startups. Finding traditional funding for a new business is always difficult – often more so for restaurants – but it’s not impossible. It’s important to look into all your options and consider funding from multiple sources. Let’s look at the different types of loans below.

What are the different types of restaurant business loans?

• Bank loans: traditional business loans from a bank is usually the most difficult kind of loan to secure, but if you’re well established and looking to expand you may be able to get one. They often have low interest rates and long terms, but you’ll need to prove you’re a good business to lend to. The application process usually takes 2 – 8 weeks to complete, and you usually have to put up collateral for the loan.
• Business term loans: Business term loans are typically a loan you get from a bank or online lender where you borrow a lump sum and pay it back over a short, medium, or long term. Besides bank loans, these loans are often easier to get, with some lenders serving those that haven’t been in business long, or have a poor credit score.
• Working capital loans: these loans are usually term loans given to restaurants to use for working capital, though they may be a more flexible form of borrowing, such as a line of credit.
• SBA loans: SBA loans are loans guaranteed by the Small Business Administration, which encourages lenders to offer better rates (between 2.5% and 12% on average) and more generous terms because they know the SBA will cover the loan if you default. There are a range of SBA loans to suit different needs: SBA 7(a) loans, 504 loans, and Microloans. They also offer some other programs to help underserved communities or disadvantaged situations.
• Business credit cards: if you’re looking for flexible borrowing for day-to-day expenses, a business credit card may suit your purposes. These are usually relatively easy to get but often come with higher interest rates (5% – 30%). If you decide to look into this option, shop around to see if you can get one with a 0% introductory period or perks for using the card.
• Inventory financing: Your food and drink is your inventory, so you naturally have a lot moving through your business. Inventory financing allows you to use your inventory as collateral for a short term loan or line of credit. The caveat here is you may find it more difficult to find a company that will work with food, since it’s not going to last long, but there are options out there.
• Equipment financing: Equipment financing works the same way as inventory financing – you borrow money to purchase equipment and the loan is then secured against that equipment. This helps make the loan more affordable, but if you default on your payments, they’ll seize the equipment.
• Merchant cash advances: if you’re already in business and do the majority of your business via card payments, you can likely get a merchant cash advance. This is where your payment processor agrees to loan you a lump sum which you then pay back via a percentage of the transactions they process.
• Lines of credit: this is a particularly flexible way of borrowing where a lender agrees to give you access to a maximum amount of credit which you can use as and when you please, and only pay interest on the money you’ve actually used. Most lines of credit are revolving, which means that you can use the credit again when you pay it back (like a credit card).
• Peer-to-peer: if you have a unique idea or need to look for funding outside of more traditional means, you may want to look into peer-to-peer lending. This is where you set up a campaign for the amount you need (like crowdfunding) and then try to persuade small investors to fund the money you need. Where this differs from crowdfunding is that this is a loan, so you’ll pay interest and need to make regular payments.
• Crowdfunding: If you’re filling a gap in the market or are trying to get funds together for something your customers have asked for, crowdfunding may be the best way to get your funds together. This is where you seek funding from your customers and use the money to give them what they want. This money doesn’t have to be paid back provided you fulfill your promises to those that funded your growth.
• Friends and family: If you’re in the early days of setting up your restaurant, you may need to ask friends and family to help fund your new endeavor. Make sure you set out the terms properly and detail when you’ll pay it back to avoid friction.
• Personal borrowing: Another option if you’re funding a start up and still have a full time job is to use a personal loan, credit cards, a HELOC, or 401(k) loan to give you the funds you need to get the ball rolling.

What are the pros and cons of restaurant loans?

PROS

• You don’t have to use your working capital to expand
• You can take advantage of limited-time opportunities
• You can usually use the money for any business purpose

CONS

• Lenders can be wary of lending to restaurants in the early days – restaurants have a high failure rate so you’ll need to prove your business acumen if seeking funding for a startup
• Times are currently tumultuous for restaurants, and while we hope restaurants in the US won’t ever have to close again, it is a risk and you may not be able to keep up on your payments
• Rates are often high, unless you have great credit or can secure an SBA loan

What is the cost to finance a restaurant?

Most forms of finance don’t have an upfront cost, though some do come with a set up fee or a need for collateral or down payment to secure. In most cases, the cost of the loan will be the amount of interest you pay on the money you borrow, which is typically 5% to 30%. Make sure you read the fine print to check for unexpected fees.

Restaurant business loan payment calculator