Restaurant Business Loans and Financing
Restaurant Owners in the USA have gone through the wringer in the last 24 months. But the market is bouncing back, and we are happy to provide restaurant owners with restaurant loans and restaurant equipment financing up to $750,000
In many ways, the COVID-19 pandemic has devastated the restaurant industry in the USA, but it didn’t end it. Thanks to quick reactions and new restaurant financing options, many existing restaurant owners managed to keep their businesses afloat and maintain their dreams of achieving success. This guide reviews the most important types of business loans available for restaurant owners.
You can have the best menu, the most professional staff, a great location, and a fantastic business plan, but your restaurant’s success depends on getting the right funding on time. A restaurant business loan can help you realize your dream!
Even with Covid limitations, running a restaurant can be rewarding, but studies show that 60% of restaurants will close in the first year. On the other hand, 90% of restaurants that make it past the first 5 years will stay in business for over 10 years!
A restaurant loan can be a key part of getting the funding your business needs to make sure it flourishes well beyond the 10-year mark. But with so many options available, you might be feeling a little lost. Don’t worry, we’ve got you covered. mCashAdvance has put together a quick guide to answer all your questions about restaurant loans. Keep reading to learn more!
Common Types of Restaurant Business Loans
There are several types of restaurant loans available to help your restaurant with cash flow for operations or investments in future growth. We’ve compiled a list of the most common restaurant business loan options to help you find the right funding solution.
- Business loans for restaurants: These traditional restaurant financing usually come with a fixed loan term and interest rate. Most restaurants are classified as small businesses unless your restaurant is part of a franchise. You’ll make monthly payments to your lender until you fully repay the loan. Small business loans for restaurants are one of the most common types of restaurant business financing. You can use these loans for nearly anything to grow your business: a new location, renovations, supplies, or hiring staff.
- SBA Loans for Restaurants: An SBA loan is backed by the government’s Small Business Administration. They are designed to help small business owners invest in their business growth. Interestingly, restaurants are actually the #1 industry that the SBA grants funding to! SBA loans for restaurants come with excellent interest rates and reasonable repayment terms, but require a lot of documentation. Check if your restaurant is eligible for SBA loan as well as the possible loan amount here.
- Restaurant loans for bad credit: The restaurant business can be tough at times, and your credit score might reflect that. You may be worried this will make it difficult to borrow money for your restaurant. However, many lenders offer restaurant loans for bad credit so that restaurant owners like you can get the necessary funding. Keep in mind that these loans have higher interest rates and shorter repayment terms to balance the increased risk of lending.
- Inventory financing: These loans are specifically for purchasing stock for your business, like cooking ingredients and cleaning supplies. Because they have a predefined use, they may come with better interest rates and terms. However, you need to be sure that you’ll put the money towards inventory, as they are strictly for this purpose. Learn more about these loans here.
- Working Capital for Restaurants: Working capital loans are designed to help with cash flow problems. As you know, restaurants tend to be seasonal businesses, so owners can face this problem quite often. These loans provide working capital for business owners to pay rent, salaries, and purchase inventory even during a revenue slump.
Financing for Restaurant Owners: Reasons Why They May Need it
Restaurants are a cashflow-sensitive type of business, and often restaurant owners need to deal with cash-flow gaps derived from the nature of the restaurant operation. One example is the gap between the payment for ingredients and the time when the restaurant gets the money for selling the finished product to a consumer.
The average profitability in the restaurant business is between 5% to 10%. mCashAdvance mainly offers loans for restaurants but we can also help restaurant owners get approved for free payment processing, helping them to eliminate the common 4% credit card transaction fees. This combination of capital injection through a restaurant loan and instant savings through no-transaction-fee credit card processing has already helped thousands of restaurants across America to stay in business.
Restaurant Equipment Financing
If you own a restaurant, you’ll want to outfit your kitchen with the best equipment to help your chefs whip up the fine cuisine your customers rave about. The thing is, top-notch equipment usually comes with a top-dollar price tag – often way over your monthly budget. Luckily, restaurant equipment financing can help you spread out the costs so you can begin reaping the benefits of upgraded equipment right away.
Equipment loans give you the money you need to purchase the equipment upfront. Then you make monthly repayments to your lender at a fixed interest rate for the duration of your loan term. Here are a few facts to consider about this type of financing:
- You can use restaurant equipment financing for any kind of equipment you need for your restaurant, from financing a bar purchase to buying new commercial ovens.
- You can usually choose your supplier, whether it is Best Restaurant Supply, National Restaurant Equipment, or another provider.
- Equipment financing is automatically secured against the equipment you’re purchasing. So if you default on repayments, your lender can repossess the equipment.
- Typically, you’ll need to provide a down payment on the equipment. The amount will vary greatly based on the price of the equipment, your credit score, and your lender.
- Because these loans have a predefined purpose, they generally come with more favorable interest rates than other financing types.
Restaurant Equipment Leasing
If you’re not ready to commit to buying a new piece of equipment, an alternative is leasing. This is a great option if you want to try out specialized kitchen equipment you’re not sure if you’ll keep.
Additionally, restaurant equipment leasing may be a smarter option if you know you’ll consistently upgrade your equipment. Some lenders may also allow you to buy the equipment at a reduced price at the end of your lease.
How to Qualify for a Restaurant Business Loan
Every lender has its own set of qualifying criteria for restaurant loans, but here are some basic guidelines about what you’ll need:
Most lenders require these things before they will approve your restaurant busienss loan application. If you apply for quick restaurant funding with a higher credit score, higher monthly revenue, and longer time in business, you’ll boost your chances of acceptance. Furthermore, you may be able to secure better loan terms, so it’s always wise to try and improve your credit score.
Restaurant Startup Financing
When you’re first opening your business, you’ll need restaurant startup capital for expenses like rent, utilities, supplies, and staff. Furthermore, all of these costs add up before your first customer pays for his or her meal. However, your restaurant won’t yet meet the criteria for traditional restaurant financing, so you’ll want to apply for restaurant startup financing.
This is a special type of loan to help start a restaurant business and can range from bakery equipment financing to a small business loan to open a cafe. Since lending money to startups is risky, these loans often come with high-interest rates. Additionally, one of the most critical aspects of your application will be a solid business plan to show your lender how you intend to turn his investment into profit. Restaurant startup financing can be the key factor in turning your restaurant from a dream into a reality.
Unfortunately, most restaurants fail in their first year of business and a lack of proper funding can play a role in this. We hope this guide has given you some useful information about the kinds of restaurant financing available to you so you can choose the right financing to help your business flourish. We wish you the best of luck!
Restaurant Financing FAQ’s
Depending on your lender and the type of financing you apply for, you’ll usually be able to borrow a maximum of $1-$5 million. Your business credit score, monthly revenue, and business assets will also influence how much credit lenders will grant your business.
For term loans, most lenders offer financing terms between 6-18 months, while some lenders offer terms up to 5 years. Rates vary significantly between lenders and can range from 5%-50%. Ultimately, the rates and terms of your financing will depend on your lender, type of funding, and business profile.
Bear in mind that a small business loan can be a bank loan or be offered by an alternative lender. The best restaurant business financing will have competitive rates and clear terms to get you the financing you need as affordably and efficiently as possible.
No, it should be pretty simple, as long as your restaurant has a decent credit score, has been in business for at least 2 months, and is bringing over $5,000 a month in revenue. The lender you choose may have more specific eligibility requirements, but if you can check these boxes, you’ll qualify with most online lenders for a term loan or a short-term loan.
Naturally, the intended purposes of the fund’s matter also. From a lender’s point of view, working capital loans tend to be riskier than equipment loans. This will have a bearing on your chances of being approved as well.
In general, you won’t need collateral to secure a loan for your restaurant, but this will depend on your lender and how much money you are borrowing. Additionally, if you take out restaurant equipment financing, the equipment automatically acts as collateral for the loan. So if you default on the payments, your lender can repossess the equipment.
You can use the loan towards any restaurant-related expenses, from paying rent to hiring extra staff. Here are the top 3 ways that owners like you use restaurant business loans:
1. Opening a new location- Location is very important to your business, especially if you rely heavily on walk-ins vs. reservations.
2. Buying New Technology- Many owners invest in technology such as table tablets for effortless ordering, paying, and tipping to create a smoother customer experience.
3. Financing Renovations- The restaurant ambiance is important to your customers, so you’ll want to invest in making sure everything from the chairs to the wall art matches the mood you’re aiming to create.
These are just 3 possibilities of how you can use your restaurant business financing to make your business stand out. It’s important to remember that certain types of restaurant loans, such as inventory and equipment financing, have a preset purpose and cannot fund other projects.
You might be wondering if there are any alternative financial resources, besides loans, available to small businesses. Here are three further possibilities:
Business line of credit
A line of credit, unlike a traditional loan, does not involve borrowing a set amount of money. Instead, banks or alternative lenders approve a business for a maximum amount of funding they can borrow against as needed. A business line of credit thus allows you to have access to funds when you need them without borrowing them if you don’t. It can save a lot of hassle for a restaurant owner to get a line of credit set up so funds can be quickly accessed if needed in the future.
Business credit card
This works basically the same as a personal credit card. It is, in fact, very similar to a line of credit since you will usually have access to a maximum amount of money that can be borrowed as needed by paying for expenses with the card. Depending upon the particular card, you may have a grace period before you have to pay interest on any money borrowed.
Merchant cash advance
This type of restaurant funding provides money in exchange for a percentage of future credit or debit card sales. If you are confident about consistent revenues, a merchant cash advance can be a way of accessing future income today. Obviously, you will have to pay interest as well.
A business line, credit card, or merchant cash advance are all viable alternatives to standard working capital loans, equipment loans, or other types of loans. You’ll want to consider carefully, however, interest rates, fees, and other loan terms. In the end, you should select the loan or line of credit that supplies you with the financing you need in the most affordable way.
Find The Best Payment Processing For Restaurants
Restaurant owners can use credit card sales as proof to lenders that their establishment is busy and that they are safe to lend money to. mCashAdvance can help you get set up if you are not currently processing credit cards. If you are charged high processing fees for accepting credit cards, you should seriously consider switching payment processors. We offer the best payment processor for small businesses and restaurants. By switching to mCashAdancez zero-fee payment processing, restaurants can save thousands of dollars each year.
Don’t Allow a Lack of Financing
to Hold your Restaurant Back
It’s Time To Move Your Restaurant Forward!