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 effective financing instruments, many restaurants owners managed to keep their business afloat and reinvent their dream to more significant success. This guide reviews the most essential financial options available for restaurants owners.
You can have the best menu, most professional staff, a great location, and a fantastic business plan, but your restaurant’s success depends on getting the right funding on time. Restaurant financing 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!
Restaurant business loans are all about getting the right type of funding for your business and making 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 business loans. Keep reading to learn more!
Common Types of Restaurant Business Loans
There are several types of restaurant business loans available to help your restaurant get to the next level. We’ve compiled a list of the most common restaurant loans to help you find the right funding solution.
- Small business loans for restaurants- These traditional restaurant business loans 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 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- These restaurant loans are backed by the government’s Small Business Association. They are designed to help small business owners invest in their businesses’ 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 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 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- These 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 restaurants to pay rent, salaries, and purchase inventory even during a revenue slump.
Restaurant Equipment Financing
If you own a restaurant, you’ll want to outfit your kitchen with the best restaurant 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 properly outfit your kitchen more affordably.
A restaurant equipment financing loan gives you the money you need to purchase the equipment up front. 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:
Restaurant Equipment Leasing
If you’re not ready to commit to buying a new piece of equipment, a great alternative is restaurant equipment leasing. This is a great option if you want to try out specialist 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 Restaurant Loans
Every lender has its own set of qualifying criteria for restaurant loans, but here are some basic guidelines:
Most lenders require these things before they will approve your restaurant 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 meal. However, your restaurant won’t yet meet the criteria for traditional restaurant loans, 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 startup equipment financing to a 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 due to a lack of proper funding. You now know to avoid this fundamental mistake and choose the right financing to help your business flourish. We hope you’ve enjoyed our guide and gained the tools you need to make an informed decision about restaurant business loans. We wish you the best of luck!
Restaurant Financing FAQ’s
How much can I borrow with a restaurant loan?
Depending on your lender and the type of restaurant financing you apply for, you’ll usually be able to borrow a maximum of $1-$5 million. Your business credit score and monthly revenue will also influence how much credit lenders will grant your business.
What are the general rates and terms for restaurant financing?
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 on your restaurant financing will depend on your lender, type of funding, and business profile.
Can you open a restaurant with no money?
This will depend a lot on your lender and your personal finances. If you have excellent credit, assets you can use as collateral, or a guarantor to co-sign your loan, you may be able to get a personal loan to fund your business initially. However, you would be personally responsible for repaying this loan and risk losing your assets if you default on the loan repayments.
Is it hard to get a loan for a restaurant?
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.
Do I need collateral for a restaurant loan?
In general, you won’t need collateral to secure a restaurant loan, 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.
What can I use a restaurant loan for?
You can use most restaurant loans towards any restaurant-related expenses, from paying rent to hiring extra staff. Here are the top 3 ways that owners like you use restaurant loans:
- Opening a new location- Location is very important to your business, especially if you rely heavily on walk-ins vs. reservations.
- Buying New Technology- Many owners invest in technology such as table tablets for effortless ordering, paying, and tipping to create a smoother customer experience.
- 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 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.
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