Maybe you’re wondering how to finance a franchise restaurant. Or perhaps you’re looking to upgrade your restaurant’s kitchen and appliances. Whatever your needs, we’ve developed this restaurant loan guide to help. We’ll look at various loan options and ways to apply for restaurant financing.
Financing Your Restaurant for Success
Running a business in the hospitality sector can be challenging. It’s tough to keep up with the competition and still have enough money to invest back into your business. When you’re running a restaurant, you’re not just planning menus. You also have to plan to survive in any season and economy — and be prepared to answer when opportunity knocks. That’s where restaurant financing can help.
Prepare for Your Busy Season
As with any business, the restaurant industry has its ups and downs. The lull has finally subsided and you’re anticipating fully booked nights. Prepare for your restaurant’s ups by having the right amount of capital available to hire additional wait staff, inventory and entertainment.
Keep Your Inventory and Supplies Stocked
You never want to run out of key ingredients, particularly for a dish that draws crowds. Make sure you always have a cushion of funds at the ready. Whether you’re known for your bolognese or your beer, maintain a solid supply of inventory that will guarantee a return on your investment.
Upgrade or Add Equipment
Just like home appliances need updates from time to time, so does your restaurant equipment. Maybe your kitchen is outdated or your chef wants a certain piece of equipment to try a new cooking technique. Whatever your need, there are restaurant financing options out there for you.
Market Your Restaurant
When times are slow, you need clientele. How do you get people in your doors? That’s where advertising comes in. But you may not have the funds to promote your eatery. When funds are low, you can apply for a restaurant loan to implement advertising and drive revenue. Use your funds to broadcast off-season specials. Market your business through the following media channels:
- Internet and social media
- Circulars
- Radio
- Local TV
Renovate or Expand
You want to offer diners a modern culinary experience but your restaurant is reminiscent of a 1950s diner. What to do? When your interior needs a facelift, you need funds. But sometimes the cost isn’t manageable. A restaurant loan can provide you with the long-term financing and terms you need to update or expand your business.
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Best Restaurant Financing Options
While there are many business loans out there, not all are the right fit for restaurant owners. You might just be looking for quick restaurant funding to satisfy a short-term cash shortage. Or you may be looking for longer terms, such as for restaurant equipment financing.
Let’s look at how to get a loan for a restaurant and the top funding options out there. Keep in mind, depending on the lender, there may be minimum requirements specific to revenue and time in business.
Working Capital Loans
For many restaurateurs, revenue fluctuates wildly throughout the year. This type of seasonality can necessitate the need for a working capital loan to cover wages, food costs and other operating expenses when bookings are low. Working capital funds can be used for any purpose.
Depending on the lender, you could have a decision in a day. Loan terms are generally short and can span a few months to a few years. Additionally, minimum credit score requirements vary by lender, but could be as low as 500. Since the credit scoring agency FICO considers a credit score below 579 to be poor, you could consider this type of financing a restaurant loan for bad credit.
Equipment Financing
Your oven’s on the fritz. Your freezer is broken. You need a new point of sale system. Whatever the case, an equipment loan may be the right fit for you. You may be able to secure equipment financing for the entire value of the machinery you’re looking to purchase. Plus, decisions can be quick. Just what you want when a repair’s needed. Minimum credit scores for this type of loan could range from 600-620.
Lines of Credit
Similar to a personal credit line, borrowers are approved for a certain dollar amount. They don’t have to use all of the funds they’re approved for at one time. Interest only accrues on the amount of money you actually use. Plus, once you pay off what you borrowed, your original line of credit is restored. Minimum credit score requirements to obtain a business credit line run from 550-575.
Inventory Financing
Your supply of exotic truffles is dwindling and you need to pay your supplier for a reorder. Unfortunately, you don’t have enough funds to cover the cost. What to do? That’s where inventory financing comes in. Funding can be in the form of a business loan or credit line, and your inventory acts as collateral. Additionally, this type of funding is characterized by shorter repayment terms than traditional business loans. You could be able to secure an inventory loan for your restaurant business with a minimum credit score of 500.
Small Business Administration (SBA) Loans
SBA-backed loans are designed to help small businesses that might not be able to secure and qualify for financing through traditional means. Restaurant owners may be able to apply for funds up to $5 million and the term could extend up to 25 years depending on the type of loan. Funds can be used for any business need, with the exception of SBA CAPlines, a revolving line of credit.
There are a couple of SBA loans for restaurants that you shouldn’t overlook. For instance, SBA’s 7a program is a solid option for restaurant owners. Funds can be applied to building purchases, renovations, long-term equipment purchases and debt refinancing specific to business expansion.
SBA Express loans are another great funding option for restauranteurs. SBA Express loans can be secured in about 30 days. This makes it a faster alternative than traditional SBA loans, though higher interest rates might apply and borrowing limits are capped at $350,000. SBA loans are available through banks as well as alternative lending marketplaces.
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A look at your restaurant loan and financing options
If you demand speed, consider working capital financing:
- Short-term loans
- Business lines of credit
- Merchant cash advances
If you’re looking to finance a capital-intensive project, consider:
- SBA loans
- Term loans
- Equipment financing
Where to Find Restaurant Loans
Gone are the days where your only option to get a loan was to head to your local bank branch and take or leave their offer. Today, online lending platforms offer multiple alternative funding options for virtually every type of small business owner, including restaurant owners.
Online lenders offer various small business financing options and restaurant loan interest rates depending on your creditworthiness, the lender and loan. Approval requirements are generally not as stringent as traditional banks. More importantly, this might be the route for you if you need cash fast. Depending on the loan type and restaurant financing company, you could be able to access funds the same day you’re approved.
