Restaurant business loans can provide you the funding to buy inventory, equipment, property, pay bills, or expand your business. We’ve evaluated the best restaurant business loans based on loan terms, fees, rates, customer satisfaction, and overall quality.
If you require cash due to a cash flow shortfall or have a less than perfect credit score, American Express Business Blueprint™ could be a promising option.
Fundera does not lend money directly but offers a digital marketplace where you can connect with lenders to provide a financing solution for your business.
National Funding offers small businesses working capital and equipment financing loans that are suitable for a broad range of businesses, and you could receive approval and funding within 24 hours.
A restaurant loan is typically used to finance startup costs, working capital, and other expenses associated with operating a restaurant. It can be used to pay for equipment, furniture, fixtures, and building improvements.
Restaurant loans are available through many different financial institutions and lenders, and it can be used for both existing restaurants and new ones. These loans are available to businesses that serve food or drinks, including bars, coffee shops, catering companies, and even convenience stores.
How do restaurant business loans work?
Most restaurant loans work the same way as other small business loans. The lender will request financial information from you, including your tax returns and your business’s credit history, to determine whether you qualify for a loan. The lender will also want to know what type of collateral is available to secure the loan — this might be equipment or real estate.
Restaurant loans are often structured with repayment terms that span five years or more, which can give restaurateurs time to get their restaurants off the ground before they have to start paying back their debt.
What are the requirements for restaurant business loans?
The requirements vary depending on the lender and type of restaurant, whether a franchise or an independent business. But some basic eligibility requirements apply to most restaurants:
Credit scores: A strong credit score can help you get approved for a loan and qualify for better rates and terms.
Annual revenue: Lenders often look at annual revenue instead of monthly or quarterly income.
Business plan: The lender will want to see a well-defined plan for how you’ll use the loan to grow your business and make it profitable.
Collateral: If you don’t have good credit or a solid business plan, the lender may require collateral such as property used by the restaurant.
Current amount of debt: The lender will want to know how much debt you have. If you have a lot of debt on the balance sheet, it can make it difficult for them to judge whether or not you’ll be able to repay them.
Years in business: This will tell the lender how long your business has been operating and whether or not it’s stable. If it’s a new business, there could be more risk involved than an older one with more experience under its belt.
Types of restaurant business loans
The different types of restaurant loans include:
Business term loans: Banks are the most popular option for restaurant financing because of their low-interest rates and flexible terms. The downside is that banks tend to have stricter requirements than other lenders, so it’s essential to have a solid business plan before applying for a loan. Banks may require personal guarantees from owners, which means they could come after your assets if you default on your loan. Also, bank loans also typically require collateral, such as real estate or vehicles.
SBA loans: These loans typically come either through direct lending or through guaranteed underwriting by community banks or larger financial institutions that have been approved by the SBA as an SBA lender. You can use an SBA loan to start or expand your business.
Merchant cash advances: Merchant cash advances is a type of financing where the business owner is provided with a lump sum of money that can be used to manage their working capital. Lenders will provide you a loan based on your future sales.
Business line of credit: A line of credit allows businesses to draw funds as needed and pay them back after they have been used. The business owner must meet certain criteria to qualify for this type of financing.
Equipment financing: Equipment financing offers you a way to obtain the equipment you need without paying for it all upfront. This is basically an asset-based loan that will use the equipment you purchased as collateral.
What are the benefits of getting a restaurant business loan?
Here are some of the benefits of getting a restaurant loan:
Flexibility for using cash: If you don’t have enough cash to cover all of your expenses in one go, then using a restaurant loan can give you some extra flexibility with how much money you want to spend each month. This is especially helpful if unexpected expenses like repairs or maintenance come up unexpectedly.
Tax benefits: If you use your retail business loan to buy equipment or make other investments, the money you spend can be deducted from your income. Also, the interest will be tax deductible. That could mean reducing your taxes for the fiscal period.
How can you use a restaurant loan to grow your business?
There are many ways a restaurant owner can use a loan to grow their business. Here are some common examples:
Operations, marketing, or hiring advice: You may want to hire an outside consultant to help with your business’s operations or marketing. This could include an accountant for tax preparation and financial planning, legal advice on managing employees and leases, or fundraising expertise for capital growth opportunities like expansion or franchise development.
Diversifying through catering and packaged goods: One of the most important steps in growing your business is diversifying into new areas of revenue. While many restaurants focus on food sales alone, some may find success by adding catering services or packaged goods like sandwiches or salads. A restaurant loan can help you get started with these ventures by providing financing for equipment purchases or marketing efforts related to these opportunities.
Investing in new equipment: If your equipment is outdated or inefficient, chances are that it’s costing you every day by taking longer than necessary to prepare meals or clean dishes — not to mention wasting water and energy with inefficient dishwashers and ice machines.
How to choose the best restaurant business loans
If you’re considering taking out a loan to help with starting, expanding, or running your restaurant, here are some factors to consider:
Turnaround time: If you are in a hurry, looking for a lender with fast processing times is better. The processing time may differ from one lender to another, but usually, it takes up to two weeks to approve your application and transfer the money into your account.
Evaluate total repayments: The higher the terms the lower your monthly payments and vice versa. Take that into consideration when considering your cash flow. Moreover, make sure that there are no hidden conditions or fees that could increase your total debt burden later on.
Interest rate: The length of your loan will affect its cost and how long you have to repay it. Short-term loans typically have lower interest rates than longer-term ones, but they also come with higher monthly payments. Longer-term loans often have lower monthly payments but higher interest rates over time.
Lender reputation: Reputable lenders provide excellent customer service and transparent loan terms, making it easy for borrowers to understand their obligations and options. Before signing up with any lender, thoroughly research their reputation.
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