8 Different Ways to Procure Restaurant Financing & Loans

By: Katie Alteri

6 Minute Read

Jan 11, 2018

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Opening up a new restaurant business? 

Working to grow or expand your existing restaurant?

Well, unless you've got hundreds of thousands of dollars in reserve, you're going to need to source some capital through restaurant financing and restaurant loans.

Restaurant Financing 101

There are many necessary costs that come with owning a restaurant, and the last thing you want to be worried about is if you can afford them all. 

That’s why applying for restaurant financing can be beneficial. Restaurant financing refers to money sourced, borrowed, and/or loaned from an outside partner to help start or grow a restaurant business. This excess capital improves the overall quality of your restaurant as you work to scale operations.

After a quick Google search, you may be overwhelmed by all the options for restaurant loans and financing available, and it may be difficult to decide on the type of financing you should pursue. There will be many factors to take into consideration, such as:

  • Term lengths (if applicable)
  • Amount sourced
  • The application process
  • Time to receive funding

Luckily, we’ve compiled this post to explain some of the most common financing options that restaurants pursue.

Which of these financing options is best for your restaurant? Read on as we explain their pros and cons.

1) Bank Loan

restaurant loans

Bank loans usually have low interest rates, and receiving one can help you increase your business’s credit score.

Still, to attain a bank loan, you should be prepared for a slow approval process. The bank loan application process can take months. If your need for capital is urgent, you may want to apply elsewhere.

Banks usually have tighter restrictions on who they will approve, such as an already favorable credit score. You don’t want to wait months just to find out you weren’t approved for a bank loan.

2) SBA Loan

When pursuing working capital, you should consider applying for a loan from the U.S. Small Business Administration, or SBA.

Like a bank loan, this process can be lengthy, requiring a lot of detailed paperwork. Additionally, you will need to have a decent credit score to qualify for a SBA loan, and should be prepared for the potential of high interest rates if you are granted this financing.

Overall, this can be a reliable financing source for business owners. Plus, even if your restaurant hasn’t been up-and-running for a long period, the SBA still may be able to provide you with a loan.

3) Merchant Cash Advance

restaurant loans

Unless your restaurant is cashless, you accept credit cards as a form of payment. Because of this, you’d likely be a strong candidate for a merchant cash advance.

This is the purchase of your restaurant’s future credit card receivables. Instead of set terms, a percentage of your credit card sales is withheld until you satisfy your obligation. This ensures that you can repay your advance at a pace that works for your restaurant.

For instance, if you receive more sales around the holiday season, you’ll pay back a higher amount of your loan during that time. When sales slow down, you’ll remit a smaller amount, so you won’t have to worry about not having enough money for your other responsibilities.

But remember, if your restaurant is a cash-only establishment, you’ll have to move on to a different opportunity!

4) Loan From an Alternative Lender

Applying for a business loan from a recognized lender is a strong option to consider. Most lenders offer a range of funding amounts and terms, so that you can receive a loan that is tailored to your restaurant’s needs.

Plus, unlike bank loans, most lenders can supply a business loan in a faster period. If you’re diligent about quickly submitting your application, you’ll likely have your loan in less than a week.

Other qualifications will vary depending on the specific lender you decide on, so make sure to do your research prior to applying. Most of the time, alternative lenders have looser criteria than banks when it comes to who they will provide restaurant financing to. Typically, they’ll aim to look at various factors, instead of solely focusing on credit score or monthly sales amount.


5) Equipment Financing

Did your oven break? Need a new freezer?

Having restaurant system and equipment issues is a common reason that many restaurant owners apply for equipment financing.

Prior to applying, do your research and compare equipment financing options. Some equipment financing lenders may have higher down payment costs than others. Once you receive equipment financing, you’ll make monthly payments to repay your loan. If you are diligent and make your payments on time, this can help you build credit.

Alternative: Equipment Leasing

If this financing option doesn’t entirely match your needs, you can also consider equipment leasing. You’ll receive the equipment that you require, without making the commitment of owning it.

It is important to keep in mind that you’ll have to keep the leased equipment until the end of your agreement, but will likely have it replaced with updated equipment at that time.

6) Business Line of Credit

With a business line of credit, you do not receive a set amount of money all at once. Instead, you can borrow in increments until you reach a pre-decided limit. It can be helpful to have access to working capital when you need it, and you’ll be able to improve your credit score at the same time.

This option is available through banks and some online lenders. When exploring business lines of credit, you should also debate whether secured or unsecured is right for your business.

A secured business line of credit is backed by an asset, while an unsecured business line of credit is not. Because of this, it can be more challenging to receive an unsecured business line of credit.

7) Angel Investors

restaurant angel investors

An angel investor is a wealthy individual who must have a certain net worth in order to invest money in your company. Typically, the angel investor is a former entrepreneur, although that is not always the case.

When investing, they will buy equity in your business, and might even be interested in serving as an advisor. If you’ve already started your restaurant and are earning revenue, but need more money to elevate your business, this could be a strong financing choice.

8) Asking Friends or Family Members

If you’re apprehensive about applying for one of the previous financing options, or if you're in need of immediate assistance, you could ask friends or family for money to use for your restaurant. This option is easier than filling out an application or providing paperwork like the other options we mentioned entail.

For these loans, you don't have to worry much about credit score or the age of the business.

Still, you’ll want to consider the conflict of interest. If you are unable to pay back the loved one who loaned you money, it might create an uncomfortable situation in the future.

The Next Steps for Restaurant Financing

Applying for financing for your restaurant can seem overwhelming, but it will be worth it in the long-run. Some of the options we mentioned are used when there is an immediate demand, like repairing hardware and equipment or buying more inventory. Other options are used to have some extra cash on-hand to prepare for something unexpected.

Either way, you know your restaurant business best, and should choose the option that makes the most sense for you. Taking time to review the eight options that we mentioned in this post will help you ensure that you’re pursuing the right opportunity for your business.

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