Traditional business loans can be hard for restaurant owners to qualify for because the industry is generally considered risky. That’s why restaurant business loans are most often available through Small Business Administration (SBA) lenders, nonprofits or alternative business loan providers.
Compare these top lenders for restaurants, which include a variety of loan types with competitive rates, along with options for new restaurants or borrowers with lower credit scores.
SBA loans offer restaurants government-backed funding as high as $5 million or more for almost any use. With rates and fees capped by the government, SBA loans might be the least expensive restaurant financing option for many businesses. While there are programs for startups and bad credit, it’s best for restaurants that have been around for at least three years and owners who have credit scores above 620, which most SBA lenders require.
A business line of credit offers your restaurant access to cash as needed to buy inventory, hire new staff, handle seasonal expenses or use as general working capital. These can be helpful to have on hand for emergencies since it typically takes less time to draw from a credit line than get approved for a loan.
Business term loans can help your restaurant cover a large, one-time expense, like renovating your dining room or updating the bathrooms. They’re the most common type of financing out there and are available for startups and established businesses, as well as for good or bad credit.
Restaurant equipment financing is a term loan to buy equipment, including a new oven, mixer or salamander. Usually, lenders will finance between 80% to 100% of the cost and use your equipment as collateral. The loan term is based on how long the lender expects your equipment to be functional. And this type of financing is one of the easiest to qualify for.
A restaurant acquisition loan is a term loan used to buy an existing restaurant. The SBA 7(a) program can be a good option for restaurants that want to expand by buying out a competitor, since they come with low rates and offer high loan amounts up to $5 million.
Since food and alcohol are perishable goods, traditional inventory financing is off the table for most restaurants. But there are other inventory financing options. Consider an unsecured term loan or line of credit to buy inventory, or use other business assets to back the loan.
Working capital loans are usually short-term business loans, typically used to cover unexpected expenses or cash flow shortages. These can often fund your business within one day and are available to business owners with poor credit. But they often come with daily or weekly repayments and can cost more than your typical term loan or line of credit.
Merchant cash advances are an advance on your restaurant’s future credit and debit card sales. They can help cover cash-flow gaps during the high season. But they’re one of the most expensive types of restaurant financing out there and should be saved as a last resort, like during an off-season or when sales are difficult to predict in advance.
A restaurant business loan can be useful when you need funds to invest in a new project or to cover working capital expenses. Use a restaurant loan to:
Once you know the kind of loan you’re looking for and have identified some top lenders, compare these key factors before applying.
Exact requirements to qualify for a restaurant loan vary depending on the lender or loan type, but most consider your credit score, time in business and monthly or annual revenue.
Some restaurant loans may also require collateral or a down payment, and most require a personal guarantee.
While steps may vary depending on the loan type or lender, restaurants can generally follow these steps.
Set up an appointment with an SBA resource partner in your area, like a small business development center. They can outline all your financing options and help you decide on the right path forward for your business.
Generally, you need to have good to excellent credit to get a business loan — that’s a credit score of at least 670. Business lenders are usually more forgiving of personal credit scores than personal loan providers.
But when it comes to the restaurant industry, your credit score could matter more, especially if you’re within the first five years. It can help offset the risk of lending to a relatively high-risk business.
Compare seven fintech small business loans by loan amount, term and APR — verified straight from each lender’s site.
Bank of America offers secured and unsecured business loans and lines of credit for established small businesses.
Wells Fargo offers unsecured lines of credit, secured Prime Lines and SBA loans for small businesses.
OnDeck offers business term loans and lines of credit, but it’s not the cheapest option out there.
A review of Chase business loans, including term loans, lines of credit, commercial real estate financing and SBA loans.
Biz2Credit connects you with lenders to get a loan to grow your business. Compare the loan types offered and see how they stack up to other business loans.
Getting a business loan can be hard when banks and other traditional lenders have strict requirements. See what startup loan options are available.
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