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Restaurant equipment financing for good and bad credit
Find out where you can apply for restaurant financing in Canada and what you'll need to get approved.
Updated
- How can a small business get a restaurant loan?
- Steps to getting restaurant equipment financing for bad credit
- Am I eligible for restaurant equipment financing?
- What documents do I need to apply for restaurant equipment financing in Canada?
- Types of restaurant financing in Canada
- How do I compare restaurant business loans?
- Can I get restaurant equipment financing for bad credit?
- 6 tips on running a successful restaurant from Michelin-starred chefs
- Frequently asked questions about restaurant equipment financing for bad credit
Restaurants are commonly small businesses with limited resources. For this reason, there comes a time in many business owners’ lives where they may require restaurant business loans. But if you have bad credit, finding financing can be difficult. The good news is that if you’re searching for restaurant equipment financing, there are options available no matter your credit score. Keep reading to find out what they are.
How can a small business get a restaurant loan?
You can get restaurant business loans from a bank, credit union, online lender or broker. Banks tend to offer the most competitive interest rates, but they have the strictest eligibility criteria, such as a good credit score above 660 and positive business revenue for at least 12 months.
If you don’t qualify for restaurant equipment financing from a traditional financial institution, you can apply to online lenders. Online lenders have looser eligibility requirements, but they do charge higher rates on average. They are also the fastest at funding loans for a restaurant business. While banks and credit unions can take weeks to give approval and funding, online lenders typically take 1 to 3 business days.
If you’re new to restaurant business loans, you can apply with a broker, who’ll do the heavy lifting. The broker will take your application to multiple lenders to find loan offers on your behalf. Some brokers are free for the borrower as they’ll get a commission from the lender instead, while others will charge a fee.
Steps to getting restaurant equipment financing for bad credit
- Step 1: Identify your needs. The first step is to clearly define your restaurant’s needs and goals. For example, you may need to upgrade a few old pieces of equipment or purchase new appliances to expand your kitchen’s production capability. Also consider what type of financing you need and how you would prefer to repay. Some restaurants prefer flexible repayment whereas others prefer regular, scheduled payments.
- Step 2: Research lenders. Next, start to consider lenders by evaluating their financial products, eligibility requirements and reputation. Consider reviews from past customers to understand the experience you can expect.
- Step 3: Apply selectively. Once you’ve done your research, apply to a few lenders to receive a quote. You’ll need to provide personal and business information. Once you submit an application, wait for a team member to contact you.
- Step 4: It’s time to narrow in on the best lender. You may need to provide supporting documents to verify your personal and financial details, such as financial statements and your business licence.
- Step 5: Wait for approval. Once you receive your contract, review it and sign.
- Step 6: Get your funds. You should have it in your account within 1 business day.
Am I eligible for restaurant equipment financing?
Eligibility requirements for restaurant business loans vary from lender to lender, but basic requirements include:
- Meet minimum monthly revenue
- Meet minimum time in business
- Meet minimum credit score
- Have a physical location in Canada
What documents do I need to apply for restaurant equipment financing in Canada?
These will also vary among lenders, but you may want to prepare the following:
- A detailed business plan
- A statement of your financial needs
- Your business and/or personal bank account statements
- Profit and loss statements
- Your business ownership documents
If you’re applying to an online lender instead of a bank, you will provide less paperwork.
Types of restaurant financing in Canada
Here’s a breakdown of the main restaurant business loans you can choose from:
- Equipment financing. New and used equipment can sometimes be financed directly in-house with the provider you’re buying it from. If not, you can look into a business loan specifically designed for purchasing equipment.
- Business term loans. Term loans provided by banks, other financial institutions and online lenders can help you with large one-time expenses like kitchen and front-of-house equipment. You’ll receive a specific loan amount that you’ll repay in installments over time. Term loans can go up to $1 million with terms between 3 to 10 years.
- Canada Small Business Financing Program (CSBFP) loan. Find competitive rates with a government-backed loan designed to help start-ups and small businesses that might struggle to qualify for other financing. These loans are backed in part by the government and are provided by banks and other financial institutions. Your business will need to bring in an annual revenue of less than $10 million to qualify and you’ll have to use the financing for specific purposes like purchasing equipment, land or buildings, or doing renovations on your property.
- Inventory financing. Designed specifically for obtaining supplies and inventory, the types of financing offered range from short term loans to lines of credit.
- Invoice factoring.If inventory isn’t a problem but you need working capital, consider invoice factoring. This is where you sell account receivables to a third party at a discount.
How do I compare restaurant business loans?
With so many types of financing, it can be overwhelming to compare your options. Here are a few elements you can focus on when comparing loans for a restaurant business:
- Eligibility criteria. The age of your restaurant, annual revenue and your personal credit score, among other factors, can all affect your eligibility.
- Loan type. When you’re looking at financing, you may want to consider how the different merits of each type could fit your needs. A traditional loan will likely have stricter qualifications than a short term-loan will, but the rates will be much higher with the latter. Other types of financing for specific needs, like equipment or inventory, may not provide you with enough working capital.
- Loan amount. Be sure the lender’s maximum amount offered covers what you require.
But avoid applying for too much – taking on more than you need can lead to paying unnecessary interest charges and ultimately throw you into a cycle of debt you can’t get out of. - Loan term. With a longer loan term comes lower monthly payments, but a higher overall cost due to more payments towards interest.
- Costs. The interest rate and any fees charged can help you determine how much your business loan will cost. If the lender provides an annual percentage rate (APR), this can give you a strong idea of how much you’ll pay on top of the loan principal. Keep in mind that the APR doesn’t include penalty fees for things like late or missed payments, but it does include other fees like administration fees, as well as the interest rate.
Can I get restaurant equipment financing for bad credit?
Yes, you can get restaurant equipment financing for bad credit. Starting with online lenders is a good idea because many are willing to work around bad credit. Rather than fixating on your credit score, they’ll look at the overall health of your business. However, expect to pay higher interest rates on your restaurant loan, because lenders perceive bad-credit borrowers as higher risk. The good news is that if you manage your restaurant equipment financing responsibly, your credit will improve and you have a good chance of getting a more favourable rate on your next loan.
Consider providing collateral
To obtain a lower interest rate or better your odds of approval, consider putting up assets in your restaurant business as collateral. This may happen organically, for example, if your loan purpose was to purchase new equipment.
However, if your loan is not for an asset purchase, you can suggest to potential lenders to use existing assets in your business as collateral. Since this provides more security to the lender, you may achieve a lower interest rate and have better chances of approval.
6 tips on running a successful restaurant from Michelin-starred chefs
(Source: The Legacy Project)
- Make it nice. A nice welcome can set the tone for a restaurant or cafe. A nice plate requires fresh ingredients and a sophisticated presentation. A nice table requires lovely linens, a pressed tablecloth and a high level of cleanliness. It all comes down to the details.
- Hire people who have passion. Bring on people who love food and service as much as you do. Find members for your team who will dedicate themselves by giving their all.
- Lead by example. If you expect your team to do well, show them what that looks like. Work just as hard as you want them to.
- Shove good aside – and be great. Great requires sacrifice, time and patience. Kick things up a notch with a willingness to listen to criticism and evolve from it.
- Balance is everything. If you work until you break, you won’t be of use to anyone or anything – your restaurant included. Take time for yourself to do more than just own a restaurant.
- Don’t give in. You’ll have days when you want to quit for something less intense. Think over your options and don’t make any snap decisions. How can you view tough days as learning experiences or delegate tasks to lighten your workload?
Frequently asked questions about restaurant equipment financing for bad credit
Potentially, yes. It may be more difficult to secure a traditional business loan, but you have other start-up financing options. Finding a partner or an investor, running a crowdfunding campaign or applying for a loan through the Canada Small Business Financing Program (CSBFP) could potentially get you funding as well.
It can take anywhere from a couple of business days to over a month to receive funding. Timing varies by the type of restaurant financing you’re seeking, the lender you’re applying with and the amount you’re borrowing. Factors like missing required information on the application will slow down funding.
Potentially, yes. Whether you can or not depends on the lender you’re borrowing from and the lender you’re applying with for the next one. Keep in mind that just because you’ve successfully borrowed from a lender before, doesn’t necessarily mean you’ll be able to again. You may also want to evaluate if you actually need a second financing option before getting into more debt. Avoiding extra financing means avoiding extra interest payments.