Restaurant Business Loans: Custom Financing Options

March 11, 2024

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The restaurant industry is vibrant, fast-paced, and always in need of capital to grow, renovate, or merely maintain operations. Whether you’re a startup or a seasoned restaurateur, understanding the array of restaurant financing options available is crucial.

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Restaurant Needs

Before diving into the types of business financing available for restaurant owners, it’s important to think about how you will use these funds. For instance, are you looking to open a new location or do you need an equipment loan for a new refrigeration system. You’ll find some small business loans are very specific about how and what you can spend the money on. Meanwhile, if you are considering equipment purchases, there are specific equipment financing programs that may make sense for you. Moreover, if you need more working capital or you need funding that is flexible in that it can be used for a myriad of ways, then a merchant cash advance likely makes the most sense. Keep on reading to learn more.

Exploring Choices: Bank Lender vs. Alternative Financing

Every small business owner knows the importance of a reliable funder. When we discuss funders, the divide often lies between lenders like banks vs. alternative funders. While the former might offer various loan products, the latter shouldn’t be overlooked as alternative financing often provides more flexibility, especially for restaurant owners with a less-than-perfect credit score.

SBA Loans

Among the various financing options, SBA loans, especially the SBA 7(a) loan program, stand out. The Small Business Administration backs these, making it easier for business owners to qualify. They often come with lower interest rates and favorable repayment terms. However, the application process can be more stringent, requiring detailed business plans, financial statements, and sometimes even personal guarantees. Plus, that can take quite some time from application to funding – weeks or even months.

Equipment Financing

For restaurant owners navigating the maze of financing options, equipment financing emerges as a distinct pathway. On paper, it’s designed for procuring or updating necessary restaurant equipment, from ovens to freezers. The catch? The new equipment you’re purchasing becomes the collateral. This can be risky, especially if business hits a rough patch. While it might offer a facade of less rigorous approvals, it’s imperative for restaurateurs to approach with caution. Ensure you thoroughly understand the terms and consider the implications of potentially losing the equipment. Additionally, even though its application process might be more straightforward than some financing avenues like SBA loans, it’s not without its challenges and bureaucratic hoops.

Merchant Cash Advance: A Boon for Restaurant Owners

Amidst the various funding options available, why would one lean towards a merchant cash advance (MCA)? For restaurateurs needing a lump sum quickly, MCAs can be a lifeline. Instead of monthly payments, a percentage of daily sales is remitted. It offers flexibility; during slow business days, your repayment* is lower, and vice versa. No collateral is needed, making it preferable for many in the restaurant industry. However, remember to review the factor rate as you don’t pay interest on MCAs which is different than a loan.

Understanding Working Capital Loans

For restaurants, cash flow is king. Working capital loans and other forms of financing provide the necessary funds to cover everyday expenses, from staff salaries to buying kitchen equipment. They’re typically short-term loans, designed to be paid back once the restaurant has adequate cash flow.

Evaluating Eligibility: Credit Score and More

Your personal credit and business credit score can play significant roles in the financing options available to you. While a higher score can open doors to lower interest rates and better loan amounts, those with bad credit aren’t without options. Alternative funders, for instance, may prioritize your restaurant’s cash flow over credit scores.

The Importance of a Business Plan

Is a business plan really vital to secure funding? It depends on the type of financing sought. A comprehensive business plan can be your ticket to securing various types of loans. It gives lenders, be it for an SBA loan or another type of restaurant business loan, a clear picture of your business needs, projected cash flow, and repayment capabilities. But alternative funders often could care less about a business plan. Since they are repaid via a percent of your future revenue, often, they look at your recent cash flow to understand what to expect in the future rather than a business plan.

Expanding and Renovations

Looking to open a new restaurant location or renovate an existing one? Funding options like commercial real estate loans or even crowdfunding can be explored. For renovations, MCAs can be the preferred choices, given the faster approval times.

FAQs for Restaurateurs

  1. Can I get financing for a new business? Absolutely! While startups might face challenges with bank loans, alternative lenders, online lenders, and even certain SBA loan programs can assist.

  2. What are the typical repayment terms for a merchant cash advance? Repayment for MCAs is based on a share of daily sales. Thus, it varies with your restaurant’s performance. This is a good thing for restaurants as very few have steady income and this provides more flexibility in the repayment.

  3. Are there loans specific to types of restaurants? Generally, financing isn’t strictly based on the type of restaurant, but rather on financial needs, creditworthiness, and the desired loan amount.

  4. What documents are typically required during the application process? Expect to present tax returns, profit and loss statements, and other financial statements during the loan application process. The specifics might vary depending on the lender and loan type. However, with alternative funding like an MCA, you’ll likely only need 3-4 months of recent business bank statements to get approved.


Understanding restaurant financing options is essential for growth and sustainability. There are numerous routes available, from working capital loans to equipment financing, to merchant cash advances so you should do the research to understand which is best for you. It’s paramount to evaluate each option against your business needs.

Remember, as small business owners in the restaurant sector, it’s not just about securing funds. It’s about building partnerships with funders, be it banks or alternative ones, ensuring that your restaurant thrives in the ever-competitive landscape.

*Repayment in this context describes the process of repurchasing a merchant cash advance. It does not describe the process of repaying a loan. MCAs are legally distinct from loan products.

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