- Loan features: Each lender offers different loan amounts, rates, and repayment terms to restaurant owners.
- Application process: Some loan applications require more information than others, and some companies provide instant decisions and fast funding.
- Interest rates and fees: Each lender can set its own interest rates, and may also charge additional fees like origination fees.
- Qualification process: Each lender looks at different criteria to determine eligibility of a borrower, including credit score, annual revenue, and business history requirements.
- Customer support: We look for lenders that provide easy access to customer service through a variety of channels, including email, chat, and phone.
- Online user reviews: We looked at customer reviews on independent review sites like Trustpilot to understand how well a lender works with customers.
- Perks and bonuses: Some lenders offer extra perks to borrowers, such as reduced interest on secondary loans, payment flexibility, and mobile apps.
What Can Restaurants Use Business Loans For?
The cost of opening and operating a restaurant can run between $95,000 and $2 million, depending on your detailed business plan. Half of all restaurant owners start businesses using personal savings, so having a clear vision of your dream helps you plan and know how much financing for restaurants you’ll need. Listed below are current estimates for the essentials:
- Rent and building fees: The median monthly cost of rent is $5,000, and depending on the location and size of the building, it could cost much more.
- Food costs: The average amount of food costs run 28%-35% of sales, with steakhouses exceeding this at 40%.
- Operations: Expect to spend $10,000-$100,000 to cover the cost of equipment, depending on the restaurant size.
- Labor expenses: The number of employees, their salaries, and benefits typically range from 28%-35% of gross profits.
- Insurance fees: Approximately $180 a month will buy restaurant insurance that can offer some protection when unexpected events occur.
- Technology costs: Monthly costs of $100-$400 for technology, such as point-of-sale terminals, handheld and at-table sale systems, self-order kiosks, digital displays, cash drawers, and printers.
- Marketing expenses: Low-budget marketing costs average about $1,000 a month. This may include branding, the website, and social media.
Top 8 Ways to Finance a Restaurant Business
Here are the top financing options for restaurant owners:
- Equipment financing – With this loan, you can buy the equipment to improve your restaurant or make any large equipment purchases.
- SBA loan – This loan offers lower interest rates and longer repayment terms than other types of small business financing.
- Business line of credit – Allows you to draw on the funds, pay them back, then use them again. You only pay interest on the amount you use.
- Startup business loan – This is a loan you can take before you open a restaurant, as you don’t need to have a business to qualify.
- Invoice factoring – The lender provides a lump sum of about 80% of the invoice value, and they then collect the money from the original owners. It is beneficial for restaurants that rent out their space and get late payments.
- Unsecured business loan – The unsecured loan does not require any collateral, and it is usually followed by a more significant risk and higher interest rates.
- Commercial real estate loan – A commercial real estate loan is used if you need to renovate your existing space or purchase another building to expand your business.
- Merchant cash advance – This is the last resort when it comes to restaurant financing. The MCA is paid back with a percentage from future credit/debit card transactions, and the repayment terms last until the whole loan is paid off. A merchant cash advance is one of the most expensive forms of borrowing for restaurant owners.
Applying for a Restaurant Loan
The process of applying for a small business loan as a restaurant owner is similar to any other small business loan. Here is what you need to consider prior to applying for small business loans for restaurants:
- Ensure you have a credit score of at least 600, preferably 680.
- Ensure you have annual revenue of at least $100,000.
- Ensure all your legal and financial documents are in order.
Financial documents include your business plan, financial statements, tax returns, collateral, and any legal business documents, among others.
These are the basics. To increase your credit score, the most important thing you can do is pay all of your bills on time and ensure you don’t max out your credit cards. Your rating will rise with time as long as you are responsible for the repayment schedule.
Conclusion
Having access to working capital can empower your restaurant to go further, whether that’s by hiring more staff, investing in restaurant equipment that makes it easier to serve customers, or expanding to another location. A restaurant business loan can help your business meet those needs, allowing you to focus on the day-to-day operations of running your restaurant.
*The required FICO score may be higher based on your relationship with American Express, credit history, and other factors.