Where to Find Financing for Your Dining Business

Restaurant Loans

Last Updated: 12/27/2021
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Starting a restaurant takes a lot more than a standout signature dish. Many business owners struggle to come up with the cash to pay for construction, staff, equipment, and inventory. Restaurants are notoriously risky ventures, but there are still businesses out there willing to loan the funds you need. If you dream of running a restaurant, here's what you should know before you sign a loan agreement.

What Does a Restaurant Loan Cover?

Your start-up costs depend on what kind of restaurant you're opening — and where. Starting a dining place in a major city can easily triple the amount you'd need in a small town. Here are some costs that Inc. magazine projects that you'll need to be able to cover, based on a typical sit-down eatery:

Where to Find Restaurant Financing

Lender
Type of Financing
Description
Site Link

Advantage+

Working capital

Restaurants that have been open for at least 3 years can apply for $5,000-$50,000 in working capital. Approval can happen in a few days. Terms last from 12-18 months, with no prepayment penalty.

https://www.advantageleasing.com/short-term-working-capital-loans/

ARF Financial

Restaurant loans, equipment financing, franchise financing, lines of credit

Borrow from $5,000 to $1 million, with no collateral required on loans under $750,000. Flex Pay loans allow business owners to defer 50 percent of loan principal to maximize immediate cash flow. Terms up to 36 months are available.

http://www.arffinancial.com/industry-focus/restaurants-loans/

Apple Pie Capital

Franchise financing

Apple Pie specializes in businesses that hope to franchise. Loans start at $100,000, with interest ranging from 7.75-12 percent. No personal collateral is required, and funds are available within 30 days. Terms last up to 10 years, and there's no prepayment penalty for loans under $1 million.

https://www.applepiecapital.com/borrow

Balboa Capital

Equipment financing, franchise financing

Small business loans go up to $250,000 with no collateral required. Terms run from 3-18 months for loans and up to 60 months for equipment financing. They offer same-day funding for equipment financing and business loans in a few days.

http://www.balboacapital.com/

Business Loans Direct

Business loans

Business Loans Direct promises funds in as little as 72 hours. In the past, you only needed to have been in business for 3 months to apply for up to $250,000; currently, they don't disclose specific details. Use funds for anything your restaurant needs. Read terms carefully, as this is a factor-based loan. Interest rates and payback terms may vary widely.

https://www.ethicalcommunity.org/businessloansdirect

CAN Capital

Loan, merchant cash advance

Businesses only need to be in operation for 6 months and possess at least $150,000 in gross revenue to qualify for a loan. Single-location businesses can access up to $250,000 in as little as 2 days. Terms are available from 6 to 18 months. Your payment is based on credit sales volumes.

https://www.cancapital.com/

Dealstruck

Loans

Business loans are available up to $350,000. Lines of credit go as high as $500,000. Interest rates begin at 9.99 percent, and terms are available up to 48 months. Businesses can access funding within 7 days, and there are no daily payments required.

https://www.dealstruck.com/small-business-loans/

eCapital

Working capital, equipment leasing

eCapital has offered up to $500,000 for businesses that have been open at least 6 months, with no personal collateral required. Plans can range from 30 days to several years, but currently require a personalized quote for further details.

https://ecapital.com/business-financing/

Fora Financial

Loans, merchant funding

Fora Financial proudly lists restaurants as their most-served industry. Loan up to $500,000 for equipment, inventory, and staffing. Startup restaurants need 6 months of history. Repayment of merchant funding is based on a percentage of future sales.

http://www.forafinancial.com/industries-we-serve/restaurants/

Funding Circle

Marketplace lender

Get up to $500,000 in as quickly as 24 hours. You'll pay an origination fee of 3.49 percent to 6.99 percent and interest rates between 4.99 percent and 30 percent. Terms range from 6 months - 5 years. There's no prepayment penalty, but this loan requires collateral.

https://www.fundingcircle.com/us/

Kabbage

Working capital, line of credit

Kabbage can be a good option for restaurateurs who don't have great personal credit since the company uses your business data to approve a loan. Borrow $2,000-$250,000. Fees range from 1 percent - 10 percent of the selected loan amount. Terms range from 6-18 months, and there's no prepayment fee.

https://www.kabbage.com/line-of-credit/#supported-stores

Fimerica

Loans, lines of credit, merchant cash advance

Fimerica uses a lender marketplace to help businesses find competitive rates for business loans or merchant cash advances. Terms typically range from one to five years and loans are available up to $5,000,000.

https://fimerica.com/

Small Business Administration

Small business loans

The gold standard for small business financing, this government organization offers several loan programs that benefit small businesses. Loans are competitive, but interest and fees tend to be much lower than many loan companies.

https://www.sba.gov/loans-grants/see-what-sba-offers/sba-loan-programs

OnDeck

Loans, lines of credit

OnDeck offers loans or lines of credit to businesses that have been open at least twelve months for lines of credit, with at least $100,000 in annual revenue. Loans go up to $500,000, and lines of credit go to $100,000. Average interest rates for short-term and long-term loans are 25.3 percent and 48.7 percent. APR on credit lines start at 13.99 percent.

https://www.ondeck.com/company

StreetShares

Loans, lines of credit

StreetShares offers loans and lines of credit up to $250,000, with terms ranging from 3-36 months. Veterans may be eligible for special deals. There's no prepayment penalty. There's a one-time origination fee of 3.95 percent or 4.95 percent. One year in business or $75,000 in revenue is required.

https://streetshares.com/

Things to Do Before Applying for a Restaurant Loan

Prep work is as important before a meeting with a lender as it is when you're working on the line. Impress financing agencies by following these steps.

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    Get experience working in the industry

    Just because you love to cook doesn't prove you understand what goes into keeping the front and back ends of a restaurant running smoothly.

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    Write up a menu-and a business plan

    Lenders want to know what makes your restaurant stand out in the neighborhood you've chosen. Are you introducing a new cuisine or a style of dining that's lacking in the community? Who's your target market, and how will they find out about you? Show lenders that you've got not only great food but also the business sense to know how to get people to come eat it, and they'll be more likely to work with you.

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    Square things away with Uncle Sam

    As a new business, you don't have much sales history to show. Lenders will use your past three years' tax returns as one way of determining your financial trustworthiness.

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    Get rid of credit card debt

    It should go without saying that it's best to have your finances steady before launching a new venture. Lenders also use your credit report and your spouse's if he or she is a co-applicant on the loan to decide whether to approve your loan application. Federal law entitles you to a free copy of your credit report every year, so this might be a good time to use it.

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    Collect your paperwork

    As much as you can, obtain the licenses and permits you'll need to run your restaurant. If there are steps you can't take until you have loan funding, that's okay. Write them up and bring the plan along to your meeting with the lender.

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    Save up some cash

    Opening a restaurant is a lot like buying a house. You need to put a significant chunk of your money on the table to show you're serious. In fact, some aspiring restaurateurs take out a second mortgage on their homes to make their business dreams come true. Make your decision based on your finances (ask an advisor for guidance if you need to), but be prepared to provide 10 to 50 percent of the figure you need to open your doors.

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    Ask your community to contribute

    Crowdfunding can help you scrape together your contribution. You can also use it to get a jump on marketing and assess the demand in your area. GoFundMe and industry-specific FoodStart are popular options. Tip: If you're offering incentives for pledges, make sure they scale up well. You don't want to have to list 2,000 backers on the back of a menu or give away free drinks to hundreds of customers.

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    Imagine your future

    Write out financial projections to help lenders see what success would look like for your business. Again, this is about proving you know as much about profit margin as profiteroles. Inspire confidence in and out of the kitchen.

Profile: How One Restaurant Owner Found Business Financing

Kevin Onyona was driven both by a love for cooking and dissatisfaction with the restaurant scene in Beltsville, Md. His restaurant, Swahili Village, launched as the area's only source of authentic Kenyan cuisine.

Kevin Onyona: "I started Swahili Village seven years ago. I was frustrated trying to find good African cuisine," Onyona said. "In 2009, I bought a lease from a gentleman who was struggling...We did some renovations, cleaned up the kitchen [and] got a liquor license."

Opening the restaurant was a relatively inexpensive endeavor for the industry, coming in around $150,000. Still, coming up with the money involved a few challenges.

Kevin Onyona: "We borrowed from different people, different companies that were basically loan sharks," says Onyona, who cautions aspiring restaurateurs to be wary of merchant cash advances. Getting funds quickly is tempting, but high interest rates and payments can make it difficult for a business to succee"

Then, Onyona decided it was time to expand, so he chose a site near his original restaurant to keep his established customer base. Moving to the new location was intensive work, and expensive, coming in at $700,000.

This time around, Onyona had experience on his side when it came to seeking financing.

Kevin Onyona: "I managed to take advantage of [owning] a solid business that had been open seven years," he said. "I was able to get lines of credit and a small SBA loan." He highly recommends that restaurant owners explore applying for an SBA loan. "SBA loans are the best financing option that any business could want. They're more forgiving and interest rates are more affordable."

To Onyona, the cost of a loan was worth it for the freedom to customize the space.

Kevin Onyona: "We built it from scratch," Onyona said. "It used to be a grocery store...I had to build an entirely new restaurant, new kitchen, new bar. It was a complete buildout from the ground up. Parking is abundant, and there are a lot of options to do a large party. We have so much to play with."

Expert Q&A

Restaurants are a high-risk industry. Several studies put the failure rate at about 60 percent within three to five years. Perishable food also means thousands of dollars in investments may literally get thrown away if a business doesn't thrive.

Main Street Launch, formerly OBDC Small Business Finance, provides capital for new small businesses in the Oakland and San Francisco, Calif. areas and to veteran-owned businesses in California. Katie Taylor, assistant vice president of communications, spoke with MoneyGeek about the unique challenges facing aspiring restaurateurs.

What special challenges do restaurants face when it comes to financing?

Katie Taylor:

"Financing is really dependent on your general business plan and understanding how much things cost and how to price things. When you're a brand new restaurant, any type of startup has a hard time getting a traditional bank loan. Crowdfunding can be really time-consuming and challenging, [and] location is a big thing, in the sense that you want to make sure your customers are going to be able to find you.

One thing with financing that folks don't know until they're in the mix is that they need to have some money to put in... It's showing that you have some skin in the game." For Main Street Launch, this "equity injection" is around 10-20 percent of the total loan amount.

How much money does a restaurant owner need to get started?

Katie Taylor:

"The size of the space has a big impact on varying costs. Your rent is generally based on square footage, so a smaller space may be cheaper. If you need to do construction or purchase equipment, furniture, and fixtures, the size of the space impacts that also." One client who's purchasing a restaurant that's already built out has an estimated $600,000 budget to acquire the business and make some upgrades.

For would-be restaurateurs paralyzed by sticker shock, Taylor recommends a more wallet-friendly starter option. "Food trucks can generally be purchased and built out for $50,000 or less (depending on the choices made in the build-out). This is sometimes a good way to get started to build revenues before launching a brick and mortar space."

How can a business owner demonstrate that they're an ideal candidate for a restaurant loan?

Katie Taylor:

"Having a really strong business plan. Even if it's not fully written out, having a really strong concept of what you want to be doing, who your clients are and what you're bringing to that community or neighborhood that isn't there." Having financial documents and projections prepared as fully as possible is important, too, she says.

What are the typical fees and interest rates associated with restaurant loans, and how can you make sure you're getting a good deal?

Katie Taylor:

"Bank loans typically are prime plus two... Prime is determined by the Fed, so it changes periodically. Read the fine print to see if there are regular fees that are incurred. We're seeing that the difference between interest rate and APR can be really big. You could be offered a 3 percent interest rate and have a 30 percent APR because of all the costs...Ask if there is a prepayment penalty and how much it is." Understanding the full amount you need to pay, according to Taylor, can make the difference between succeeding and getting caught in an ugly repayment cycle.

Resources

The National Restaurant Association advocates for the food service industry's interests and helps connect members to resources, including information on financing.

The Small Business Administration offers resources and loans to small businesses. Your local office may be able to point you to banks in the area with a history of approving restaurant loans.

A local or regional restaurant association, such as the Restaurant Association of Metropolitan Washington, may have resources for area businesses.

The National Small Business Association advocates for the economic and regulatory interests of small businesses. Check its news page for updates on finance bills that could affect your business.

The National Federation of Independent Businesses offers resources on how to open a restaurant or franchise, including guides to different types of business financing.

The U.S. Department of Agriculture offers some small business loan guarantees, including restaurant financing, for business owners in rural areas.

The International Franchise Association offers education and resources for franchise operators.

The American Culinary Federation offers certification programs for chefs. It may be able to help an aspiring restaurateur build the experience and connections to be successful in the industry.

About the Author


expert-profile

Jessica Sillers writes about finance, business, travel, and parenting for various businesses and publications. She lives with her family in the greater Washington, D.C. area. Learn more about her work at www.dcfreelancewriter.com.