Restaurant business loans are financing granted to businesses in the food and beverage industry by a direct or alternative lender. Loans cover working capital and operating capital. GreenDay offers a guarantee that you will receive a loan. You can have money sent straight into your account, arrange a line of credit, or pay an equipment vendor with it. You pay the lender daily, weekly, or monthly installments, including interest on the entire loan amount, in exchange for a predetermined loan amount.

Restaurant business loan types

Finance for inventory

Traditional inventory financing is not an option for most restaurants because food and wine are perishable items. 

However, there are various ways to finance inventories. 

To buy merchandise, consider an unsecured term loan or line of credit, or utilize other firm assets as collateral.

Purchase loans for restaurants

A restaurant acquisition loan is a short-term loan used to purchase an existing restaurant. The SBA 7(a) program, which offers low rates and extensive loan sums up to $5 million, can be a suitable alternative for restaurants to expand by buying out a competitor.

Finance for equipment

A term loan for purchasing restaurant equipment, such as a new oven, mixer, or salamander, is known as restaurant equipment finance. You may usually fund between 80% and 100% of the expenditure and use your equipment as collateral. The loan term is determined by how long the lender anticipates that your equipment will be operational. And this is one of the most straightforward financing options.

Term loans for businesses

You can cover a one-time investment, such as upgrading your dining area to comply with social distance laws, with a business term loan. They’re the most frequent sort of funding available, and they’re suitable for both new and established enterprises and those with good and bad credit.

Business lines of credit

A business line of credit gives your restaurant access to cash when it’s needed to acquire merchandise, recruit new employees, pay for seasonal charges, or handle basic operating expenses. 

These are useful to have on hand in case of an emergency. Drawing from a credit line takes a shorter time than getting accepted for a loan.

How to Obtain Restaurant Financing as a New Business

Traditional lending institutions are likely to limit your funding possibilities if you’re a first-time restaurateur. While banks and financial institutions are in the business of lending money, they are not charity organizations. They can’t stay in business if they can’t make a profit. 

You run a high chance of defaulting on your loan because you have no prior experience in the restaurant industry. Most banks won’t even consider a loan for a startup because you don’t have a proven history of generating restaurant profits — or even income — most banks won’t even consider a loan for a restaurant startup. As a result, you may need to experiment with equity financing rather than debt financing.

What Are the Conditions?

Typically, the parameters of an equity raise are easy. You’ll provide your investors an assessment of your company’s value, and their percentage ownership will be determined by how much money they’re willing to put up. If your firm is worth $100,000 and your investors each put up $25,000, you’re giving away 25% of your restaurant’s equity.

What documents will I require?

You won’t need the type of financial documentation you’d need to provide to a bank to acquire a loan if you get an equity raise, especially from friends and family. You should, however, have a well-developed business plan that details all of your current and future financials. You’ll need to show your investors a case in which they’ll get a return on their investment, as well as how long that will take.

Do I Qualify?

While this isn’t a big concern, having a solid relationship with your friends and family is beneficial if you plan to generate funds for your new restaurant. But, above all, you must realize that you cannot expect to succeed solely on the goodwill of others. Treat your equity raised from friends and family as if it were a business transaction. In other words, don’t just ask for money. 

Create a restaurant business plan that will demonstrate to your investors that you have what it takes to obtain a return on their investment, even if they are your favorite aunt and uncle. 

Analyze your forecasted expenses, create a revenue forecast, and write down your road to profitability. 

Even if your business plan isn’t sufficient to acquire funds from all of your friends and family, it’s an important step in determining where your business is on track and where your ideas may be flawed.

What Are the Rates?

This is when equity financing’s genuine value is realized. You never have to pay it back, nor do you have to pay interest if you give away shares in your company in exchange for financing. 

Your shareholders are entitled to a percentage of your profits, but you don’t have to pay them anything if your restaurant doesn’t make enough revenue. 

This is especially important for a new restaurant, as it might be challenging to make a profit for months or even years at first. Restaurants must deal with a wide range of expenses, from building and marketing to supply chain costs and labor, all while attempting to establish a constant revenue flow. New restaurants don’t have to pay interest on top of these other fees when using equity financing.

Is it possible to get a restaurant business loan if I have bad credit?

Although finding lenders with negative credit is challenging, it is not impossible. If your credit score is at least 500, you can acquire a restaurant business loan even with negative credit. 

You will, however, be charged higher interest rates and costs. 

Bad credit lenders may seek to connect to your bank account for automated payments and may want daily or weekly payments. In addition, some lenders need a down payment, a business lien, or a personal guarantee.

When should you take out a restaurant loan?

When you need money for a new project or to meet working capital costs, a restaurant business loan can help. 

You can use a restaurant loan to:

• If you’re a seasoned entrepreneur who sees potential in an existing restaurant, buy another one.
• Open a new location or refurbish an existing one, covering all moving and refurb costs to keep your cash flow free.
• Purchase inventory to satisfy increased demand during the summer as Americans return to eateries in droves.
• Begin a marketing effort to entice returning clients and attract new ones. Make the world aware that your restaurant has reopened and is better than ever.
• Hire a new vendor to help you update your new menu. Partner with a farm or craft brewery to keep things interesting for your regulars.
• Replace or upgrade worn-out equipment. Commercial kitchen equipment has a 10-year lifespan.
• Fund sign-on incentives, better health insurance, and attractive salary to attract new employees and stay competitive in a tight labor market.