8 simple ways to get restaurant business loans

Are you a top-notch chef with a desire to start a restaurant business and showcase your culinary skills?

Or are you a veteran looking for funds to grow and expand your business?

The truth is that hotel owners have always had a hard time getting financing for their businesses because the restaurant industry is considered risky.

Unfortunately, lack of funding is the number one reason why restaurant businesses fail after a few years of operation.
So how can a restaurant owner access funds for their ventures?

In this article, you’ll get an overview of the different kinds of restaurant business loans and why you may need them. You’ll also learn how to fund your business.

Restaurant Business Loans
Restaurant Business Loans

Different types of restaurant business loans and why you need them

There are several small business loans for restaurants. Whichever financing option you choose will largely depend on your potential lender and why you need the funds.

Below are some of the most basic restaurant loans available to restaurant owners:

  • A business line of credit
    A line of credit gives you access to a pool of funds that you can draw from whenever you want.
    You’ll then pay back the amount withdrawn plus interest, and the funds will be revolved for you to withdraw again.
    Due to its flexibility, this kind of restaurant financing is ideal for hotel owners because of the nature of their businesses.
    During busy periods, you can use it as a backup plan to boost your working capital.
    It also comes in handy during low seasons to cover the day-to-day expenses of the business.
  • Equipment loans
    With equipment financing, you can purchase state-of-the-art cooking equipment for your business.
    These loans are ideal for restaurant owners looking to upgrade their kitchen so that they can become more efficient in service delivery or budding chefs starting out their career in the hospitality industry.
    The beauty with this mode of financing is that you don’t need collateral because the piece of equipment acts as security until you repay the loan in full.
  • Inventory financing
    According to the 2015 restaurant industry forecast, the number one challenge for many restaurant owners is ensuring that there is enough food in their kitchen.
    You can stock up your kitchen with enough foodstuff and other necessities to help run your business smoothly with inventory financing.
    It’s not wise to lose your customers to competitors because they cannot find what they are looking for in your restaurant.
    It is, therefore, important to make sure that you have everything your clients need to maintain the traffic and increase profitability.
    Just like equipment financing, you can use the inventory you purchase as security for the loan.
  • Working capital loans
    With a maximum credit of $250,000, you can run your restaurant business smoothly.
    Working capital loans give you access to funds that’ll help you cover the day-to-day expenses of the business.
    These loans are usually short-term in nature and keeps you afloat when you need a boost in your cash flows or when you need to take care of an immediate need.

How to finance your restaurant business

Most traditional financing institutions find the restaurant industry so risky due to their high rate of failures.

They, therefore, shy away from lending to such business owners.

Fortunately, some alternative lenders are willing to finance restaurant owners.

Below are some financing options for restaurants:

  • SBA loans
    To reduce lending risks and provide resources for small business owners, the USA Small Business Administration guarantees different kinds of loans for entrepreneurs.
    It, therefore, means that lenders like credit unions, banks and others can risk funding your restaurant.
    There are several SBA loan options available for restaurant owners. You, therefore, need to choose what suits you most.
    To qualify for an SBA loan, you need to have good credit scores. You’ll also have to pay a guarantee fee upfront.
  • Credit cards
    You can use your credit card to finance the operations of your restaurant.
    It’s, however, vital that you are amenable to the interest rates and you can repay the amount borrowed on time.
    You need to be cautious when using this mode of financing and be sure that you have a stable cash flow to make repayments to avoid accumulating your debt.
  • Bank loans
    Banks are wary of the restaurant industry due to the lending risk involved.
    This makes it more frustrating for restaurant owners looking for credit from banks.
    If you have good credit scores and collateral, you can discuss the options available for you with your local banker.
    The beauty with bank loans is that the interest rates are quite low and depending on how risky you are, you can qualify for a long-term loan that allows you to pay in manageable installments.
  • Merchant cash advance
    Although cash advances are an expensive way of restaurant financing, you can use them to sort out short-term business needs.
    A merchant cash advance gives you access to funds in exchange for a percentage of your future revenue.
    Usually, the advancing company charges an interest rate of 20% and this may affect your bottom line.
  • Loans from credit unions
    You can easily qualify for a loan from credit unions if you present a convincing business plan and solid market research.
    Credit unions charge interest on the loan balance so the earlier you repay the loan, the less interest you will be charged.
    Their terms are also quite flexible, making it ideal for entrepreneurs who want to start a restaurant business.
  • Family and friends
    You can also get restaurant business loans from friends and family.
    Discuss your business ideas with them and ask them to help you kick-start your dream.
    Just ensure that you keep your end of the bargain because failure to pay them back as agreed may break trust and end your friendship.
  • Savings
    Using your savings is by far the best way to finance your restaurant business.
    If you desire to own a thriving hotel business, you can plan and set aside some money to fund your dream.
    That way, you’ll get into business without any debt obligation.
    Treat it as a loan to the business and pay yourself interest.
    Just make sure you don’t use all your savings. Having some left for contingencies is important.
  • Angel investors
    Getting investors to invest in your restaurant can also help you access funds to start your restaurant business.
    With a solid business plan, you should be able to convince your potential investors that the business can repay the loan on time.
    You could also make them permanent partners in your business by giving them some control over the company. Sharing control means that they’ll be able to make decisions regarding the business.
    If you don’t want to share your business equity, it’s important to repay the debt on time so that you cut all the links with the investors.

Essential tips to entrepreneurs seeking restaurant business loans

  • When looking for restaurant loans, you need to compare different lenders and make sure that the one you choose is the most affordable and has flexible repayments terms.
  • Work on improving your credit scores to access loans with better terms and the lowest interest rates.
  • Have a plan in place on how you intend to repay your loan because failure to pay your monthly repayments means you’ll incur more expenses that will affect your bottom line.

To get in touch with our reputable lenders, fill out our online loan application form and let us help you realize your dream. Our application process is simple, and it’ll take less than five minutes to navigate through.

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