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Restaurant Business Loans: Top 5 Financing Options

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Whether you’re opening a restaurant or have been operating one for years, restaurant business loans can provide working capital for daily expenses or major purchases such as equipment. But getting a restaurant loan can be a challenge since traditional lenders often view restaurants as high risk because of industry volatility. Here are our top picks for restaurant business loans.

Top 5 restaurant business loans

We chose to highlight online lenders that cater to restaurants because they typically have more lenient eligibility requirements and faster funding, although interest rates can be high depending on your credit history. Online lenders typically work with a variety of businesses and can help restaurant owners pay for equipment, inventory, payroll and other expenses.

The lenders on our list also had to show:

  • Transparency: Information on loan amounts and time to funding is described on lender websites. While transparency is key for us, it’s not common for online lenders that offer restaurant business loans to list APRs online, so you’ll often need to reach out to the lender for specifics.
  • Reputation: Lender credibility was a factor in our determination.
  • Accessibility: We heavily weighted lenders that have relatively low revenue requirements and time-in-business requirements, with these lenders requiring one year or less.

Fora Financial

Fora Financial offers restaurant business loans between $5,000 and $500,000 that can be used to purchase equipment, hire staff, buy inventory, market the business or open a new location. The company, which also offers food truck financing, advertises 24-hour approval and funding in as little as 72 hours.

Repayment terms are up to 15 months. Fora Financial doesn’t require collateral and offers early payoff discounts. To be eligible, you need at least six months in business and $12,000 in gross monthly sales, and you must have no open bankruptcies.

Fora Financial uses factor rates — which are written as decimal figures rather than percentages — to express interest. You would multiply the factor rate by your loan amount to determine the total cost of your financing. However, the company doesn’t publicly disclose its factor rates.

Kabbage

Kabbage offers a revolving line of credit for qualified restaurateurs from $1,000 to $250,000. You can draw from your credit line at any point and repay the balance on a 6-, 12- or 18-month schedule.

Each month, you would need to pay back either one-sixth, one-twelfth or one-eighteenth of your debt, plus a fee between 1.25% and 10.00%. To qualify for the 12-month term, you must borrow at least $10,000. And the 18-month term requires a $20,000 minimum withdrawal.

Restaurant owners need at least one year in business and $50,000 in annual revenue or $4,200 in monthly revenue in the past three months. You could receive funds within three business days of being approved.

National Funding

National Funding offers small business loans to help restaurant owners grow their establishments. Eligible applicants could borrow between $5,000 and $500,000 to cover expenses such as inventory, kitchen equipment or dining room furniture. The company could issue funding in as little as 24 hours after approval.

Loan repayment terms span 4 to 24 months, but National Funding doesn’t disclose APRs. To qualify for a business loan, you need $100,000 in annual sales and at least one year in business.

National Funding also offers equipment financing, which requires just six months in business and has terms between 24 and 60 months. This could be a better option for someone with poor credit, as the minimum credit score requirement for equipment financing through National Funding is 575.

Balboa Capital

Balboa Capital provides restaurant business loans from $5,000 to $250,000. You could receive same-day funding with repayment terms from 3 to 18 months. The company doesn’t disclose its APRs.

Collateral isn’t required, and applicants with all types of credit can be considered. Balboa Capital requires your restaurant to have been open for at least one year with a minimum of $300,000 in annual sales.

Balboa Capital also offers equipment financing for restaurants. Equipment financing requires one year in business and $100,000 in annual revenue. You could receive same-day equipment loans up to $250,000 with lease terms starting at 24 months.

OnDeck

OnDeck offers short-term loans for restaurant owners between $5,000 and $250,000 with terms from 3 months to 18 months.

APRs start at 35.10% for well-qualified borrowers, though the weighted average is 49.06%. OnDeck requires one year in business and at least $100,000 in annual revenue. If approved, you could receive funds as soon as the same day.

OnDeck also offers lines of credit between $6,000 and $100,000 to restaurant owners.

6 types of restaurant financing

To cover the particular costs of running a restaurant, lenders offer several financing options. Here are some of the common types of restaurant funding from which you could choose.

Term loans

Long-term or short-term business loans can help restaurant owners cover large or small expenses. A long-term loan offers a fixed interest rate — typically between 6% and 8% — and monthly payments that often span three to 10 years.

Long-term loans typically range from $25,000 to $200,000, but they often require a lot of paperwork, such as a business plan and tax returns, that slows down the funding process. These loans are often backed by existing collateral.

Short-term loans have faster funding times and less required paperwork, such as no tax returns or financial statements. Repayment terms typically range from three to 18 months. Short-term loans typically come in amounts between $5,000 and $500,000 (though you can find them for lower amounts). They can be easier to obtain than long-term loans — especially if you have bad credit — but they also tend to have higher APRs.

Lines of credit

Restaurant owners can have continuous access to up to $100,000 in funding through revolving business lines of credit. You could draw from your credit line on an as-needed basis and only pay interest on what you borrow. Once you repay the borrowed funds, the full amount becomes available again.

Some lenders may charge a maintenance fee for keeping the line open, regardless of whether you use it. PNC Bank, for example, charges an annual fee of 0.25% based on your committed line amount. You may also need to secure the line with collateral. Lines of credit are possible for applicants with low credit, but you would likely face higher APRs.

Equipment financing

Equipment financing allows restaurateurs to take out a loan to purchase equipment or machinery for the business. The assets act as collateral on the loan, which can keep interest rates low, potentially between 4% and 12.75%.

There may be other costs, though, such as application or appraisal fees. You may need to make a down payment of 10% to 20% when applying for an equipment loan.

If you don’t want to own a piece of equipment, you may want to consider a lease instead of a loan. An equipment lease could provide lower monthly payments, and you could return the equipment or purchase it at a discount when the lease term ends.

Inventory financing

Restaurant owners can find short-term loans and lines of credit that are designated for purchasing inventory. That inventory would act as collateral, though the lender may only finance up to 80% of the inventory value.

Inventory financing could be beneficial if you want to buy items at a large discount but can’t make the full purchase upfront. You typically need good credit and a proven sales history to get a better APR. Rates may be as high as 35%. You may find higher loan minimums of at least $500,000.

SBA 7(a) loans

The U.S. Small Business Administration offers general business funding through its 7(a) loan program. Business owners can apply for loans up to $5 million from SBA-approved lenders. The SBA guarantees 85% of loans up to $150,000 and 75% of loans greater than $150,000.

Repayment terms could be up to 10 years for general working capital loans or up to 25 years for loans used for real estate expenses.

Variable rates would be based on your loan amount and repayment term:

  • Loans less than 7 years:
    • $25,000 or less: Prime rate plus 4.25%
    • $25,001 to $50,000: Prime rate plus 3.25%
    • Over $50,000: Prime rate plus 2.25%
  • Loans 7 years or longer:
    • $25,000 or less: Prime rate plus 4.75%
    • $25,001 to $50,000: Prime rate plus 3.75%
    • Over $50,000: Prime rate plus 2.75%

Fixed rates would be based on the Prime rate plus 5% to 8%. As of March 17, 2020, the Prime rate is 3.25%.

Business credit cards

Though not a business loan, business credit cards can offer restaurateurs fast access to funds. Business credit cards have average APRs between 13.12% and 19.87%. Business owners with strong credit would likely receive lower rates.

Business credit cards may charge annual fees, although you may be able to earn rewards as you use your card. Sign-up bonuses are possible, too. Keep in mind that you would need to pay off your balance in full each month to avoid costly interest.

How to qualify for a restaurant loan

When applying for restaurant loans to give your business a financial boost, you would need to meet each lender’s individual eligibility requirements. However, you could expect lenders to review some common documentation and information:

  • Personal financial statements: These would illustrate your history of borrowing and repaying money, indicating how much of a risk you’d be to a lender.
  • Profit and loss statements: A lender could review your business costs and expenses in a specified period.
  • Balance sheets: These would outline your business’s overall assets and liabilities.
  • Projected financial statements: A lender would need to make sure you expect to generate enough income to repay debt.
  • Business certificates and licenses: You typically need to be in compliance to be eligible for a business loan.
  • Business tax returns: Your tax returns would provide an additional window into your business’s financial history and current standing.
  • Resume: The more experience you have as a business owner, the more willing a lender may be to approve you for a loan.

A restaurant startup costs breakdown includes inventory, payroll and equipment, and those expenses will keep piling up as long as you stay in business. Labor is another common obstacle since restaurant owners typically have trouble finding dedicated workers while facing high turnover rates.

Be sure to shop around to get your best APR and repayment terms for your restaurant business loan. Once you find a lender with which you feel comfortable, you can be on your way to growing your restaurant.

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Best Places for Women Entrepreneurs

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start-up business loans
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MagnifyMoney researchers analyzed the 50 largest U.S. cities to determine where women business owners are seeing the most success. Cities were scored in four categories relating to income, business earnings, rate of incorporation and entrepreneurial parity between men and women.

The results show women on the West Coast are most poised for success, though our top cities represent a range of regions.

What we considered in our analysis

Income for self-employed women. We looked at both median and average business income for self-employed women in each city. In an ideal scenario, both numbers are high. However, a wide gap between the two could indicate more opportunity for potential earnings for self-employed women in a certain area.

Business earnings for self-employed women compared with wage earners. We compared income for self-employed women to earnings for women who work for wages. Self-employed women generally make less than those with earned income. A smaller difference between the two amounts could imply that women may benefit from going into business for themselves.

The rate of self-employed and incorporated women. The rankings reflect the percentage of self-employed women, as well as how many of those women have incorporated their businesses. A high rate of self-employment may suggest low barriers to entry for women entrepreneurs. A large amount of incorporated businesses could indicate women are seeing enough success to consider legal and tax implications of business ownership.

Parity of business ownership between women and men. We analyzed the percentage of women among all self-employed people and owners of incorporated businesses in each city. Places with higher percentages could have a more even playing field for women.

Key findings

  • San Francisco ranked No. 1 for the second year in a row. The top two cities belong to California’s Bay Area, as San Jose isn’t far behind on the list.
  • Several other California cities cracked the top 10, including Los Angeles, Sacramento and Riverside. Business incomes tend to be high in these cities, though exorbitant costs of living could present a challenge to women entrepreneurs.
  • Across all metro areas, women own about 30% of incorporated businesses. Women are better represented among self-employed workers, which could include women with small ventures that don’t require incorporation. On average, about 37% of self-employed people are women.
  • Buffalo, Cleveland and Indianapolis are the lowest-ranked places on our list. Women in these cities are less likely to pursue entrepreneurship, and those who do have lower incomes than women who work elsewhere.

Top places for women entrepreneurs

Women in our top places earn decent average income from their own businesses and make up nearly half of self-employed workers in their respective locations.

1. San Francisco

San Francisco took the top spot with a final score of 76.5 — a few points lower than 2018, but still high enough to hold on to first place. Nearly 11% of working women are self-employed, and 21.5% own an incorporated business. Business income for women is $27,840, on average, about 35% of what women earn when working for wages. Of all self-employed people in the city, women make up 42.3%, and they comprise 32.6% of all owners of incorporated companies.

Women’s entrepreneurship groups throughout San Francisco host regular networking events and panel discussions. The local government is also supportive of women-owned businesses. For instance, the San Francisco Office of Economic and Workforce Development provides grants through the San Francisco Women’s Entrepreneurship Fund.

2. San Jose

San Jose moved up from its previous No. 3 ranking receiving a final score of 75.9 this year. Women business owners earn an average of $28,891 – more than women in San Francisco – and that income is 35.7% of women’s income from earned wages. Slightly more than 8% of women in the city are self-employed, and 23.8% run an incorporated business. Those women comprise nearly 42% of all self-employed workers in San Jose and 33.2% of owners of incorporated establishments.

Women business owners in San Jose can turn to numerous local groups for support and resources, such as the local eWomenNetwork chapter and the Women’s Networking Alliance. The AnewAmerica Women’s Business Center, which also operates in Oakland, also provides training and counseling to help women grow their businesses.

3. Hartford

Hartford jumped from No. 18 to round out our top three best places for women entrepreneurs with a score of 67.4. On average, women business owners earn $27,534, which is 43.7% of women’s earned wages, a higher percentage than the first two cities. Although just 5.9% of women are self employed, 25.5% own an incorporated business. Of all self-employed people in the city, 34% are women. Additionally, women account for 24.8% of incorporated business owners in Hartford.

Hartford saw an improvement in business earnings for women entrepreneurs in this year’s ranking, which contributed to its rise on our list. Women business owners can find support from Greater Hartford’s chapter of eWomenNetwork, Innovation Destination: Hartford and the Women’s Business Center at the University of Hartford.

Bottom places for women entrepreneurs

The cities ranking lowest in our study generally have lower business income for women entrepreneurs than the top cities. Orlando, at No. 45, has a median business income of $809, meaning at least half of self-employed women earn that amount or less.

Fewer women in these cities have ventured into business ownership as well. With a smaller number of women entrepreneurs in the area, it may be harder for business owners to establish professional networks or find mentorship among other women — this kind of support is often essential to emerging startups.

However, the data could indicate the entrepreneurial climate is poor for self-employed people in general, not solely women. Although it may be possible to operate a successful company in these cities, women may want to proceed with caution before starting a new venture here.

How women business owners can beat the odds

Living in one of the best cities won’t guarantee success any more than starting in one of the worst cities will ensure failure. Wherever they live, women entrepreneurs must chart their own path to self-employment.

For women ready to take their first steps toward entrepreneurship, these tips could help them get further faster.

  • Explore the business landscape of your specific city. Research local regulations and bylaws that could be pertinent to your business idea. For example, you can start checking out everything from business licensing laws to local small business tax breaks to help build out your business plan. You can also research nearby small businesses to see which are doing well to get insights into how to set your own venture up for success.
  • Seek out local resources for women entrepreneurs. Many cities recognize the important role small businesses, startups and self-employed workers play in fueling local economies. And some have responded with support systems designed to foster growing businesses — and women entrepreneurs who lead them. One example is the San Francisco-based nonprofit Girls in Tech, which seeks to empower and educate women (including entrepreneurs) in the tech industry. Even bottom-ranked Buffalo, N.Y, has local organizations focused on supporting women entrepreneurs, such as the Allstate Minority and Women Emerging Entrepreneurs Program from the University at Buffalo.
  • Network with other self-employed women. Don’t underestimate the power of meeting, working with and learning from like-minded, entrepreneurial women. The local organizations mentioned above can be the perfect way to connect with other women entrepreneurs in your area. You can also look for co-working spaces, entrepreneurship-centered meetups or social events for local businesswomen to grow your network.

Methodology

Each of the 50 largest metropolitan statistical areas (“MSAs”) was scaled against one another, so that the most positive result for each factor was 100 and the most negative was 0 on the following eight factors from the U.S. Census Bureau’s American Community Survey for 2017 available through FactFinder or calculated from microdata housed in IPUMS USA. The results for each factor were then weighted according to the notation below, and the sum was divided by eight (rounded to one decimal point), for a highest possible score of 100 and a lowest possible score of 0.

  • Median business income for self-employed women (double weight)
  • Average business income for self-employed women (double weight)
  • Ratio of median business income to median earned income for the metro (double weight)
  • Ratio of average business income to average earned income for the metro (double weight)
  • Percentage of working women who are self-employed (single weight)
  • Percentage of self-employed women who are incorporated (single weight)
  • Percentage of self-employed people who are women (single weight)
  • Percentage of incorporated people who are women (single weight)to become business owners.

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Small Business

How Tariffs Affect Small Businesses

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Tariffs are duties charged on imports, and U.S. buyers pay the costs. Small businesses that bring in imported products can either absorb the expense or pass it along to their customers. When tariffs increase, as they have on certain goods imported from China, as well as the import of steel and aluminum products, countries often retaliate by increasing their own tariffs on American goods arriving on international shores.

Small businesses bear the brunt of tariff hikes and the resulting trade wars. “Small businesses are especially hard-pressed because they don’t have the reserves to tap into to wait for more stable circumstances,” said Davidson College economics professor Shyam Gouri Suresh.

We’ll help you understand how tariffs affect small businesses and what you can do to protect your firm when unexpected costs threaten growth.

What is a tariff?

A tariff is a tax that a country levies on imported goods and services. Tariffs increase the price of imports, potentially making them less competitive or desirable compared to domestic goods and services. 

A tariff is typically charged as a percentage of the value of the product that a buyer must pay a foreign exporter. In the U.S., importers must pay tariffs at 328 ports of entry, which the U.S. Customs and Border Protection controls. Companies that pay the tariffs to bring goods into the country likely pass that cost on to customers. The paid tariff goes to the Department of Treasury and makes up a portion of the federal government’s revenue.

Tariff increases

A country may introduce a new tariff or increase existing ones in order to restrict trade from particular countries or reduce imports of specific types of products, which is what the U.S. Trade Representative decided to do to combat unfair trade practices with China. The U.S. Chamber of Commerce implemented tariffs of its own on certain imports of aluminum and steel for national security reasons. Trade talks continue between the United States and China as of press time, but at least $300 billion worth of Chinese imports face tariffs, some as high as 25%.

The effects tariffs have on small business

These increased tariffs and resulting trade wars have cost American businesses big and small $38 billion, according to Tariffs Hurt the Heartland, a coalition of businesses and trade groups that oppose the tariffs. Automakers, tech companies and agricultural producers have been especially hard hit, but the National Retail Federation has also compiled profiles of affected small business owners from music teachers to gift shop owners.

“They have to either swallow this increase in price, or they have to pass that price increase on to the end consumer,” Gouri Suresh said.

Passing on the costs of tariffs: A closer look

Big businesses are in a better position to absorb higher costs than small businesses. Large companies can operate on smaller margins, while small businesses don’t have as much of a cushion and eventually must raise prices.

“As they increase prices, they may start losing their customer base,” Gouri Suresh said. “It’s a really difficult bind to be in. It favors bigger businesses that have deeper pockets who can ride out this trade war.”

Some firms may not be able to pass costs onto customers if they compete with businesses unaffected by high tariffs, said Katheryn Russ, an economics professor at the University of California, Davis. Small businesses likely have to take a blow to their profit margins if competitors don’t have to make similar price increases because of tariffs.

“If all businesses are having to raise their prices in a particular product space, then that’s different,” Russ said. “And this does seem to be a broad-based cost increase for U.S. firms.”

U.S. producers facing Chinese tariffs conversely have had to drop prices to remain competitive in China. For instance, soy farmers in the U.S. significantly reduced prices to avoid passing on cost increases to Chinese consumers.

Businesses that stand to benefit from tariffs

Tariffs on foreign goods should benefit domestic producers making similar products, as their products would be less expensive than those taxed at a high rate. Those producers may be able to raise their prices knowing the demand is higher, Gouri Suresh said.

For instance, American steelmakers are reportedly seeing bigger profits from higher demand, increased prices and a boost in production. But the rush to production may backfire as it meets a global economic slowdown.

How to prepare your business for economic changes

The U.S. government’s actions have been unpredictable, which makes it challenging to plan and prepare for increased tariffs, Gouri Suresh said. Tariffs have historically been implemented slowly, but the recent increases have not reflected the gradual nature of past rate hikes.

“The problem with what’s happening with the most recent trade war is the numbers are flying every day,” he said.

Tariffs have also affected industries differently, making it difficult to compare the impact across companies, Russ said. “It’s hard to offer specific advice. We just don’t know right now what’s going to happen,” she said. “I guess…just be ready for anything.”

Despite the unpredictability of the trade war, there are steps you could take to better position your business for economic changes.

Cut back where you can.

To minimize the price increases that you’d have to pass on to customers, consider cutting back your operating costs as much as possible. This could allow you to run the business on a tight budget when needed.

Consider an industry change.

If you can easily alter your business concept, you may find that an adjacent industry is less affected by tariffs than the one in which you currently operate.

“Being nimble is going to be a really big boon for businesses if they can turn on a dime and reconsider what they’re buying and what they’re selling,” Gouri Suresh said.

Apply for a tariff exemption

Several categories of goods are exempt from tariffs, such as items that are necessary for health and safety. Goods are exempt on an industry-wide basis, and large groups of lobbyists and business owners must typically work together to seek exemptions.

Companies affected by recent tariffs may request to be excluded from Section 301 tariffs on Chinese goods and Section 232 steel and aluminum tariffs. Thousands of companies have filed exemption requests with the Office of U.S. Trade Representative, claiming they are unable to find comparable goods outside of China or that it would be extremely costly to do so. Approvals for these requests, so far, have been low.

The bottom line on how tariffs affect small businesses

U.S. tariffs on Chinese goods are hurting some American firms more than the intended target, Gouri Suresh said. The widespread impact on U.S. businesses and consumers may not be sustainable and tariffs could soon decrease. But if not, high prices on imported goods may become the new normal.

“In the long run, either the tariffs end and the trade war ends…or everybody learns to live in this new world,” he said.

In the meantime, small businesses will likely continue to feel the effects of tariff increases. It may be best for entrepreneurs to hunker down and operate as efficiently as possible until stable conditions return, Gouri Suresh said.

“When things go bad, they’re the ones who are going to suffer first,” he said. “But they are also the ones who will benefit the most when things turn for the better.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.