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Brick-and-Mortar vs. Online Banks: Which is Better for Small Businesses?

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Separating your personal and professional finances is crucial when starting a business, and changes in technology are making it more convenient to do so. Not only could you turn to traditional brick-and-mortar banks, but you could take advantage of the resources that digital banks offer.

Opening a business bank account would allow you to clearly track your income and expenses without putting your personal spending in the mix. Managing a business bank account would also help you build your credit profile — you could become eligible to open a business line of credit or credit cards connected to your account.

Whether you choose an online bank or a brick-and-mortar bank would depend on which type fits your needs as a business owner. Keep reading to find out what kind of bank would be best suited for you.

Small business banking: Brick-and-mortar vs. online banks

A key difference between traditional and online banking is the flexibility that digital banks provide, said Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling. Small business owners could have around-the-clock access to online banking services as long as they have a device and an internet connection.

“This can certainly help busy business owners who are strapped for time by allowing them the option to bank on their schedules,” he said.

Brick-and-mortar banks

Although most brick-and-mortar banks now offer online banking features, consumers still must make some transactions in person, Coleman said, such as cash transactions that require personal identification. When opening a business checking account with Chase, for example, customers must meet with a business banker before enrolling in online and mobile programs. Still, this could be a draw for some business owners.

“Some consumers are simply more comfortable having a physical banking location where they can perform transactions and speak to banking associates in person,” Coleman said.

New business owners could also benefit from the guidance that bankers provide, said Grier Melick, business consultant at the Maryland Small Business Development Center. Establishing a personal relationship with a banker could also be beneficial if you plan to apply for a small business loan. You may have a better chance of being approved for funding if the bank already knows and trusts you.

“Oftentimes, small business owners do not know everything that they need to from a business banking perspective,” Melick said. “Having some direct human involvement can help with that.”

Online banks

Online banks have lower overhead costs than traditional banks, and those lower costs typically result in higher interest rate yields on deposits for digital banks than branch-based banks, he said. For instance, a high-yield business savings account could have an APY as high as 2% and no minimum account balance.

However, brick-and-mortar banks have the advantage of allowing customers to make cash deposits or withdrawals; an online bank typically wouldn’t offer that feature, Coleman said. Online banks sometimes belong to free ATM networks, like Allpoint, which would allow you to avoid the withdrawal fees that you’d incur at other ATMs.

Best of both worlds

It’s possible to have accounts at both types of banks, Melick said. For example, the owners of a brick-and-mortar store may start with an account at a local bank branch, then open a digital account when they decide to start selling online.

“Instead of severing ties with the bank, they could open an online account as well to handle their other revenue streams,” he said.

You could be subject to banking fees at both traditional and online banks, Coleman said. However, online banks generally charge considerably fewer fees and you may be able to avoid overdraft, monthly maintenance and ATM fees that come with a traditional bank account.

Here’s a quick look at how the two types of banks stack up.

Online banksBrick-and-mortar banks
24/7 access to accounts and banking features.Online banking features typically offered, but some transactions may have to be completed in-person during bank hours.
High-yield accounts available.Lower interest rates because of overhead costs.
Customers cannot complete in-person cash transactions or meet with bank representatives.Customers can make cash transactions, and bank representatives are available for meetings.

Digital services on the horizon for traditional banks

Online banks are growing in numbers and popularity, Coleman said. Traditional banks have taken this trend as a cue to bolster digital offerings for consumers.

“As a result, we are seeing traditional banking introduce more digital options for providing services,” he said.

The presence of digital financial technology is expanding within the financial services industry, comprising 7% of the total equity of U.S. banks, according to research from consulting firm McKinsey. To keep up, traditional banks must consider ramping up digital efforts in areas such as design, innovation, personalization, digital marketing, data and analytics to provide value to customers.

A few traditional banks rolling out expanded digital services include:

Bank of America

Earlier this year, Bank of America created Business Advantage 360 for customers who have business deposit accounts with the bank. The free tool provides a digital dashboard showing business owners their major expenses and transactions, as well as automated cash flow projections that can be adjusted to account for new sales or other data. Users can also connect with small business bankers through the dashboard.

PNC Bank

PNC Bank rolled out a digital business lending platform this year in partnership with OnDeck, an online small business lender. Leveraging OnDeck’s digital loan origination process, PNC aims to provide customers with business financing in as few as three days, a significantly faster timeline than how long it would take to process a conventional bank loan.

Popular Bank

Similarly, New York-based Popular Bank announced a partnership last year with Biz2Credit, an online lender serving small businesses. Popular Bank leans on Biz2Credit’s technology to digitally process loan applications outside of regular bank hours, effectively speeding up time to funding.

As the lines begin to blur between online and brick-and-mortar banks, business owners may find themselves with an increasing amount of digital opportunities. However, a demand for brick-and-mortar banking will likely remain. Small business owners who borrowed from an online lender reported feeling less satisfied than those who borrowed from a community bank — 49% vs. 79% — according to a Federal Reserve survey.

“Whether consumers turn to online only banks, or traditional banks that offer online products and services, the availability of online options will more than likely continue to grow,” Coleman said.

Which bank is best for your small business?

Whether you choose an online bank or a brick-and-mortar bank to house your business funds would depend on your personal preference, Coleman said.

No matter which you pick, make sure the Federal Deposits Insurance Corporation insures your bank of choice, he said. Single consumer accounts, joint accounts and business accounts, among others, would be protected at FDIC-insured banks in the event of bank failure. Deposits up to $250,000 should be safe and covered.

If you like having the ability to sit down with a banking professional to discuss your business needs, a branch-based bank could be the better choice, Coleman said. The physical presence that traditional banks provide could add a level of trust and reassurance. Keep in mind, though, that most locations have standard business hours that may not be conducive to your schedule as a business owner, he said.

A digital bank would allow you to complete your banking activities on your own time, said Coleman, though traditional banks oftentimes provide online services as well. He also noted that you may want to avoid using a public WiFi network to make business transactions, as those networks may not be secure and your information could be vulnerable.

A digital bank wouldn’t offer the same in-person service as a traditional bank, Coleman said, but you may not feel like you’re missing out.

“If the business owner already knows what they are looking for in a bank, and the online bank meets their needs, then they may prefer the online bank for its convenience, potential lower fees and higher interest on deposits,” he said.

All business owners should at least consider opening a high-yield savings account for cash that isn’t needed for daily operations, Melick said.

“Small businesses need to make sure that every penny they make works for them,” Melick said. “Oftentimes, the best way it can is through online banking accounts.”

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.

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How Does a Business Loan Work?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

In the course of day-to-day operations, many businesses discover they come up short on the necessary cash to pay expenses, employees and other business costs. To cover this gap, many business owners turn to business loans.

So, how does a business loan work? Business loans can provide much-needed capital to ease cash flow and help businesses stay on top of their bills. Especially helpful during slow seasons, business loans are a tool that business owners can use to keep business operations moving smoothly.

How do business loans work?

Business loans provide business owners with operating capital to pay expenses, payroll and other costs during slow times or when waiting for client payments to come in.

Most business owners rely on one of six types of small business loans to provide the cash they need. Deciding which financing option to choose depends on the individual needs and financial situation of the business. Some business owners need a small infusion of cash they plan to repay quickly, while others need a large amount of capital as well as time to repay that money.

6 types of small business loans

1. SBA loans

SBA loans are guaranteed by the Small Business Administration (SBA). These loans are not offered directly by the SBA but rather through SBA partners, such as banks, that agree to adhere to SBA guidelines for the loans. In general, the money can be used to pay expenses, cover rent or mortgage payments and buy equipment, among other costs. However, some loan programs do set restrictions on what the funds can be used for, so talk with an SBA-approved lender for specific requirements to determine if the loan fits your needs.

Because the SBA backs a portion of the loan, the risk for lenders is reduced, paving the way for them to offer larger loan amounts — ranging from $500 to $5 million — and more favorable terms. In general, SBA loans have lower down payments, do not require collateral and offer low interest rates, typically ranging from 5% to 10% depending on individual factors and financial needs.

Repayment terms are usually dependent on what the loan is used for, with maximum maturities set for SBA loans. For instance, the maximum maturity of a loan used for real estate is 25 years, while the maximum maturity of a loan used for equipment, working capital or inventory is 10 years. Like other loans, payments are usually made monthly.

To be eligible for an SBA loan, a business must:

  • Be located and operate in the United States or its territories
  • Be a for-profit business
  • Meet size standards based on the SBA’s definition of a small business
  • Have an owner who has invested equity into the business
  • Have exhausted all other financing options

2. Term loans

With a term loan, the business borrows a specific amount of money, which it must then repay over a set period of time with interest. These loans can be set up to be paid over the long or short term. The features of each loan, as well as your business needs and financial circumstances, will help determine which loan is right for your business.

Often used to cover equipment purchases or construction costs, long-term loans are paid over anywhere from three to 10 years, and sometimes longer. The interest rates of long-term loans tend to be lower compared to those of short-term loans. However, long-term loans can be harder to obtain, generally requiring collateral to secure the loan, a good business credit history and at least two years in business.

Short-term loans, on the other hand, are typically used to fill the cash flow gap for payroll, purchase office supplies or pay utility bills. They generally require repayment within three to 18 months and typically have higher interest rates. Unlike long-term loans, which may take quite a while to apply for and receive approval for, short-term loans have a much simpler application process that results in quicker funding, even for businesses that may not have a solid credit history.

3. Equipment financing

Equipment financing refers to business loans used to purchase equipment for the business, such as vehicles, commercial kitchens and construction machinery. The equipment itself serves as collateral for the loan, meaning the lender can repossess the equipment if the business defaults.

Business owners repay this loan over an agreed-upon period of time with a relatively low interest rate. Qualifying for equipment financing tends to be much easier compared to other types of business loans because the business does not have to be established for a specific period of time nor does the business owner need valuable assets or excellent credit.

4. Invoice financing

Invoice financing, also called accounts receivable financing, refers to a loan that works like a revolving line of credit. However, instead of basing the loan amount on assets or real property collateral, this financing arrangement is based on a company’s average invoice volume. The lender examines the company’s weekly volume of invoices and then may offer between 70% and 90% of the average invoice volume.

This type of financing often is used to provide needed cash flow that will cover payroll expenses, utility bills or the purchase of office supplies. Business owners are not obligated to take the entire loan amount at one time as with a traditional loan. Instead, they can draw out only the amount of funds needed at any given time, similar to a line of credit.

As with other business loans, invoice financing terms include interest rates and repayment terms. While fees and interest rates vary, companies often charge a processing fee of approximately 3% of the total invoice amount as well as a factor fee based on how long it took the client to pay the invoice. The factor fee usually is taken weekly and equates to approximately 1% of the total invoice amount.

Qualifying for invoice financing typically requires a good credit history as well as a proven record of invoices.

5. Business lines of credit

A business line of credit is a business loan that works like a credit card. Once approved for a predetermined credit limit, business owners can access the cash they need when they need it rather than taking out the entire amount at one time. They can use these funds to cover payroll, hire new employees, purchase goods or even grow and expand their business.

Once the borrowed amount is repaid, the business owner can access the full amount once again. When repaying the borrowed amount, business owners will pay interest only on the amount borrowed. Interest rates on lines of credit can be higher for those with a poor credit history.

Applying for a line of credit is similar to applying for a traditional loan. You’ll need to complete an application, provide financial documents and go through a personal credit check. In addition, you may need to sign a personal guarantee or provide collateral to receive approval.

6. Merchant cash advances

A merchant cash advance provides cash to business owners in exchange for a specific percentage of their future debit or credit card payments. Funds obtained through this financing option often are used to purchase new equipment, obtain seasonal merchandise to supplement regular inventory or even pay for building expansion or remodeling.

With a merchant cash advance, the lender — usually a non-bank lender — issues a set cash amount, and as you process debit or credit card payments, the lender takes a percentage of each payment and applies it to your loan balance. As such, payments are based on daily sales, so your payments will fluctuate based on what those sales are.

Because a merchant cash advance is not a traditional loan, it is not regulated like a regular business loan. Therefore, interest rates can be extremely high. In addition, these companies may start collecting payments — including interest — the next business day after the receipt of your funds. As such, lenders that offer merchant cash advances often seek out businesses with poor credit histories that cannot qualify for other types of business loans.

The high interest rates and frequent payments can be difficult for some businesses to pay as required, driving them further into debt. However, this can be an attractive option for many businesses given approval can happen in as little time as 24 hours.

How to repay business loans

Repayment for business loans depends on the type of loan obtained. You could make payments through installments, or regular payments, made weekly, monthly or even quarterly. Or payments could be made on a revolving basis, meaning you repay what you borrow. In some cases, payments may be taken out per purchase or business transaction.

Here’s how you can expect to make payments depending on which type of business loan you get:

  • SBA loans, term loans and equipment financing: The borrower makes regular payments as agreed upon with the lender. These could be weekly, monthly or quarterly.
  • Invoice financing and business lines of credit: These are revolving financing options, which means you are preapproved for a set amount that you can borrow against. When you repay the amount borrowed, you can then borrow those funds again, and the cycle continues.
  • Merchant cash advances: The borrower repays this business loan by giving the lender an agreed-upon percentage of each debit or credit transaction it completes until the loan has been repaid.

Business loan requirements: How to get a business loan

1. Build your personal and business credit scores

Because business loan requirements may look at both your personal and business credit score, you need to build your credit scores by making regular, on-time payments on your existing loans and credit cards, as well as keeping your debt level low.

2. Research lenders and check requirements

Getting a business loan that’s right for your business means finding a lender and loan qualifications that align with your needs and financial situation. Most business loans require a minimum number of years in business, a good credit score and a strong financial history. Some financing options also require collateral.

With regard to SBA loans, the qualification requirements are a bit different. While SBA loans do take into account a business’s ability to repay the loan, lenders also look at how the business makes money, where it operates and if it meets SBA size standards as a small business.

3. Gather documents

To get a business loan, you typically will need to provide the following documents:

  • Loan application form
  • Resume
  • Business credit report
  • Income tax returns
  • Accounts payable and receivable
  • Financial documents, such as bank statements, balance sheet, income statement and cash flow statements
  • Legal documents, such as articles of incorporation, business licenses, commercial leases, franchise agreements and any contracts with third parties
  • Business plan

4. Provide collateral if necessary

While not all business loans require collateral, for those that do, be prepared to provide a collateral document. This should list the cost or value of all personal and/or business property that you are prepared to offer to secure the loan.

Where to get a business loan

Banks

Large commercial and community banks offer a wide array of business loans, often with terms that fit your needs as well as lower interest rates than other lenders. However, their requirements may be stricter and the application process can be lengthy, requiring a lot of paperwork and documentation as well as a long time for review and approval.

Because they are generally smaller, community banks can sometimes offer more personal service and be more willing to work with a business to get approved for a loan than a larger commercial bank.

Online lenders

Small business loans through online lenders, such as Rapid Finance and OnDeck, often are easier to get approved for because these lenders are more likely to work with borrowers that have less-than-perfect credit, have not been in business for very long and/or don’t have large annual revenues. Additionally, the application process is typically quick, sometimes taking just a day, with funding received in as little time as one to two days after approval.

On the flip side, online small business loans often have higher interest rates, shorter repayment terms and lower borrowing limits than traditional lenders.

Bank lenders backed by the SBA

The SBA works with major lenders, such as Wells Fargo and Chase, to provide loans to businesses at lower rates with long repayment terms. These lenders take on these loans because they are guaranteed by the SBA, which will pay off a portion of the loan should the borrower default. However, businesses must meet a unique set of eligibility requirements to receive an SBA loan, which can be hard to do.

Peer-to-peer lending sites

Peer-to-peer loans are loans between an investor, rather than a bank, and the borrower. Examples of peer-to-peer lenders include Upstart and Peerform.

Peer-to-peer lending can be a good option for new businesses or those with poor credit.

Qualification requirements vary by lender. Upstart, for example, requires a minimum credit score of 620, while Peerform requires a minimum score of 600. It’s important to check with different lenders for exact qualifying requirements.

While approval may be easier, these loans also may have very high interest rates and origination fees.

FAQ and other things to know

Loan approval can range from just a few days when applying with an online lender to one to two months when applying for a term loan through a bank or SBA-approved lender. Loan approval for a merchant cash advance also can be quick, while approval for a line of credit may take a week or more.

Business loan terms vary based on the type of loan you have. For instance, long-term loans may be for up to 10 years, while short-term loans range between three and 18 months. SBA loans also may have long terms, while invoice financing and merchant cash advances have short terms.

The amount of funding that a small business can get varies based on the type of loan and the individual business’s financial standing. Traditional loans can be for very large amounts — the SBA offers loans up to $5 million — while short-term loans, invoice financing and merchant cash advances have much lower borrowing limits. For instance, invoice financing is based on your outstanding invoices, so if you have an average amount of $2,000 in outstanding invoices each month, your loan would be based on this amount.

Getting a business loan that fits your needs depends on a number of factors. Traditional business loans and lines of credit usually require a solid credit history, several years in business and, in some cases, collateral. Other financing options, such as invoice financing and merchant cash advances, are more likely to provide loans to newer businesses and those with less-than-perfect credit.

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.

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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 $500,000 with terms from 3 months to 36 months.

APRs start at 11.89% 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 the 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.

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.