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Updated on Tuesday, March 17, 2020
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 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 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 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 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 offers short-term loans for restaurant owners between $5,000 and $250,000 with terms from 3 months to 18 months.
APRs start at 14.99% 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.
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 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.
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.