Best small business loans to lower restaurant debt

Serine Alejandro

October 21, 2021
coffee shop business

 

Key Takeaways

  • Restaurant debts can directly affect your budget, limiting you from scaling your business.
  • Small business loans can help you lower restaurant debt by paying off all your obligations upfront and paying for the total loan amount in flexible terms.
  • You can leverage equipment financing to purchase kitchen tools, restaurant furniture, and office equipment so you won’t have to use your capital right off the bat.

If you’re a restaurant owner, you know that delivering the best restaurant experience to your customers can be a challenge if you’re constrained by your budget.

Oftentimes, your budget is affected by existing restaurant debts, leaving you with just enough money to run your business.

Especially if you had to initially bootstrap yourself to open, obtaining a restaurant business loan could make all the difference in taking your establishment to the next level – be it renovating your space, expanding to a new location, hiring more staff, or adding more items to your menu.

Getting a business loan for your restaurant business not only secures funding for immediate use, but it could also enable you to lower restaurant debts so you can finally move forward with any future plans you may have.

Before we jump right into the different types of loans you can apply for to lower restaurant debt, we’ll first talk about where you can use the loan and what value it adds to your business.

Where should you use a restaurant business loan?

There are three things you should identify before applying for a restaurant business loan: Where the money will go, how much of it you’ll need, and how you plan to pay it back.

With regards to where it will go, here are the most common expenses restaurant owners typically need to manage. Take a look at how you are currently investing in these things and see if perhaps you may be able to improve upon them with a restaurant business loan.

1. Manpower

While it is ideal to try and keep your workforce lean to avoid high overhead costs, you may actually be understaffed. In this case, you’re probably spreading yourself too thin to take on tasks that should be delegated to others.

Not being financially able to hire enough manpower to run and operate your kitchen to your standards means that you have to take on more menial tasks which, in turn, eats into the time you have for more critical things like meeting with suppliers and strategizing for future expansion.

If you are being constrained by your budget, getting a restaurant business loan will help increase said budget so you have the funds to hire the best talent for your growing business.

Beyond just hiring, the outside financing could also enable you to sign your employees up for more training to hone their craft – whether it’s serving, bartending, or managing back-office tasks like bookkeeping.

2. Location

In real estate, it’s all about location, location, location.

This certainly applies to your restaurant space. Seasoned restaurateurs have a reputation to fall back on so they can get away with opening in a more secluded, less populated area. People know their food and are more willing to travel for it.

For first-time restaurant owners, you don’t have this luxury. You will need to rely on foot traffic to bring customers in the door and supplement your marketing efforts.

That said, areas with high foot traffic, not to mention low crime rates, available parking, nice views, etc. all result in significantly higher prices. A restaurant business loan may be the key to obtaining the extra financing you need to secure a stellar location.

3. Technology

Technology plays a huge role in running a modern-day restaurant. The back of house, front of house, and kitchen all need specific tools to run their operations effectively.

Whether it’s a POS system or accounting software, technologies save your employees from wasting time doing things by hand that can easily be automated.

Despite how much we know about the effectiveness of digital solutions, many restaurant owners still aren’t purchasing them. This isn’t because they don’t see the value, but because they don’t have the budget for it.

Restaurant loans are a great solution to supplement the costs of purchasing the technologies needed to streamline your processes – be it overseeing inventory, providing a more intuitive guest ordering system, helping with food prep in the kitchen, tracking sales, and more.

Time management aside, doing things manually – such as bookkeeping or inventory management – is also prone to human error, which can actually become quite costly.

4. Unpaid debts

One reason many new restaurants and food establishments shut down within the first few years of operating is because of accumulated debt.

Owners may rush into making too many purchasing decisions on things like new equipment, new hires, etc. and end up accumulating more debt than they are able to pay back. This then prevents the restaurant from being able to scale up.

Restaurant business loans are designed for you to lower restaurant debt or pay off any outstanding balances that keep you from pursuing your growth plans.

How will a restaurant business loan support your growth?

As a food business owner, it’s hard to predict the exact amount of money you need to have in your pocket to fulfill what your business needs.

If you really want to prepare for unplanned expenses, having sufficient funding will allow you to get the materials you need for construction or inventory without settling for less.

What’s more, the unpredictability of natural disasters and other global emergencies like the COVID-19 pandemic makes a financial cushion all the more important.

Given that, a restaurant business loan will allow you to have sufficient funds in time for any unplanned expenses.

Whether you’re planning for a 360-degree kitchen renovation or expanding to a new location, you could use additional cash reserves to support your long-term, sustainable growth.

Why grow your restaurant business with SMB Compass

Having ample cash flow is the key to success. Without working capital, it’s almost impossible to run a profitable restaurant.
SMB Compass is dedicated to helping you expand and manage your business’ growth through reliable financing offers.

Compared with traditional lending institutions, we provide you with guided funding options so you can choose what your business needs at this moment.

Whether you want to branch out, hire more people, lower restaurant debts, or get new kitchen tools, our restaurant business loan can help you stay on the right track. You can also use the funds to prepare for inventory, onboard new chefs, or boost marketing efforts.

Types of business loans to help you lower restaurant debt

1. SBA 7(a) Loans

The Small Business Administration’s 7(a) Loans is the most common loan offering to date. It is intended for small businesses with special requirements.

It can be used for both short- and long-term working capital and purchasing of furniture, equipment and other supplies. Also, it can be used to lower restaurant debts because it is designed to refinance your existing loan obligations.

The SBA has set a maximum loan amount of $5 million for 7(a) loans, which restaurant owners can use for various purposes. The key eligibility to getting 7(a) loans is based on the owner’s credit history, the location where the business operates, and the nature of the business.

2. Equipment Financing

Small business owners understand the value of obtaining, upgrading, or replacing faulty equipment before it takes a toll on their operations.

With kitchen equipment running the core operations of your restaurant, getting equipment financing is more crucial than ever.

Purchasing equipment can have a substantial strain on the business’ cash flow especially when you need to pay upfront. Equipment financing allows you to pay in flexible terms so you get high-quality tools at the soonest possible time.

The equipment you’re using contributes much to the quality of service and food you offer. Equipment financing provides your restaurant with the funds you need to purchase new equipment or replace them with those that comply with today’s standards.

If you think this is the right financing option for you, our team of trusted advisors will work closely with you to determine the terms for your loan depending on your personal credit, trade history of the business, the financial strength of the company, and the type of equipment you are planning to purchase.

3. Business Line of Credit

Are you looking for financing solutions for short-term requirements? A business line of credit (LOC) is your best option. The LOC is a revolving loan, which lets qualified business owners have access to a fixed amount of capital.

This fixed amount is intended for short-term business requirements like purchasing inventory or financing a nationwide marketing campaign.

In some instances, the business line of credit is used to expand the store or repair infrastructural damages that can be too costly when paid for by the business’ existing cash in their bank accounts.

With a business line of credit, SMB Compass sets a maximum fixed credit amount that you can use for various needs. Your businesses will only repay the sum you’ve used or withdrawn for the month, plus interest.

For example, if you are approved for a $100,000 line of credit, and you’ve only spent $20,000 in the first month, you only need to pay the $20,000 and the interest.

Once your debt is paid, your line of credit is automatically renewed so you can use it again. The terms of this loan depend on your business credit, personal credit, and cash flow.



Serine Alejandro
Serine is a graduate of Journalism from one of the most prestigious universities. She has broad experience in public relations and marketing communications for the lifestyle, travel, tech, and banking industries. She is now a co-owner of a growing condiments business, a manager of her family’s pharmacy, and a full-time writer for SMB Compass.

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