Restaurant Business Loans & Equipment Financing

Q: 2. What credit score is needed for a restaurant loan?

The eligibility requirements for each lender varies. But in general, you should have a minimum credit score of 620 for better chances of approval. Alternative online lenders may also work with businesses with credit scores less than that. However, they may charge a higher rate for the loan, since there’s a higher risk involved on their side.

Q: 3. What are the best startup restaurant loans?

Some of the startup restaurant financing options include short-term loans, restaurant equipment financing, and working capital loans. Other restaurant financing options include any business credit card and merchant cash advances. These options usually don’t require a stellar credit and financial track record.

Grow Your Business with Restaurant Business Loans

In the food industry – specifically in the restaurant industry – there can be good days, and there can be bad days. What determines a good or a bad day is not always clear, and restaurant owners definitely cannot predict it. Despite the uncertainty, your business is always going to have to pay expenses and cover day-to-day operations.

Another factor to consider is growth. While expansion opportunities offer long-term sustainability, they take working capital to get started.

A restaurant business loan can help you make it through slow periods of business and can help you seize growth opportunities to maintain and expand your business.

SMB Compass is dedicated to helping our clients’ businesses grow, by providing you with the funding you need. We handle your financial concerns so you can focus on what truly matters: serving your customers with delectable meals that will keep them coming back for more.

Whether you need funds for expanding, purchasing equipment, or hiring new employees, business loans for restaurants can help you during successful times, or cover your payroll or expenses to vendors during a seasonal slump.

If a refrigerator, oven, stove, or another piece of equipment suddenly needs to be replaced or repaired, restaurant loans provide a quick solution. With readily available cash, you can purchase new equipment and keep your business running.

SMB Compass knows how hard it is for restaurateurs to qualify for a business loan. That’s why we make it a point to work with you and help you find the best restaurant business loans in the market.

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What is Restaurant Business Loan?

A restaurant loan (or restaurant financing) refers to business loans tailored to address a restaurant’s unique needs. Restaurant owners can use the funds to cover day-to-day expenses, equipment purchases, expansion, renovations, inventory, tech improvements, or as a financial cushion during the slower periods of the year.

Every restaurant business owner will agree that having ample cash flow is the key to success. Without working capital, it’s impossible to run a profitable restaurant. In fact, many restaurant owners partner with financial lending companies in order to obtain quick access to working capital when they need it.

How Restaurant Business Loans Can Help Your Business

From improving your marketing strategies to buying new kitchen equipment, here are some of the ways you can use the funds from restaurant loans:

1. Improve Marketing

Your business will miss out on opportunities if you don’t have an established online presence. Having a mobile-friendly, content-rich website and social media presence will improve your online profile. More of a presence online means more potential customers will notice your brand, despite being in a competitive market.

Creating a fully-functional website with advanced ordering capabilities, real-time order status updates, and integrated customer reviews doesn’t come cheap. When you need capital to invest in these initiatives, SMB Compass can help you choose the best restaurant funding to scale your business .

2. Renovate / Expand Your Restaurant

A restaurant business loan and restaurant financing is ideal if you’re looking to renovate, repair, or expand your restaurant to make it look more presentable and more profitable.

Expanding your restaurant means more room to seat and serve more customers daily. Improving the kitchen and storage area means that business operations become more organized and efficient, resulting in fewer mistakes, faster orders, and happier customers.

3. Purchase Inventory

It’s no secret that variety is a spice of life. But if you have limited capital to reorder your ingredients and supplies, variety will be the last thing on your mind.

To keep your customers coming back for more, restaurant business loans can help fill the gaps. The proceeds from the loan allow you to purchase enough ingredients and other supplies to create different dishes to keep your customers happy, satisfied, and full.

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4. Hire Restaurant Staff

Customers are extremely meticulous and observant. An understaffed restaurant will sooner or later reflect directly on the quality of its customer service. If the customer takes notice of this, chances are, they will hesitate going back to your restaurant. Not only that. You’ll also lose your chance of promoting your restaurant through recommendations.

Hiring more waiters, hosts, cooks, and other employees, on the other hand, helps ensure that you have enough hands on deck to answer to tend to your customers. Although it can be expensive, there’s no shortage of resources that can help you fund the hiring process and payroll. With the funds from a restaurant loan, you won’t have to worry about the expensive fees of hiring. You can form the team you need to provide top-notch customer service to your customers.

5. Create a Loyalty Program

Customer loyalty is invaluable to any business, especially restaurants. You need to be able to gain the trust of your customers, so they can market your restaurant for you.

Launching a loyalty program incentivizes customers to return to your restaurant as well as promote it to family and friends. If there are two things that can attract customers back to your restaurant: it’s discounts and freebies.

6. Buy New Equipment

Your once-new kitchen equipment will eventually get worn down. Depending on the state of your machinery, you may need to set some funds aside for repairs, or if it’s beyond repair, you’ll have to replace the equipment altogether.

By applying for a restaurant business loan, you will have the funds to purchase new equipment or repair old ones. You can even use the equipment you’re going to purchase as collateral, depending on the type of loan you apply for.

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How to Apply for a Restaurant Business Loan through SMB Compass

You can count on SMB Compass to help you find the right loan from the right lending company. If you’ve decided to move forward and apply, we’ve outlined the steps you need to take below:

1. Prequalify for a Loan by Filling Out Our Online Application

To start the application process, fill out a simple application detailing your name, restaurant’s name, email, phone, and loan amount. Once you’ve submitted your application, our financial experts will reach out to you and ask you for more information about your business’s goals and needs.

SMB Compass will then assess your company to see which lending sources are just right for you. We’ll find the best matches for you, so you can get the best deal for your unique business needs.

2. We Will Find a Reputable Lender for You

Once we are able to assess what you’re looking for, our financial experts will pair you with an experienced and reputable lending company that has experience in your industry. The lending company, in turn, will assess your eligibility, taking into consideration your credit score, time in business, revenue, and other factors.

It’s not only a goal of ours to find you a lender and a loan that fits your restaurant’s needs, but it’s our area of expertise. SMB has secured funding for 1000+ businesses from across the U.S., and we’re confident that we can find the best lending company for your restaurant.

3. Compare Different Offers with Our Financial Experts

4. You Choose the Loan that’s Best for You

After you’ve compared all your options, it will be easier for you to confidently move forward with your decision. You can compare the different financing options recommended, and decide which one best suits your current situation.

Don’t worry. Our team at SMB Compass will be with you along the way. We can answer questions and provide more information about each of the options and walk you through the nitty gritty of business loans. That way, you’ll be able to make a more informed decision.

5. Work on Running Your Business

Paperwork Needed to Apply for a Restaurant Business Loan

Keep in mind that the requirements needed depend on the type of loan you’re applying for. Generally, you will likely need the following documents:

Business Plan
Personal History and Financial Statements
Projected Business Financial Statements
Profit and Loss Statements
Business License/Certificate
Ownership Documents
Personal Resume
Business Overview
Income Tax Returns

Business Line of Credit

Pros:

Available Working Capital During Slow Seasons: Seasonal businesses can benefit much from a business line of credit. During slower seasons, you’ll have the cash you need to pay for operational expenses and more.
Only Pay for What You Use: Regardless of the credit limit offered to you, you only need to pay for the money you used. Also, you can repay the loan anytime most since lenders don’t charge a prepayment penalty.
Seize Business Opportunities: If you’re faced with an opportunity that’s too good to pass up, you can use the funds from a business line of credit to seize business opportunities and take your business to the next level.

Cons:

Low Loan Amounts: Compared to other types of loans, lines of credit have a relatively low borrowing limit. If you need money for new equipment, expansions, or renovations, you might benefit more from another type of loan.
Fees: While a business line of credit isn’t as expensive as business credit cards, it does have a higher interest rate. Some lenders even carry hidden fees that could significantly increase the cost of the loan. SMB Compass will help you find honest and transparent lenders that actually care about your business.
More Challenging to Qualify: You need to submit financial statements, personal and business tax returns, bank account details, business documents, and more. In most cases, you’ll need a strong credit rating and at least two years of business history.

Equipment Financing

Pros:

Flexible Terms: Equipment financing generally has more flexible terms compared to a traditional business loan.
Quick Turnover: You don’t have to wait for months to receive the capital you need to purchase equipment. We’ll connect you to fast and efficient lending companies, so you can quickly buy the equipment you need.
Improve Credit Rating: By making payments on time, equipment financing can help you build and improve your credit rating.

Cons:

Risk Involved: Just like any other loan, there’s a level of risk involved with equipment financing. You need to ensure that you’re able to repay the loan until the end of the agreement.
Limited to Equipment Use: As the name suggests, you can only use equipment financing to purchase or lease equipment.
May Require Personal Collateral: Lenders may ask for a personal guarantee to secure the loan. This holds you liable for payments if you can’t repay the loan.

SBA 7 (a) Loans

Pros:

Low Down Payment Requirements: Most lenders require a 20% down payment to secure a loan. For 7(a) loans, lenders can accept down payments for as low as 10%. This allows you to preserve personal assets and free up working capital that would’ve been used as a down payment.
Easy to Secure: The SBA guarantees 75% to 85% of the loan, reducing lenders’ risk, and incentivizing them to approve your application.
Lower Interest Rates and Long Repayment Terms: To protect small business owners and to help them afford their options, the SBA sets a maximum interest rate for their loan programs. Regardless of the interest rate, 7(a) loans generally have low-interest rates and long repayment terms.

Cons:

Laborious Application Process: If you apply for an SBA loan, you’re going to work with SBA-approved lenders rather than the SBA itself. 7(a) loans often take a month or two to approve.
Often Require Good Credit: Lenders are very strict when it comes to credit and business history. You generally need a credit rating of 620 or higher to increase your chances of approval.
Personal Collateral: Liens on properties are common for SBA loans. If you have valuable personal assets, lenders may ask you to use them to secure the loan. They could seize your property if you fail to repay the loan.

Business Term Loans

A business term loan is the classic loan structure; lenders give you a lump sum and you repay the loan in fixed monthly payments throughout an agreed borrowing period. You can use the funds from a business term loan for almost every business need, working capital, equipment purchases, emergency expenses, or hire more employees.

Pros:

Higher Loan Amounts: Regardless of the lender you’re working with, business term loans often have higher loan amounts compared to other financing options. You can qualify for up to $5 million.
Lower Interest Rates: Unlike short-term financing options, business term loans charge lower interest rates and annual percentage rates (APRs).
Budget Your Cash Flow Properly: Since you repay the loan in fixed monthly payments, you can properly budget your finances, ensuring that you can repay the loan throughout the repayment term.

Cons:

Personal Guarantee: Lenders require a personal guarantee to borrowers to offset the risk they’re taking. This means that you agree to be personally liable in case you default on the loan.
Higher Credit Limit: Lenders will also check both personal and business credit and your financial history as well. Before applying, make sure that your credit history is updated and your score meets the requirement.
Profitable Business History: Lenders also need to know that your business is profitable. They usually need at least two years of financial history.

Ready to apply for Restaurant Business Loan?

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Top Restaurant Business Loans for You

SMB Compass will work closely with you to help you find the best restaurant business loan depending on your business’ needs. Here are our top three picks for restaurants/bars:

Business Line of Credit

Lenders set a maximum credit amount, and your business only has to repay the sum you’ve withdrawn (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.

Like a credit card, a business line of credit is revolving. This means that once the 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. Lenders prefer applicants with strong cash flow and great operating history.

Pros:

Available Working Capital During Slow Seasons

Seasonal businesses can benefit much from a business line of credit. During slower seasons, you’ll have the cash you need to pay for operational expenses and more.

Only Pay for What You Use

Regardless of the credit limit offered to you, you only need to pay for the money you used. Also, you can repay the loan anytime since lenders don’t charge a prepayment penalty.

Seize Business Opportunities

If you’re faced with an opportunity that’s too good to pass up, you can use the funds from a business line of credit to seize business opportunities and take your business to the next level.

Cons:

Low Loan Amounts

Compared to other types of loans, lines of credit have a relatively low borrowing limit. If you need money for new equipment, expansions, or renovations, you might benefit more from another type of loan.

Fees

While a business line of credit isn’t as expensive as business credit cards, it does have a higher interest rate. Some lenders even carry hidden fees that could significantly increase the cost of the loan. SMB Compass will help you find honest and transparent lenders that actually care about your business.

More Challenging to Qualify

You need to submit financial statements, personal and business tax returns, bank account details, business documents, and more. In most cases, you’ll need a strong credit rating and at least two years of business history.

Equipment Financing

The equipment you’re using contributes much to the quality of service and food you offer. Restaurant equipment financing provides your restaurant with the funds you need to purchase new equipment - be it ovens, tabletop stoves, freezers, etc.

Our team of trusted advisors will work closely with you to determine the terms of your loan. Factors affecting your loan approval rates will depend on the personal credit, the trade history of the business, the financial strength of the company, and the type of equipment purchased.

Pros:

Flexible Terms

Equipment loans generally have more flexible terms compared to a traditional loan. In other words, you will be able to negotiate the terms with the lender, especially if your credit rating exceeds the minimum credit score requirement.

Quick Turnover

You don’t have to wait for months to receive the capital you need to purchase equipment. We’ll connect you to fast and efficient lending companies, so you can quickly buy the equipment you need. Our approval time can be as fast as 24 hours.

Improve Credit Rating

By making payments on time, equipment financing can help you build and improve your credit rating. That way, you’ll better position yourself for better loan terms in the future - even those from an alternative lender.

Cons:

Risk Involved

Just like any other loan, equipment financing comes with risks. You need to ensure that you’re able to repay the loan until the end of the agreement. Otherwise, the bank or alternative lender will confiscate the equipment and use it as payment for the loan.

Limited to Equipment Needs

As the name suggests, restaurant owners can only use equipment loans to purchase or lease a piece of equipment.

May Require Personal Guarantee

A personal guarantee is the restaurant owner’s legal promise to pay for the loan personally. Lenders may ask for one as additional security for the loan. That means, that if your business becomes unable to pay off the loan, the lenders may come after your personal assets.

SBA 7(a) Loans

The Small Business Administration (SBA) guarantees a certain percentage of SBA loans for restaurants. A small business loan for a restaurant makes an SBA 7(a) loan ideal for small business owners that are seeking financing specifically to grow their business.

According to the Small Business Administration, to qualify for 7(a) loans, the restaurant must meet the requirements. This includes:

Must meet the SBA’s definition of small business
Must be a for-profit business
Business must be located within the United States or its territories

The SBA loan for restaurants can be used to improve marketing efforts, acquire a commercial real estate, open another location, or make it through an off-season. There are no strict restrictions as to how business owners can use the funds. Loans for restaurants offered by the Small Business Administration (SBA) can cover almost any business expenses.

SMB Compass will work with you to set competitive terms, rates, limits, and repayment schedules that suit your business needs, preferences, and goals.

Pros:

Low Down Payment Requirements

Most lenders require a 20% down payment to secure a loan. For 7(a) loans, lenders can accept down payments as low as 10%. This allows you to preserve personal assets and free up working capital that would’ve been used as a down payment.

Easy to Obtain

The SBA guarantees 75% to 85% of the loan. That means that the federal government will cover the agreed-upon percentage, reducing the risk on the lender’s side, and incentivizing them to approve your application.

Lower Interest Rates and Long Repayment Terms

To protect small business owners and help them afford their options, the SBA sets the maximum interest rate for their loan programs. The lenders use this as a basis for the interest rates they set on the SBA Loans. Regardless of the interest rate, 7(a) loans generally have low-interest rates and longer repayment terms.

Cons:

Laborious Application Process

If you apply for an SBA loan, you’re going to work with SBA-approved lenders rather than the SBA itself. SBA 7(a) loans often take a three months to approve.

Often Require Good Credit

Lenders are very strict when it comes to credit and business history. You generally need a credit rating of 620 or higher to increase your chances of approval. Plus, you’ll also have to demonstrate an excellent financial track record.

Personal Collateral

Liens on properties, especially commercial real estate, are common for SBA loans. If you have valuable personal assets, lenders may ask you to use them to secure a loan. They could seize your property if you fail to repay the loan.

Business Term Loans

A business term loan is the classic loan structure. Lenders give you a lump sum, and you repay the loan in fixed monthly payments throughout an agreed-upon period. You can use the funds from a business term loan for almost every business need, including working capital, commercial real estate, equipment purchases, emergency expenses, or hire more employees.

Pros:

Higher Loan Amounts

Regardless of the lender you’re working with, business term loans often have higher loan amounts compared to other financing options. You can qualify for up to $5 million.

Lower Interest Rates

Unlike short-term financing options, business term loans charge lower interest rates and annual percentage rates (APRs).

Budget Your Cash Flow Properly

Since you repay the loan in fixed monthly payments, you can properly budget your finances, ensuring that you can repay the loan throughout the repayment term.

Cons:

Personal Guarantee

SBA Loans require a personal guarantee to borrowers to offset the risk they’re taking. This means that you agree to be personally liable in case you default on the loan.

Higher Credit Limit

Lenders will also check both personal and business credit and your financial history as well. Before applying, make sure that your credit history is updated, and that your score meets the minimum credit requirement.

Profitable Business History

Lenders also need to know that your business is profitable. They usually need at least two years of financial history.

How to Pepare to Get Funding for a Restaurant

Most often than not, restaurant owners will find themselves looking for an additional cash flow boost to cover their day-to-day costs, purchase restaurant equipment, or cover long-tern investments like a commercial real estate acquisition. When they find themselves in that position, coming prepared will boost their chances of getting approved for restaurant loans.

Lenders set a different qualification criteria or their restaurant financing. The key is to explore different lenders and compare their offers.

In general, lenders prefer borrowers with a good financial and credit background, since they’re typically associated as low-risk. Before applying for a loan, consider the tips below to improve the chances of getting your restaurant loan application approved.

1. Know where you stand financially and credit-wise

Before you apply for a loan, it’s important to understand where you currently stand when it comes to revenue, cash flow, credit score, and other requrements. Lenders are risk-averse and as much as possible, they want to work with businesses that pose lesser risk.

That means that if you want to increase your chances of qualifying, you have to work on maintaining a good credit score. If you’re a startup and you’re not in a hurry to get financing, waiting until your business is at least one year old may also improve your chances of qualifying for a restaurant loan with better terms.

At the very least, aim for a credit score of at least 620 and a year of business history when applying for any restaurant financing.

2. Prepare the necessary documents beforehand

The key to a faster decision is to submit the complete documents upon application. Try to ask the lending company what documents they usually require before submitting your application. This will give you ample time to prepare and obtain the necessary paperwork, so the lenders can start evaluating your eligibility and give you a decision as soon as possible.

3. Know the lender’s eligibility requirements

Lenders have different eligibility requirements. Some may require restaurant owners to have a stellar credit score, while others may work with businesses with poor credit scores. If you already have a lender in mind, don’t hesitate to contac and ask them how you can apply for their restaurant loan products. The more you know, the better you can position your business for success.

You can also compare loans from different lenders. If you can’t qualify for loans from your preferred lender, other financing company might be willing to offer you affordable restaurant financing. As a good rule of thumb, get offers from at least three lenders and choose which one will best suit your business’ needs and current situation.

Top Restaurant Business Loans FAQs

1. Is it hard to get a loan for a restaurant?

The short answer is no. As long as you can meet the requirements and submit the necessary documents to the lenders, you can qualify, and get approved for restaurant loans. It’s also easier to qualify for loans from online lenders than traditional lenders, since online lenders are willing to take on more risk, and therefore, may work with businesses with poor credit scores or less stellar financial record.

2. What credit score is needed for a restaurant loan?

3. What are the best startup restaurant loans?

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Restaurant Business Loans

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Grow Your Business with Restaurant Business Loans

What is Restaurant Business Loan?

How Restaurant Business Loans Can Help Your Business

How to Apply for a Restaurant Business Loan through SMB Compass

Paperwork Needed to Apply for a Restaurant Business Loan

Top Restaurant Business Loans for You

Pros:

Cons:

How to Pepare to Get Funding for a Restaurant

1. Know where you stand financially and credit-wise

2. Prepare the necessary documents beforehand

3. Know the lender’s eligibility requirements

Top Restaurant Business Loans FAQs

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