4 Critical Questions to Ask Before Getting a Restaurant Loan

Restaurant owners certainly know that when cash stops flowing—even for a month, let alone a quarter—it might just be a matter of time before layoffs loom, suppliers turn off the credit taps, and the “restaurant for sale” ads hit the (virtual or print) presses.

In critical situations like these, getting a restaurant loan can be what truly makes the difference between surviving and thriving. However, it is important to keep in mind that there are a few things that you should carefully evaluate before applying for any type of loan.

Asking yourself a few questions can give you a better perspective on why you need the loan and how you plan to maximize its benefits for your restaurant business.

Knowing how to use the funds effectively is extremely important. Continue reading to learn everything you need to know about restaurant loans.

Restaurant Success Does NOT Equal Profitability

At the same time, restaurant owners know that today’s success is by no means an assurance of future profitability.

Competition is relentless and ferocious, customer loyalties wane or can come to a crashing halt after a single negative experience, and costly renovations to keep the atmosphere as fresh as the food is mandatory rather than optional.

As such, it’s only a matter of time before restaurant owners will need to access more working capital through restaurant loans — either to remain successful, or in some cases, to continue surviving through a rough patch.

4 Critical Questions to Ask Before Getting a Restaurant Loan

1. How much cash do I need?

Before getting a restaurant loan, probably the most important question that you will need to ask yourself is how much cash you need exactly.

This can be a tricky question because if you are applying for a loan that’s larger than what you truly need, you may burden yourself with unnecessary debt and increase the financial strain on your business. Higher debt means higher repayments, which can significantly impact cash flow and profitability.

On another hand, if you borrow less than what you need, you may find yourself in a position where you need to seek additional funding sources to bridge the gap. This could involve taking other restaurant loans with potentially less favorable terms and higher interest rates.

It may also lead to your inability to complete specific projects, compromise on quality or scope, or potential cash flow issues due to the lack of sufficient funding.

So, how do you determine the amount of cash you need? Here are a few tips:

• Define the purpose of the loan – is it to expand your existing facilities, renovate them, purchase equipment, or boost working capital? This will give you the perfect base for your calculations.
• Estimate the costs of the project – for example, if you are planning to renovate your restaurant, consider the quote of the contractor, the cost of the furniture, and other relevant components that will add to the costs.
• Create a detailed budget – summarize all estimated expenses into a comprehensive budget that covers all aspects of your project or financial need. Make sure to include 10-20% extra for unforeseen expenses.
• Consult financial advisors – it is always a good idea to consult with a Business Financial Advisor who can provide insights and help validate your calculations, thus reducing the risk of over or under-borrowing when it comes to restaurant loans.

2. Do you need a short-term or a long-term loan?

Another critical question to ask yourself when considering restaurant loans is whether you need a short-term or a long-term one. This is crucial because it affects your repayment schedule and interest costs.

Short-term restaurant loans are typically paid back within a year, and are suited for covering costs like hiring seasonal workers, covering temporary shortfalls, taking care of an unexpectedly high tax bill, paying for emergency or urgent repairs, and so on.

They typically have higher monthly payments but lower total interest.

Long-term restaurant loans are typically paid back in 1-5 years (or in some cases longer) and are better suited to investments like major renovations, opening new locations, acquiring another restaurant and integrating it into existing operations, and so on.

They spread out payments, easing cash flow strain but increasing total interest.

3. What are the types of restaurant loans that I can apply for?

Another critical question when it comes to restaurant loans refers to the types of loans that you can apply for and which one makes the most sense for your business. Some of the best financing options for restaurants include:

• SBA loans for restaurants – backed by the Small Business Administration, boast prime rates, up to $5 million in funding, and repayment terms of up to 25 years.
• Equipment financing – if you need additional funding to purchase equipment, this restaurant loan type can be an excellent option for you.
• Business line of credit – business lines of credit are ideal if you want to cover emergency needs or take advantage of new opportunities – you can borrow on an as-needed basis and only pay interest on what you’ve drawn.
• Business loans – you can also opt for secured (require collateral) or unsecured small business loans (doesn’t require collateral) for your restaurant.
• Merchant cash advance – among different restaurant loans, this financial option allows your business to get quick capital by utilizing future card sales.
• Working capital loan – this type of loan is an excellent opportunity if you need immediate cash to cover daily operational costs, such as payroll or inventory purchases.

4. What is the application process like?

Understanding how the application process works is essential when you are applying for restaurant loans. This will help you prepare accordingly and maximize your chances for approval.

Applying for a restaurant loan with a bank can be very time-consuming and administratively tedious – and the worst part is they can take weeks and months to get your funds if they even approve you. This is why for many restaurant owners, a bank loan is a non-starter.

For example, if you don’t have excellent personal credit, if your restaurant hasn’t been operational and profitable for at least a couple of years, or if you don’t have sufficient collateral to secure the loan, then your application is unlikely to make it past stage one for a bank loan (and there are many, many stages).

Fortunately, that’s where National Business Capital enters the picture!

How We Support Restaurant Owners Nationwide

At National Business Capital, we proudly support restaurant owners across the country with both short-term and long-term loans. Our application process is streamlined and simple, and our Business Finance Advisors understand the unique operational needs of restaurants.

Plus, we approve about 90% of loan applications — compared to about 15-20% at big banks.

How to Apply for Restaurant Loans with NBC

If you are looking to leverage the benefits of restaurant loans, look no further than National Business Capital. With a single application, you can get access to dozens of exclusive offers so you can make the best decision for your business.

With $2+ billion financed since 2007, multiple awards, and an experienced team of Business Finance Advisors, we have everything you need to find the best financing options for your project.

Are you ready to get started? Apply here.