Looking to fund your restaurant? Here are some of the best restaurant financing options that you can apply for in 2022.
In the ever-changing landscape of the restaurant industry, it can be difficult to find ways to manage your cash flow, take advantage of growth opportunities, and handle unexpected expenses.
Cash management isn’t easy for any organization, but it’s vital to the success of your business. For restaurant owners, it’s a bit more difficult, especially with the cost of your inventory fluctuating dramatically from week to week.
Fortunately, you have a variety of restaurant financing options at your disposal to help you stay competitive, including term loans, business lines of credit, business advances, equipment financing, and more.
All of these financing products can supply the capital needed to stay competitive and manage your cash flow, but the structure of each option may make one option more beneficial for your situation than another.
For example, term loans provide funds in a one-time lump sum payment, whereas you can draw capital as needed with a business line of credit.
Every restaurant has different needs and circumstances. One might prefer the flexibility of a business line of credit, while another may need the structure that a term loan provides.
It all depends on the opportunity or challenge you’re facing, but you won’t know which option is best for your business unless you understand all of the financing solutions available to you.
Don’t worry; We’ve got you covered. Here’s everything you need to know about restaurant financing and the 5 most popular types of loans leveraged by entrepreneurs in the industry.
1. What Are The Benefits of Restaurant Financing?
The benefits of restaurant financing include improved cash flow, a ready influx of capital for opportunities and challenges, as well as boosted sales.
Cash flow is essential for restaurants of all sizes. Without cash on hand, you’ll find it difficult to pay for inventory, payroll, and other operational expenses without finding yourself in a financially constricting situation.
Lack of cash flow also makes capitalizing on growth opportunities nearly impossible, especially if your cash constraints are making it a challenge to forecast the future of your business as well.
Financing is a way around these hurdles. Rather than struggle to find extra cash or dip into your personal savings to keep your business running smoothly, you can secure restaurant financing to provide an influx of capital for opportunities and challenges.
Some restaurant financing options, like term loans, offer a one-time lump sum payment that you can use to support your business throughout the term, all while paying back the borrowed amount through timely payments agreed upon with your lender.
Other options, like business lines of credit, offer more flexibility, which can be game-changing for restaurant business owners. With a line of credit, you can draw physical cash at a moment’s notice to ensure your business is operating at the highest capacity.
If you encounter an opportunity to grow, you can leverage your line of credit to secure the cash you need to capitalize on the chance of growth, but that’s not all. Business lines of credit can make forecasting much easier for restaurants.
Always available capital means you won’t have to forecast down to the penny, and more importantly, you’ll always have an emergency fund if things go sideways.
2. What are the best restaurant financing options for entrepreneurs?
The best restaurant financing options for entrepreneurs include term loans, business lines of credit, equipment financing, restaurant business advances, and accounts receivable financing.
There are many restaurant loan options to choose from, with each having its own unique benefits and drawbacks that influence the way you can use the funds in your business.
Here are 5 restaurant financing options that entrepreneurs commonly leverage to support their business’s growth and development.
2.1. Restaurant Term Loans
Term loans are what most people think of when they hear the term “business loan.” As stated above, term loans are given in one-time lump sum payments that you repay to your lender throughout the agreed-upon term.
You can use them for almost any business purpose, but you might have to disclose your plans to use the borrowed amount to the lender before they approve you for financing.
The structure of a term loan provides a large influx of cash, which might not have the same benefit for every business.
However, if you’re making a purchase where you know exactly how much you’ll need to reach your goals, then restaurant term loans are a great choice.
2.2. Restaurant Business Lines of Credit
Business lines of credit are the most flexible financing option available to entrepreneurs in the restaurant industry. They’re a revolving line of credit that you can draw cash from on an as-needed basis to support your business as it grows.
You can use a restaurant business line of credit for almost any business expense, and you won’t have to worry about speaking with your lender before making any purchases.
The flexibility of a business line of credit is one of its greatest strengths, but it’s also a major risk. Much like a credit card, maxing out your credit limit can put your business under financial pressure that’s difficult to escape from.
Over time, the interest will tack onto your total outstanding balance, which creates a snowball effect where you’re struggling to pay back an amount that increases on a regular basis.
It’s recommended to stay as far away from your maximum credit limit as possible for this very reason, as it allows some breathing room for unexpected costs and other unforeseen issues in the future.
2.3. Restaurant Equipment Financing
Restaurant equipment financing allows you to break down sizeable equipment purchases into more manageable monthly or weekly payments, making it easier for you to afford the assets you need to stay competitive.
You can finance almost any piece of equipment, including kitchen appliances, dining units, client management software, and vehicles, but your total payment will cost more than if you had purchased the equipment outright because of the interest rate.
Many entrepreneurs will turn down financing with higher interest rates because they don’t want to pay more than they have to for equipment purchases. While it’s a financially viable move, you should consider the benefits the equipment will provide for your business.
Let’s say that you’re looking to purchase a new freezer unit that’s double the size of your current one. With the new equipment, you can hold double the amount of inventory for a longer period of time, which would reduce your overhead and put your organization in a better position to handle supply chain challenges.
If the reduction in your overhead is more than the interest rate offered by your lender, then it’s likely a good move to finance that equipment because of the revenue bump you’d see after the fact.
2.4. Restaurant Business Advances
Business advances are essentially an advance on your future revenue. Your lender carefully reviews your business and its profitability, then makes an offer based on what you’re capable of paying back within the term. You won’t be able to secure the entire value of your future revenue, though, as the lender takes a small portion of the funds as a fee for the service.
Business advances are great to help you manage through slow seasons or periods of cyclical business sales. Some restaurants do a majority of their business during one or two periods of the year, leaving the remaining time as a “slow season.”
Their ability to manage through their slow season will depend on their performance during the busy season, with economic factors and cash flow management also playing a role.
With a business advance, you can secure the funds you need to manage through your low sales months and, more importantly, put your business in a position to succeed during your high sales season.
2.5. Accounts Receivable Financing
Lastly, we have accounts receivable financing.
In our modern world, credit cards are used almost more often than physical cash. The ease of use definitely contributes to the popularity, but for businesses, it can cause significant cash constraints, especially if there’s an issue collecting payment.
Late payments or customer invoices from catering orders can leave you without the cash you need to handle operational expenses and other costs, but accounts receivable financing turns late payments into cash today.
Much like restaurant business advances, you won’t be able to secure the full value of your outstanding payments because of the lender’s service fee.
The exact amount of their fee will depend on the lender you’re dealing with, but you can expect to recover anywhere from 80% to 95% of the total value.
3. How to get a restaurant loan for your business
Securing funds for your restaurant is as easy as finding a lender and meeting their minimum qualifications, but reaching the right approval is much more difficult. You’ll need to shop around and receive multiple offers to know you’re choosing the one that best suits your needs.
However, this process takes time and effort on your part, which many entrepreneurs can’t afford to waste as they’re managing the day-to-day operations of their restaurants.
If you’re looking to speed up the process, you can work with National’s award-winning team and apply to multiple lenders with one digital application. We’re essentially a time-saving machine for business owners, reducing the process to hours, not months, to ensure you’re able to grow your business on your terms—not the banks.
Our expert Business Finance Advisors work with you every step of the way, too, and provide knowledgeable advice to help you make educated decisions for the longevity of your business.
If you aren’t satisfied with the offers we find, we’ll go back to the drawing board and speak with lenders on your behalf, making sure that your best interests are placed at the forefront throughout our time working together.
4. Streamline your search for restaurant financing with National Business Capital
Don’t waste your time applying to lenders one-by-one—team up with National and have our team do the heavy lifting for you. With one digital application, you can apply with 75+ lenders and streamline your search for competitive, best-fit financing from months to hours.
We take the time to learn about you, your business, and your goals to ensure we’re able to connect you with the RIGHT lender for your unique circumstances. After all, there’s no one-size-fits-all approach to business financing, and you can trust our team to treat you like a person, not a number in our system.
With $2 billion secured on behalf of entrepreneurs nationwide, 2,000+ 5-star reviews on Trustpilot, and an award-winning team behind every deal, you can trust National to help you cultivate sustainable growth in your restaurant business.
Complete our digital application today to see the options we have available for you!
How Do Restaurant Businesses Get Funding?
Restaurants can access capital through a variety of sources, including banks, credit unions, non-bank lenders, FinTech marketplaces, and angel investors, among others.
You’ll first want to establish the amount you’ll need to borrow. Then, you can start sending applications to lenders and wait for their decisions. If you’re approved, your funds are delivered promptly to your accounts, but a denial is a bit more problematic.
Business financing denials aren’t the end of the road. There could have been an error in your application, or maybe your business doesn’t fit the lender’s qualifications.
In either case, a denial is time-consuming, which is why you should always work with a marketplace that applies you to multiple lenders, like National Business Capital.
How Do I Qualify for a Restaurant Loan?
The qualifications for a restaurant loan will depend on the type of financing you’re seeking. For example, National’s term loan requirements are 1 year in business, a 580+ credit score, and at least $120,000 in annual revenue.
On the other hand, our equipment financing requirements are much easier to meet—Either a 650+ credit score or $120,000 in annual gross sales and 6 months in business.
Every lender will have different eligibility criteria, so it’s best to apply with as many as possible to ensure you’re able to find the best possible deal.
What Are the Interest Rates on Restaurant Loans?
The interest rate on your restaurant financing will depend on your business’s financial health, the amount you’re seeking to borrow, the type of financing, the offered repayment terms, and the lender you’re dealing with, amongst many others. Banks and credit union interest rates vary from 3% to 7%, whereas non-bank lenders typically have higher interest rates—11% to 44% on average.
However, while banks and credit unions have lower interest rates, they also carry strict eligibility requirements that prevent businesses without favorable financials from reaching an approval. Non-bank lenders, on the other hand, have less restrictive eligibility criteria and higher interest rates. For the best results, you should apply with multiple bank and non-bank lenders to ensure you’re accepting the best offer available.
How Do You Repay a Restaurant Loan?
You repay a restaurant loan on the schedule agreed upon with your lender. You’ll make monthly or weekly payments on both the principal and interest of the borrowed amount through physical checks or digital payments.
When you’re fully paid in, you’ll have no debt attached to your name, which is one of the main benefits of debt financing compared to equity financing.