Which Type of Restaurant Financing is Right for You?

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Wednesday, July 12th, 2017

Whether your customer base is comprised of fine diners or fast foodies, the fact remains that sooner or later you’re going to need a cash infusion to keep your restaurant strong and successful. However, knowing which type of restaurant financing is right for you can be confusing.

To point you in the right direction, here are six restaurant financing options to research and analyze as you move forward towards a decision:

  • Small Business Administration (SBA) Loans

The good news is that the SBA offers loan programs for restaurant owners (along with other types of businesses). The bad news is that competition is very high, and annual funding is typically 100% allocated by September/October each year. What’s more, the application process is very long — often taking several months and involving dozens of documents — and both excellent personal and business credit are necessary. If you don’t meet these requirements, or if you can’t afford to wait months for a loan to (potentially) materialize, then an SBA loan isn’t a viable option.

  • Conventional Bank Loans

Conventional bank loans (and credit union loans) have the same good news/bad news story as SBA loans. Yes, restaurant financing is available. But no, it’s certainly not easily available. In fact, banks have even more stringent lending requirements than the SBA, and all loans must be secured with sufficient collateral. This means that in the event of a missed payment, your personal and/or business assets may be immediately seized and liquidated to cover the debt.

  • Merchant Cash Advances

Sometimes referred to as “business cash advances,” merchant cash advances aren’t technically loans. Rather, they’re an advance on future payment card (debit and credit) sales.

Here’s how they work: an agreed upon amount of cash is advanced to a restaurant owner. At the end of each business day, a small fixed percentage of payment card sales is automatically transferred to the lender. In this way, when sales are above average, a little bit more is transferred and the loan is closer to being paid back in full. Conversely, when sales are below average, there is more cash available on-hand to cover expenses and invest in revenue-generating tactics and strategies (e.g. advertising, promotions, etc.).

Unlike conventional bank loans, merchant cash advances are unsecured, which means no collateral is required. Bad or impaired credit is also typically fine, and only a few months (rather than a few years) of credit history is necessary.

  • Working Capital Loans

Working capital loans are lump-sum loans with predictable and fixed (typically monthly) repayment amounts. These can be short-term or long-term loans, depending on needs and goals. As with merchant cash advances, working capital loans are unsecured, impaired/bad credit is not a deal-breaker, and a few months of credit history is usually enough to get approval.

  • Business Line of Credit

A business line of credit provides on-demand access to funds (up to the available limit). Interest is only charged on the drawn amount rather than the full amount available, which is why many restaurant owners establish one before they need the funds. Similar to both merchant cash advances and working capital loans, business lines of credit are unsecured, bad/impaired credit is OK, and a few months of credit history is fine.

  • Inventory Financing and Equipment Financing

Inventory financing is a loan used to purchase inventory, which is then used as collateral to secure the loan. Equipment financing works the same way, except the purchased assets (and collateral) is equipment rather than inventory.

Learn More

At National Business Capital, we provide restaurant owners across the country with merchant cash advances, working capital loans, business lines of credit, inventory financing and equipment financing to help them stay strong and successful. To learn more, contact our team today for your free, no obligation consultation or fill out our two-minute loan application to get the process started. You’ll receive an approval decision within 24 hours!

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