Small Business Loan Options For Restaurants, Bars, & Hospitality Industry
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Small business loans can do wonders for restaurants. Managing a restaurant is tough work. Competition is fierce. And let’s face it – the economy may be getting better, but you could still use more money. Successful entrepreneurs know how to manage their cash flow. They understand that borrowing can fill gaps. And it can open doors. But you have to borrow in the right way, at the right time.

Different types of small business loans address different restaurant financing needs. Here are some tips for getting the restaurant business loan you need to grow your business.

Check Out the Obvious

Traditional bank loans for businesses are notoriously hard to obtain. That doesn’t mean you shouldn’t investigate them. You can’t know which option is best for your restaurant if you don’t know what options exist. Getting the details allows you to compare pros and cons. That way, you can be confident you’re making the right decision.

So what kind of small business loans do banks offer for restaurants?

  • Traditional business loans:

You will have fixed monthly payments. Your interest rate will depend on your credit-worthiness and the length of the loan. (Typically longer loans have somewhat lower interest rates.) You can borrow money for almost any purpose. However, banks are often hesitant to offer inventory financing loans. They consider these business loans to be too risky. And they don’t want the hassle of liquidating your inventory if you fail to repay the loan.

  • SBA-backed business loans:

The U.S. Small Business Administration has a Guaranteed Loan Program, called 7(a). They don’t lend the money. You have to apply through a bank. But the government promises to cover part of the cost if you default on your loan. That can enhance your eligibility. But the SBA may demand a personal guarantee in order to approve your loan. Many restaurant start-ups seek SBA-backed loans.

  • The SBA

also offers other specialty loan programs. CDC/504 loans are aimed at businesses in disadvantaged economic areas. The 7(m) Micro-Loan program is for both start-up and growing businesses. You can borrow up to $35,000. But you may have to put up some collateral.

The National Restaurant Association asked a panel of experts about small business loans. One of the panelists was Judith Roussel from the Small Business Administration. She recommended SBA loans as a good choice for restaurants that don’t have a stellar “track record or a lot of collateral.” She noted that the SBA offers business counseling, as well as programs to help women- and minority-owned businesses obtain government contracts.

Attorney Joyce Mazero was another panelist. She warned prospective borrowers to find a lender familiar with the restaurant industry. Mazero also urged them to investigate alternative sources of funding. She mentioned private equity firms and also online lenders.

Uncover the Not-So-Obvious

Now you’ve done your research regarding bank loans for restaurants. It may not look promising, especially if you have bad credit or an insufficient track record. But what else is there? At United Capital Source (UCS), we are proud to offer restaurants a variety of funding alternatives. We do not conduct business as usual. And helping fund restaurants is one of our specialties.

There are many types of small business loans available to restaurants:

  • Accounts receivable financing (factoring): You sell your receivables to a third party at a discount. That way you don’t have to wait for your money.
  • Merchant cash advance: This is another form of receivables loan. It is based on credit/debit transactions.
  • Restaurant equipment loans: Outfitting or upgrading your kitchen is expensive. But there are small business loans designed specifically to help restaurants purchase equipment. They tend to be shorter than traditional loans,– around three years. These loans don’t cover extras associated with new equipment such as delivery and installation.
  • Equipment leasing: This is an alternative to purchasing. You still have to make monthly payments, but they will be smaller than with a loan. A lease often includes equipment maintenance. That can save you additional money. Even if you lease, you may want to purchase the equipment after all when the lease expires.
  • Restaurant-specific loans: Banks and other traditional lenders sometimes offer “restaurant” loans. You can use the money for anything you need. But you have to qualify for a bank loan.

Other options also include:

  • Unsecured business line of credit: This can be a much better option than a business credit card, because interest rates are lower.
  • Asset-based business line of credit: Accounts receivable financing is actually this type of loan. You can also back a line of credit with assets such as real estate or equipment.
  • Inventory financing: You can use your inventory as collateral, to buy inventory or fund something else.
  • Bridge loans: These are short-term loans designed to carry you through the period between loan approval and loan funding.
  • Private investors: Involving family or friends in financing your restaurant can create more problems than it solves. On the other hand, if you think you have a franchise-worthy brand, investors may be interested. Think Shark Tank. But bear in mind that many investors will want to own part of your restaurant business. That’s a trade-off you’ll want to consider carefully.

Which of these options makes sense for you depends on why you want funding. Restaurants often need money to:

  • Purchase real estate
  • Renovate or expand your dining room
  • Boost cash flow or smooth fluctuations
  • Increase operating capital
  • Purchase additional inventory
  • Purchase new or additional equipment
  • Deal with unexpected emergency
  • Take advantage of an unexpected opportunity
  • Hire more staff for the front and/or back of the house
  • Launch a new marketing campaign

Know What You Need to Apply

Banks set high standards for business loan application and approval. That’s true for their own loan products and also SBA-backed loans. You will need:

  • Strong credit score
  • Strong sales track record and profitability
  • Sizeable cash contribution (they want to know you’re putting you own money toward the financing project)
  • Lots of paperwork
  • Lots of time for review and approval

No wonder it’s so hard to impress them.

Marc Compeau wrote an article for Forbes about his own restaurant financing experience. “I think bank robbers are more welcome by lenders than customers looking to finance restaurants,” he complained. “We visited four banks, got outright rejections from three, one of them the same bank that we have had a perfect and significant lending relationship with for 20 years, each rejection because we used the dirty word ‘restaurant’.” He wondered why banks so often shy away from restaurant loans. He concluded, “That’s the way it’s always been.”

But some in the restaurant industry urge you to persevere anyway. Eventually, you might get approved. But what if you need money now? Many restaurants, even established ones, cannot meet bank loan requirements. And then there’s that long wait for an answer. Many restaurants don’t have that luxury.

If your finances aren’t perfect or you’re in a hurry, alternative lenders are a tastier choice

One common problem for restaurants is bad credit. That alone can kill your chances with a bank. Maybe with some other lenders as well. But bad credit shouldn’t automatically make you a bad lending prospect. Alternative lenders look beyond your credit score. And they can link you with a wide variety of small business loans.

Here at UCS, we know restaurants come in all sizes and flavors. That’s why we are not as rigid as a bank. We know all the top lenders. And we know all types of restaurant financing options. But we represent you. Our only concern is linking you with the best-fitting program for your restaurant. We can help you even if you have bad credit, as long as you’ve been in business at least six months. We offer:

  • Funding from $5,000 to $5 million
  • Quick and easy online application
  • 24-hour approval
  • Funding within 72 hours
  • Many repayment options

We even offer an alternative SBA Marketplace business loan

This is for clients that do have good credit and a longer time in business. You can borrow from $30,000 to $350,000 at a surprisingly low interest rate. And you can get your money within seven days. It’s not an option for every restaurant. But if you qualify it can be an outstanding option.

Once we help you find the right lender, it may be tempting to borrow as much as you can. Most lenders will allow that. They make more money when you borrow more. At United Capital Source, we think that’s a bad plan. We do not lend more than you need. The reason is simple – we want your restaurant to succeed.

Bigger loans have bigger payments. You pay more in interest. That harms the cash flow you’re trying to protect. Or improve. So it’s counter-productive. We recommend getting only the amount you actually need now. Then we’ll help you find the right financing for your next project when it comes along. That could be an entirely different type of business loan.

Evaluate the Alternatives

Researching small business loans is time-consuming. You can gather a lot of information. You will know much more about what is available. But you still may not know what to do. Restaurant owners can get into trouble if they assume any business loan is as good as the next one.

Instead, you could partner with a lending expert. One who knows business loans and lenders from the inside out. One who understands the unique challenges of the restaurant business.

UCS takes a holistic approach to lending. We get to know each customer and your business in detail. Then we connect you with the best-fit financing for your current needs. You get realistic, custom-tailored lending guidance you can take to the bank today. And you get a continuing connection for the future. That’s what partnerships are all about – sharing expertise and benefits. We love seeing your restaurant grow and evolve over time. And having you as a long-term client helps us grow, too.

Even Restaurant Business Loans Can’t Solve Everything

Getting the funding you need is cause for celebration. But it takes more than money to protect your investment and grow your business.

Perhaps you’ve heard that 80% of restaurants fail within five years. Many people consider that “common knowledge.” The National Restaurant Association disagrees. They say 60% of restaurants fail within three years. But 49% of all small businesses fail after five years. Small business loans can help you succeed. But running a successful restaurant takes commitment and a strong will.

Have you seen the TV reality show “Restaurant Impossible”? Celebrity chef Robert Irvine hosts the show. He says you have to get every detail right. That means non-financial factors also contribute to failure in restaurants.

A lot of restaurants – and other small businesses, too — are family affairs. That can make managing your business even more difficult. Knowing how to work in harmony with your spouse, siblings and/or kids is essential. You can be more productive. Happier. And more profitable. You can make smarter decisions about critical issues such as financing. That might save your marriage as well as your business.

You’ve Got Options

Are you considering small business loans for your restaurant? You have options. Why not let our restaurant lending experts help you explore them? Partnering with United Capital Source is like having a lending-savvy relative. But better. We’ll give you straight-up, independent advice about financing. But we won’t meddle in your day-to-day operations.

Bon appétit!

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