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Intro To Restaurant Business Loans
If you live in a busy town, you’ve probably seen plenty of restaurants come and go. Despite their vital role in the community, this is one of the riskiest industries in existence. There are too many reasons for a successful restaurant to run into financial trouble. Equipment can break down or become outdated. Employees can quit in pursuit of more normal hours. And to stay in such a desirable location, you must be prepared for astronomical monthly rental costs. United Capital Source has access to Restaurant Business Loans & Equipment Financing to help restaurants conquer these hurdles so they can continue serving their loyal customers.
In this guide, we’ll answer the following questions and more:
- What Are Restaurant Business Loans?
- How Do Restaurant Business Loans Work?
- What Are The Advantages of Restaurant Business Loans?
- What Are The Disadvantages of Restaurant Business Loans?
- How Do You Apply For Restaurant Business Loans?
- What If I’m Declined For Restaurant Business Loans?
- How Do You Get a Business Loan For a Restaurant?
- Is It Hard To Get a Loan For a Restaurant?
- What Do Restaurants Use Business Loans For?
- Can I Get a Loan To Buy a Restaurant?
- Why Don’t Banks Lend To Restaurants?
- Can I Get a Restaurant Business Loan With Bad Credit?
What Are Restaurant Business Loans?
Restaurant Business Loans are business loans geared towards the cash flow cycles and recurring expenditures of restaurants. Rather than giving every restaurant the same product, we recommend the repayment structure and terms that best suit your financial needs.
Thus, Restaurant Business Loans can come in the form of:
- Business Term Loans
- SBA Loans
- Restaurant Line of Credit
- Restaurant Equipment Financing
- Working Capital Loans
- Restaurant Cash Advance
- Revenue-Based Business Loan
How Do Business Loans For Restaurants Work?
Restaurant Business Loans can address a multitude of investments, expenses, and cash flow shortages. For example, if you’re looking to replace an expensive piece of equipment, we offer Equipment Financing in which your desired purchase is used as collateral. Very little paperwork is required, and you’d be able to secure the new equipment in as short as a few business days.
Restaurants tend to perform high volumes of debit and credit card sales. For this reason, we often recommend a Merchant Cash Advance when business slows down temporarily. You’d make smaller payments during slow periods, which frees up more cash to prepare for busy periods. Merchant Cash Advances are cheaper when your payments are more spread out. This repayment structure is particularly ideal for highly seasonal restaurants or the countless restaurants in which demand can fall or drop at any moment.
Maybe one of your biggest obstacles is securing enough ingredients or supplies to meet these unexpected surges in demand. A Business Line of Credit can solve this common dilemma. You’d gain the means to purchase large orders when it’s most convenient for your cash flow cycle. And your interest would be minimal since you’d be able to pay off your balance quickly.
For more substantial investments like adding another location or renovations, we offer Business Term Loans and SBA Loans. We can approve these products much quicker than banks, and your terms can even be customized to suit the estimated time frame of your investment.
Restaurants Business Loan Options Compared
|LOAN TYPES||MAX AMOUNTS||RATES||SPEED|
|Merchant Cash Advance||$7.5k – $1m||Starting at 1.09||1-2 business days|
|SBA Loan||$50k-$10m||Starting at 5%||3-5 weeks|
|Business Term Loan||$10k to $5m||Starting at 5%||1-3 business days|
|Business Line of Credit||$10k to $250k||Starting at 8%||1-3 business days|
|Equipment Financing||Up to $5m per piece||Starting at 5%||3-10 business days|
|Revenue Based Business Loans||$10K – $5m||Starting at 9%||1-3 business days|
What Are The Advantages of Restaurant Business Loans?
Thanks to companies like United Capital Source, Restaurant Business Loans can be accessed very quickly. The application requires minimal documentation, and funds can appear in your bank account in just a few business days. This is extremely important for restaurants, where unforeseen expenses and misfortunes are a constant struggle. In these situations, access to additional funds allows some restaurants to stay alive while others crumble.
During a state-mandated health inspection, you might be instructed to purchase a particular type of appliance or use a specific kind of material for your tables. These expenses could easily exceed $10,000.
You might find out that your target audience now prefers delivery over going out to eat. With a business loan, you could immediately recruit a delivery service to show your customers that you understand their preferences.
Also, how many times have you been to a restaurant and observed that they were heavily understaffed? Slow service is one of the most popular complaints from restaurant patrons. Business loans allow restaurants to keep a sufficient amount of employees on staff when they would otherwise not have enough cash to do so.
Lastly, companies like United Capital Source regularly work with businesses that are just six months old. In the restaurant industry, new business owners often have to spend hundreds of thousands of dollars within their first year of business. Little credit history or less than one year in business doesn’t have to stop you from getting the funding you need to get your restaurant up and running.
What Are The Disadvantages of Restaurant Business Loans?
Since the restaurant industry is unpredictable, it can be challenging to choose the right business loan product for your needs. Choosing the wrong product can put tremendous pressure on your cash flow and limit your capacity to grow. And with so many products to choose from, it’s crucial to research each option before seeking funding. However, many restaurant owners would likely admit that they are far too busy to research business loan products while running their businesses.
The myriad of sudden expenses restaurants face also makes it hard to figure out how much to borrow. Asking for too little could leave certain expenses unaccounted for. On the other hand, asking for too much could give you more debt than you can afford to pay back. Restaurant owners are more likely to commit the latter mistake since it often seems like another expense pops up every day.
When you consider the number of potential expenses or slow periods lying ahead, calculating the right amount to ask for might seem nearly impossible. For this reason, some restaurant owners probably don’t even bother looking into business loans at all.
Who Qualifies For Restaurant Business Loans?
Approved businesses generally met the following criteria:
How To Apply For Restaurant Business Loans:
The amount of paperwork required depends on the product you choose. For most products, funds can be approved and distributed in up to three business days. Here’s how to apply:
Step 1: Choose the Right Product
The first step is choosing the most sensible solution to the problem at hand. This should require a decent amount of research, as each product is designed for different types of expenses and cash flow cycles. Are you looking to cover a short-term or long-term expense? Is demand expected to increase or decrease in the coming months?
Considering the funds’ purpose will also help us determine the correct borrowing and terms for your needs.
Step 2: Gather Your Documents
Here are the documents and information required for Restaurant Business Loans:
- Driver’s license
- Voided business check
- Bank statements from the past three months
- Invoice for equipment (for Equipment Financing)
- Credit card processing statements from the past three months (for Merchant Cash Advance)
SBA Loans require additional documents and information. To learn what’s required for the SBA Loan application, visit our SBA Loan page.
Step 3: Fill Out Application
You can begin the application process by calling us or filling out our one-page online application. Either way, you’ll be asked to enter the information from the previous section along with your desired funding amount.
Step 4: Speak to a Representative
Once you apply, a representative will reach out to you to explain the repayment structure, rates, and terms of your available options. This way, you won’t have to worry about any surprises or hidden fees during repayment.
Step 5: Receive Approval
If you’re approved, you’ll hear back from us within 24 hours. Funds for Business Term Loans, Business Lines of Credit, Working Capital Loans, Equipment Financing, Merchant Cash Advance, Revenue-Based Business Loans, and Accounts Receivable Factoring should then appear in your bank account in anywhere from 24 hours to one week. For SBA Loans, it usually takes 3-5 weeks to receive funding.
Your Restaurant Financing Gets Set Up – Now What?
Your business loan isn’t just a way to get financing for your business. It’s also an excellent opportunity to start building (or improving) your credit.
Regardless of the type of business loan you get, make all of your required payments on time and in full. If you get a business credit line or another form of revolving credit, keep your balance below the credit limit.
Consistently making your business financing payments on time and in full will positively impact your credit. And that means preferred rates and terms when you next need business financing.
What If I’m Declined For a Restaurant Business Loan?
If we decline your application, it might be because you applied for the wrong product for your cash flow. In this case, we would likely recommend a different product with a less hazardous repayment structure.
We might also decline your application after determining that you cannot afford to take on more debt at this time. Instead, your needs and financial circumstances might be better suited for another financing tool, like a business credit card or even a personal loan. Both options can be accessed through UCS and are usually much easier to qualify for than business loans.
If your credit score is preventing you from accessing financing, you should consider our credit repair services. We can help you identify the issues that keep your score down and develop practical solutions for eliminating them.
People Also Ask:
How Do You Get a Business Loan For a Restaurant?
This depends on where you apply and the product you have in mind. Bank loans tend to carry the highest borrowing amounts, lowest rates, and the most extended terms. However, bank loans are also the most difficult to qualify for. You’ll need excellent credit, perfect cash flow, plenty of money in the bank, at least two years in business, and collateral. The application will also require significant paperwork, and you’ll have to wait several months to receive funding.
Companies like United Capital Source, on the other hand, have access to lenders with much looser requirements, and you can get funded in a matter of days. Their products are more expensive than bank loans, but you can borrow up to $10 million. And unlike banks, the size of your requested borrowing amount won’t make you any less likely to get approved. Most of their customers borrow around $25,000.
Is It Hard To Get a Loan For a Restaurant?
Business Term Loans and SBA Loans are the most difficult loans to qualify for, especially if you seek funding from a bank. Restaurants may have an especially difficult time accessing these products due to their tumultuous cash flow and low profit margins. Banks want their borrowers to maintain high bank balances every month. This shows that you’ll have plenty of cash to pay off the debt after covering operational expenses. So, yes, it is indeed hard for restaurants to access Business Term Loans and SBA Loans from banks.
However, if you’re seeking funding through a company like United Capital Source, turbulent cash flow is not a deal-breaker. These companies regularly work with restaurants that experience occasional dips in revenue or lengthy slow periods due to seasonality. You can even get approved for multiple products with poor credit. Thus, it is not hard for a restaurant to access products from online or alternative business loan providers.
What Do Restaurants Use Business Loans For?
Restaurants can use business loans for a myriad of purposes. They include:
- Purchasing new equipment
- Unexpected expenses like a required licensing fee
- Adding a new feature like an outdoor bar or delivery service
- Hiring, outfitting, and training new hires
- Covering operational expenses during slow periods
- Adding a second location
- Buying an existing restaurant
- Launching a mass marketing campaign
- Renovating the exterior or interior
- Purchasing extra inventory
Can I Get a Loan To Buy a Restaurant?
Yes, traditional and non-traditional business loan providers can distribute large loans that can be used to buy a franchise, add a second location, or buy an existing business, regardless of industry. However, to qualify for high borrowing amounts and long terms, you must have excellent credit, healthy cash flow, and at least two years in business. You may also have to provide collateral, depending on how well you meet the other requirements.
Why Don’t Banks Lend To Restaurants?
Banks have a reputation for declining loans for restaurants, even if they meet their general requirements. This may be because 80% of privately-owned restaurants fail in their first three to five years of business.
Many restaurants also have low profit margins and are family-owned. Some banks might believe that family members don’t make good business partners since their relationship with you can influence your decisions.
Banks also don’t lend to any business (regardless of industry) with turbulent cash flow. How will you make fixed monthly payments when business slows down?
Thankfully, companies like United Capital Source have no issue with turbulent cash flow. Products like a Merchant Cash Advance, Business Line of Credit, and Revenue-Based Business Loan do not require fixed, monthly payments. You can even use these products to cover operational expenses during temporary slow periods.
Can I Get a Restaurant Business Loan With Bad Credit?
Yes, you can get a Restaurant Business Loan with bad credit. At United Capital Source, borrowers with bad credit can access the following products:
- Business Line of Credit
- Equipment Financing
- Working Capital Loan
- Merchant Cash Advance
- Revenue-Based Business Loans
Most of these products carry shorter terms and are relatively easy to repay. When you have bad credit, you’ll receive shorter terms and higher rates to reduce default risk. However, if you have excellent cash flow or can provide collateral, you may be able to access higher borrowing amounts, even with bad credit. For example, the borrowing amount for a Merchant Cash Advance is based on your debit and credit card sales volume. If a lot of your sales come from these payment methods, you may be able to access up to 150% of your monthly debit and credit card sales.