Researching the best business loans and deciding on the right option for your company can be confusing. Our Small Business Loan guide makes it easy to compare your quick funding options in the US and select the right loan for your business, whether you’re just a start-up or seeking to grow an existing small business.
Evaluating Restaurant Loan Options
The National Restaurant Association estimates that more than 90% of restaurants have fewer than 50 workers and that 7/10 are single-unit businesses. With restaurant workers making up 3.8% of the US labor force and employment expected to reach 17.2M by 2030, restaurants play a vital role in this country's small business scene.
One of the sectors most severely affected by the COVID-19 pandemic was the restaurant industry; sales were down $65 billion in 2021 from 2019, and overall employment fell by 1 million workers from pre-pandemic numbers values.
As food prices rise, salaries rise, and federal help dwindles, many restaurants, especially independent operators, strive to preserve their profits. Restaurant owners will be forced to cut costs by modifying menus and investing in labor-saving technologies in 2022 as a result of record labor and supply chain constraints.
You can use small business financing to fill in cash flow deficits and get the quick funding you need to invest in cutting edge technologies that will help you minimize costs, enhance productivity, and boost profit margins.
Options for Restaurant Loans
Restaurant owners can get access to a variety of easy business loans to help them overcome difficulties and flourish. There are options for secured and unsecured loans, both long- and short-term, including:
- SBA Restaurant loans
- Bank Finance
- Alternative funding
- Lines of credit
- Equipment financing
- Restaurant revitalization funding program
Let's examine these in more detail:
1. SBA Restaurant loans
Instead of directly providing restaurant loans, the Small Business Administration (SBA) partners with commercial lenders like banks or credit unions to approve and disburse funds that are then guaranteed up to 85% by the SBA. In principle, this encourages lenders to grant more loans because it decreases their risk.
SBA restaurant loans will have the lowest rates and the longest terms because the risk is reduced. However, the application process is also the most demanding, having strict eligibility and requiring a mountain of supporting documentation. By most estimates, gathering all the needed information might take up to 30 hours, and it can take weeks or months to get a decision with no assurance that it will be approved. The majority of applicants are turned down, particularly those who have little or no collateral, have a history of unstable cash flow, are looking for short-term financing, or operate in a riskier sector of the economy.
Term loans are the norm for SBA loans. There are several SBA funding options, but these are two of the most well-liked:
- 7(a) Guaranteed Loans: The most common SBA loan for restaurants is a 7(a) loan. The lowest rates and the longest payback periods are offered on funding up to $5 million. Although there are no limitations on how funds may be utilized, collateral is frequently required to begin. For loans under $25,000, express loans are available with a 36-hour turnaround and no collateral requirements.
- 504 Local Development Company Loans: Long-term, fixed-rate 504 loans are frequently utilized to invest in real estate. This quick funding is supplied by commercial development companies through commercial lending institutions, and the borrowing business is required to utilize its capital to help minority-owned projects, develop rural areas, generate or maintain jobs, or support other public policy objectives like these.
2. Traditional restaurant bank loans
Commercial lenders like banks or credit unions may be able to provide restaurant operators with access to the cash advance they need.
Most bank loans for restaurants are term loans with fixed or variable interest rates that are repaid over a set period of time. Collateral may be needed. The size of the loan and your credit history will determine the terms and rates, which are typically competitive but may not be as low as the SBA loan due to lack of guarantee.
Even while lending requirements are often strict, they might not be nearly as rigorous as the SBA, particularly if you already have a good working relationship with your lender. Restaurants and other higher-risk industries with unpredictable cash flow and poor margins may find it difficult to secure the capital they need from these channels since banks often favor issuing loans for bigger sums or cash advance to large firms with collateral. Applications might take weeks or months to be approved, similar to the SBA, and the majority of applicants are turned down.
3. Alternative Funding for restaurants
After the 2008 financial crisis, there was a growing demand for accessible small business start up funding. Alternative funding from direct online lenders such as Fundr began during 2020 at the start of the pandemic to respond to the urgent need for accessible funds and provide simple, easy alternative financing options.
Providing flexible approval requirements that simplify the process and focus less on credit score, fewer documentation needs, and quick turnaround - sometimes in just 1 hour from submission - cash advances from these lenders are often easier to receive than a bank or SBA loan.
Collateral is usually not needed and these lenders are more expected to approve younger businesses, with a slight possibility some will not lend to businesses that are less than 6 months old.
Rates may be higher than other restaurant loan kinds due to the more lenient approval standards. Depending on the sort of small business financing you receive, repayment terms are generally daily or weekly.
These lenders offer a variety of small business financing options, such as lines of credit and loans backed by real estate collateral, in addition to non-loan quick funding such merchant cash advance and invoice factoring:
- Invoice factoring: Accounts receivable financing, or invoice factoring, enables businesses to exchange their outstanding bills for working capital advance. In essence, a company will sell its outstanding bills to a lender called a factor in return for a working capital advance. Up to 90% of the invoice's value will be provided upfront by the lender, and the remaining balance (less any fees) will be paid when the invoice is paid. Businesses with lengthy accounts receivable periods or significant invoice values should explore invoice factoring.
- Merchant cash advances: A percentage of your daily or weekly credit and debit card sales are arranged for a cash advance from a merchant cash advance, sometimes called a purchase of future receivables. Your daily sales are taken into account when calculating payments, thus days with greater sales will result in larger payments, while days with lower sales will result in lesser payouts. MCAs are perfect for companies like restaurants that process lots of card transactions.
Additionally, alternative lenders might have specialized funding plans for underrepresented groups like women- or minority-owned companies.
Providing flexible approval requirements that simplify the process and focus less on credit score, fewer documentation needs, and quick turnaround times – approvals sometimes in just 1 hour from submission - cash advances from these funders are often easier to receive than a bank or SBA loan.
Collateral is usually not needed and these funders are more likely to approve younger businesses.
Depending on the sort of small business financing you receive, repayment terms are generally daily or weekly.
These funders offer a variety of small business financing options, such as lines of credit and loans backed by real estate collateral, in addition to non-loan options such as merchant cash advances and invoice factoring:
- Invoice factoring: Accounts receivable financing, or invoice factoring, enables businesses to exchange their outstanding bills for working capital advances. In essence, a company will sell its outstanding bills to a lender called a factor in return for a working capital advance. Up to 90% of the invoice's value will be provided upfront by the lender, and the remaining balance (less any fees) will be paid when the invoice is paid. Businesses with lengthy accounts receivable periods or significant invoice values should explore invoice factoring.
- Merchant cash advances: A percentage of your daily or weekly credit and debit card sales are exchanged for an upfront cash advance from a funding company, sometimes called a purchase of future receivables. Your daily sales are taken into account when calculating payments, thus days with greater sales will result in larger payments, while days with lower sales will result in lesser payouts. MCAs are great for companies like restaurants that process lots of credit or debit card transactions.
Additionally, online lenders might have specialized funding plans for underrepresented groups like women- or minority-owned companies.
4. Restaurant lines of credit
With longer terms and lower rates, lines of credit operate similarly to corporate credit cards. These are one of the most versatile types of small business financing options since they let business owners choose when to request funds and offer additional flexibility for repayment..
You are only ever required to pay interest on the amount borrowed, and there are no constraints on how the money may be utilized. Because of this, lines of credit are handy for handling other additional expenses that don't require a bigger loan but can still affect your revenue. These include funding irregular, large purchases of inventories, technology or equipment.
5. Equipment financing
New computers, point-of-sale systems, automation technology, vehicles, and other machinery are just a few examples of the types of equipment that can be purchased with the help of equipment financing, designed specifically to finance the purchase of new equipment.
In most instances, lenders will fund between 80 and 100 percent of the cost of the new equipment, using it as the collateral to secure the loan and potentially lowering interest rates. These loans frequently have terms that are proportional to how long your lender estimates the equipment will function, and payments are regularly made in monthly installments.
6. Restaurant Revitalization Funding Program
During the COVID-19 epidemic, the SBA made its Restaurant Revitalization Funding Program for restaurants, bars, and other food service establishments available to qualified businesses. The SBA funding program is no longer open for applications, however restaurants who won support can continue to spend their funding in accordance with their initial intentions.
The Restaurant Revitalization Funding Program offered restaurants funding up to $10M per business and no more than $5M per physical location, comparable to their income loss caused by the epidemic. As long as the money is used by March 11, 2023, on eligible costs, recipients are not required to pay it back. Expenses that qualify include:
- Business Payroll
- Business Mortgage Obligations
- Business Operating Expenses
- Business Equipment
- Construction of Outdoor Seating
- Debt Payments
- Food and Beverage Expenses
- Paid Supplier Costs
- Rent Obligations
- Utility Bills
The Restaurant Revitalization Funding Program featured fairly strict documentation requirements, on level with those of other SBA funding programs, even while applications were still being accepted. Businesses owned more than 51 percent by women, veterans, or members of underprivileged socioeconomic groups received preference.
What Are The Best Restaurant Loans?
The best small business loans will depend on your objectives. Your restaurant loan, including the sum borrowed and the terms of repayment, should always be utilized for a clear purpose that is in line with your business goals, such as expanding to a new site, recruiting new personnel, or altering your menu to satisfy changing customer demands.
Short term funding option:
Non-loan financing options like merchant cash advances can offer working capital for short-term capital needs. This kind of money might be used to promote your business, buy new equipment or supplies, cover shortfalls in cash flow, or hire staff.
Long term funding option:
SBA loans and bank loans are the best choices for long-term financing. While bank loans will provide equally competitive rates and may be quicker to get if you already have a relationship with a lender, SBA restaurant loans give the greatest rates but are the most challenging to obtain. However, due to perceived risk, slim profit margins, and the changing face of the industry, obtaining bank and SBA loans for restaurants can be difficult. Although rates may be higher, some alternative lenders also provide long-term quick funding solutions with less approval criteria, such as small business financing and new business loans with collateral.
Fast funding option:
Alternative funding companies are always your best chance for quick access to capital. While the SBA and banks may take months to evaluate an application with no certainty of approval, these companies can approve and deposit cash into your bank account in as little as 24 hours.
How To Use Working Capital Loan
Restaurant owners will have to seek new ways to expand as the restaurant industry faces challenges from supply line disruptions, a lack of qualified personnel, and shifting consumer expectations. New opportunities to address these challenges include:
- Automation: In the next two to three years, half of restaurant operators plan to implement automation technology, including voice-activated AI at drive-throughs, self-service ordering kiosks for quick-service restaurants, and automating straightforward back-of-house tasks like dishwashing and the preparation of simple foods. Only 36% of restaurant owners surveyed said they have changed their company technology in the previous year, despite the fact that 62% of restaurant owners think automating inventory management will help speed online, dine-in, and delivery orders. A working capital loan to invest in automation technologies can help you employ fewer people, lower expenses, and increase efficiency.
- Technology: During the Covid-19 pandemic, use of applications, third-party ordering, and direct online ordering skyrocketed, and it is likely that this trend will continue throughout 2022. The most successful restaurants will be those with tight integration between back-of-house operations and front-end technology, such as app ordering systems. Upgrades to inventory management, reporting software, point-of-sale systems, and other technologies may be made with the aid of small business financing, which can help you improve operational efficiency and front-and-back-of-house integration.
- Online presence: 90% of customers research restaurants online before visiting. Customers trust internet reviews 79% as much as they do personal recommendations, and each extra star on Yelp may improve revenues by up to 9%. The success of your restaurant may greatly benefit from keeping an eye on customer reviews on sites like Yelp, Facebook, and Google, but doing so demands time and effort that you might not even have available without adding more workers. Getting a small business loan can provide you with the money you need to hire staff, freeing up your managers' time so they can respond to customer reviews and maintain a strong online presence that will promote your restaurant and increase traffic to your website.
- Changing demand: Millennials' preferences are shifting; 78 percent of them say they'd rather spend money on an experience, like eating at a restaurant, than an object. On the flip side, 41% of customers claim that if it were provided, they would purchase a make-at-home meal kit from their preferred restaurant. Whether it's giving a first-rate dining experience or expanding your product line to better satisfy shifting customer needs, a small business cash advance may assist you in negotiating these shifting consumer tastes.
- Hiring personnel: Small business financing can give you the money you need to hire more personnel, giving you more time to concentrate on higher-level management challenges. Restaurant industry professionals acknowledge that they don't regularly examine reports on sales, labor, and menu. Regularly reviewing these statistics might uncover cost-cutting options, such as getting rid of menu items that aren't doing well and streamlining your supply chain to enhance your profitability.
- Delivery: In 2022, 72% of limited-service restaurants will offer improved delivery and online ordering, and 27% of customers who utilize food delivery services would pay more for expedited delivery. The margins on third-party deliveries made through applications like UberEats can severely hurt your bottom line. By introducing online ordering services and minimizing their reliance on third parties, restaurant owners may leverage a working capital loan to improve their delivery model.
- Healthy menus: Compared to two years ago, 61% of diners believe they are more inclined to eat healthy foods at a restaurant nowadays. Other rising trends, such as zero-waste cooking and local sourcing, might be difficult for restaurants to implement since they may lack the necessary working capital to do so. To satisfy these evolving demands, small business financing may give you the quick funding you need to change your menus to include healthy alternatives, eliminate waste, and give local sourcing preference.
- Plant-based options: As constraints on the supply chain rise and the price of animal-based proteins climbs, the increasing popularity of plant-based diets presents restaurants a potential opportunity. When other proteins are scarce, plant-based menu items can ease supply chain problems and save prices for restaurants. Restaurant financing can provide the funding you need to adjust your menu to meet these demands
- Online ordering: By providing online ordering through your website, you will avoid the fees and surcharges that other meal delivery services, such as DoorDash, implement. Other virtual services, like booking reservations online, may also be useful, but their execution may require retaining a professional web developer and spending too much money. Restaurant loans can help satisfy your clients' demands online, gain a larger share of the market and generate additional revenues.
- Expansion: Due to the growing popularity of food halls and the enormous empty areas left by developers who started their projects before COVID, small businesses have the chance to grow while commercial real estate costs are still affordable. Restaurant funding can be utilized to establish a satellite location at a food hall, expand to a new location, or use a "ghost kitchen" concept to target a wider audience with less overhead.
Small business financing can also assist restaurant owners in dealing with particular challenges inherent to their industry, such as:
- COVID-19: After two years of lockdowns and restrictions, restaurants are still struggling with cash flow issues as some guests remain wary of going back to indoor eating. Staff shortages are also prevalent because more workers are absent due to illness or are tending to sick family members. You can improve your cash flow with revenue based funding, or even recruit new employees to better equip you to face unforeseen workforce changes.
- Employee turnover and staffing: The majority of restaurant owners see staffing as their top challenge, while 35 percent cite training as a main hurdle. To hire and train a new employee can cost over $2,000, while to hire and train a general manager might cost up to $15,000. According to experts, the greatest way for restaurants to flourish is to bring in and retain talent early in their careers and offer them the opportunity to grow and progress from entry-level jobs. Working capital loans may be able to assist you in putting these mentoring and training initiatives into action or allow you to recruit the best candidates and train new hires, including managers.
- Supply chain: Agricultural, food production, and transportation are all currently suffering significant staffing shortages, which are having an impact on the entire restaurant supply chain. Non-food items like takeout containers and other disposables are being hit by supply chain problems as well, which could put additional pressure on already thin profit margins. Eight out of ten restaurants that offer seating have had to reduce their menus as a result of these problems. You can navigate these tides with the help of small business financing without placing further burden on your cash flow.
- Food prices: The National Restaurant Association reports that 2021 saw a 2.9 percent growth in wholesale food prices. Increased operating and food costs, particularly for meat, poultry, and fish, were cited as a major concern by 52% of restaurant industry insiders. In an effort to save labor costs and wastage, these prices have led to reduced menus—total restaurant menu items decreased 10% from pre-pandemic highs by the end of Q3 2021. Restaurant funding can assist in normalizing business cash flow so you can purchase the supplies you need to maintain your current menu offerings or make adjustments to reduce costs.
- Rising cost of living: 47% percent of restaurant owners confess that minimum wage rises have caused them to plan fewer hours for workers each week, and 16% say they have had to cease hiring to save on labor expenses. It is likely that restaurant owners will need to raise pay in order to recruit talented people and boost employee satisfaction, but doing so can be tough when cash flow is already tight and margins are slim. Cash advances might provide you the money you need to raise salaries and offer enticing benefits to prospective employees.
- Equipment: If they had the means, 47% of restaurant owners would replace or upgrade their equipment. Devices such as industrial ovens, fridges, coolers, ranges, and smaller equipment like espresso makers and stand mixers may all streamline processes or open up new economic opportunities. Small business funding is frequently used to buy new equipment.
How To Apply for New Business Loans
Due to the increased risk associated with the restaurant industry, applicants will face many barriers when seeking new business loans, especially from traditional lenders like the SBA or a bank.
Before applying, make sure you have a thorough grasp of the background and finances of your business, including:
- Your operating history
- Profitability and revenue
- Private and business credit ratings
To minimize any waiting delays, you should also prepare your financial statements and supporting papers beforehand. Gather the necessary information before applying:
- Banking transactions
- Balance sheet and income statement reports
- Returns for both personal and business taxes
- Forecasts for cash flow
You could also be required to submit a business strategy or statement of intent. Traditional lenders will need a thorough plan explaining your intended use for the money as well as your repayment strategy. A purpose statement could also be required by alternative lenders. To avoid any delays in obtaining your small business financing, it is important to have this information ready in advance.
Financing for Restaurants
Compared to traditional lenders, Fundr can easily provide business funding for restaurants. Additionally, we may approve small business financing options more quickly, with money paid as soon as the next business day (and in some cases, within just 1 hour of reviewing your documents). With funding options ranging from $5,000 to$500,000, we are experts in funding for small businesses.
All restaurant types are eligible for funding from Fundr. To choose the best revenue-based financing option that will support your goals without jeopardizing your company's cash flow, our knowledgeable Financing Consultants are always here to assist you.
Your information must be verified and accurate in order to qualify.