Securing the right restaurant business loans can make or break a new venture. Margins in the restaurant industry can be tight so it’s crucial to secure affordable financing options. If you run an established food business, then a strategic approach to funding can enable you to grow and scale much faster. But what kind of funding should you be looking at and how can you use it in your business?

Whether you’re a chef who wants to open their own eatery or catering specialist that wants to run a food truck, the idea of launching a new business is exciting. But as anyone who works in the restaurant sector knows, there’s also a lot of hard work involved. From construction and kitchen equipment to menu design and hiring, there are a huge number of tasks to cover. Thankfully, sourcing the right financing option doesn’t have to be one of the headaches. In this article, we take a deep dive into restaurant business loans and how you can choose the best one for your needs.

Why Funding Matters

Funding is essential to the success of any restaurant business. Unless you have extensive savings to tap into, you’re going to need to source business loans, credit lines, or merchant cash advances. Lack of cash flow is the number one reason that businesses fail so it’s crucial to ensure that you don’t fall into this trap. Securing the right type of restaurant funding is one way to avoid the problem and set yourself up for success.

Some business owners underestimate just how important the right funding can be. But it really can make a transformative difference in your organization. The best restaurant business loans will offer competitive terms and payment options that meet the unique needs of your business. They can help you to maintain positive cash flow during quiet periods or take advantage of growth opportunities. There are many types of restaurant that have benefited from strategic funding at the right time and have gone on to grow and prosper.

However, choosing the wrong funding partner can have the opposite effect. Expensive interest rates and inflexible repayment terms can make some business loan options incredibly expensive. This can affect the profitability of your business long-term so it’s vital to do your homework. You don’t want to commit to a business funding partner that’s going to hold you back instead of lifting you up. The good news is that there are many finance options available – it’s just a question of knowing which is right for your business.

Restaurant Financing Options

There are several types of restaurant business loans as well as other funding options. It’s wise to look at all the available loan options to weigh up the pros and cons before deciding. You’ll also need to evaluate funding options against your own business needs and criteria. The affordability of monthly payments, flexibility to pay off a lump sum early, and your personal credit situation may all be factors. Here is an overview of the different types of restaurant funding available.

Business Loans For Restaurants

Restaurant business loans are a form of funding that is specifically for the hospitality sector. They are available from traditional financial institutions and online lenders like Strategic Capital. The traditional route is usually more time-consuming and complex than online options. This is because older banks use outdated manual processes to manage the loan application and approval process. This significantly extends the funding time and is often a source of frustration for restaurant owners. In contrast, working with online lenders like us is a quick and easy experience. We aim to give you a decision within a few hours and you can have the cash in your checking account within a few days.

Loans for restaurants can sometimes come with strict eligibility criteria. Traditional institutions view them as a risky investment because of the high failure rate. This can be especially tough for brand new start-ups with no trading history or those that have only been open a few months. They may also look at your personal credit score and financial situation, including student loans and on-going commitments to car insurers or other monthly payments. However, online lenders will take a more holistic approach to reviewing your application. They’ll consider the long-term viability of your business idea, previous industry experience, and have lower minimum qualifications too.

Small Business Loans

There are also generic small business loans that can be used to fund your venture. Although they aren’t designed specifically for hospitality, they can be used as restaurant loans, bar loans, or even food truck loans. You can use them to aid cash flow, purchase kitchen equipment, or invest in marketing to promote your business.

SBA loans (and in particular 7a loans) are one of the most well-known as they’re available from the government’s Small Business Administration. This is a national funding program that supports entrepreneurs across the country to run successful businesses. However, applying for an SBA loan can be a long and complex process. They require a large volume of documentation including financial statements, legal certifications, and a solid business plan. It takes several weeks and sometimes even months to receive a decision which is often too long for the fast-paced restaurant industry.

In addition to the time-consuming application process, they also have strict eligibility criteria. This means it isn’t a viable option for those in need of bad credit business loans. However, if you can meet their stringent requirements, then you’re usually rewarded with competitive repayment terms.

Restaurant Equipment Financing

If you’re looking at restaurant business loans for kitchen machinery or tools, then equipment financing may be an option. This is a specialist type of funding that’s designed for purchasing commercial equipment to use in your business. Industrial fridge freezers, stoves, and cooking utensils usually come with a high-end price tag. They need to be able to withstand the rigors of a busy kitchen and regular usage, so scrimping isn’t an option. Taking out a restaurant equipment lease can help you to purchase new goods or upgrade existing ones.

When kitchen equipment is damaged or machines break down, equipment loans can help you to fix them quickly. Having machinery that’s not working can affect the day-to-day operations of your business and the quality of your food service. This type of financing can also help you invest in the newest culinary technologies that set your business apart from the competition. Purchasing or leasing innovative new equipment can enable you to work faster, more efficiently, or even generate additional income streams.

Unlike restaurant business loans, equipment financing is a form of renting. You won’t fully own the equipment during the finance period but will make monthly payments to lease it. At the end of the term, you can choose to return and upgrade your equipment or pay an additional fee to purchase it outright. Both options have benefits and drawbacks so it’s worth considering carefully.  

Other Types of Restaurant Funding

There are several other ways that you can fund a catering venture. Restaurants, bars, cafes, and food trucks can all benefit from a range of financial support. Here are some of the alternatives to restaurant business loans that may also be suitable for your needs.

  • Merchant cash advance – if your business accepts payment by credit card, then this can be a practical alternative to commercial loans. Your business is given a cash advance and this is then paid back as part of your daily credit card processing. A proportion of every card payment is used to repay the advance so that it happens consistently instead of as a monthly payment.
  • Line of credit – business lines of credit are usually offered by suppliers and give you 30-90 days to pay for their goods. This allows you to sell their products on and generate a profit on them before you need to pay the supplier. It’s beneficial for cash flow and building up your business credit history but won’t be offered by all suppliers and need to be negotiated individually.
  • Invoice factoring – some types of restaurant may be able to take advantage of invoice factoring which is where you sell unpaid invoices to a financial institution at a discounted rate. This can be helpful if you run an established restaurant or catering business that invoices clients (as opposed to just cash and credit card payments).
  • Personal loan – some people use personal or auto loans to finance their restaurant, food truck, or bar business. This carries a higher amount of risk than restaurant business loans since the amount you borrow is personally guaranteed. Therefore, your home or possessions could be at risk if you don’t keep up repayments. It is also worth taking out life insurance to ensure they’ll be repaid if the worst should happen. However, if your business doesn’t have any kind of credit history this could be an option.
  • Savings accounts – if you have savings in investment accounts or a Roth IRA, then you could consider using these to fund your restaurant business. This decision isn’t one to be taken lightly, especially if you’re investing your retirement savings. However, you may find that the return is better than a standard bank savings account.

What Can the Money Be Used For?

Restaurant business loans can be used for a wide variety of purposes including new equipment, expansion, and covering short-term cash flow deficits. Here are a couple of ways that other catering businesses are using loans for restaurants, bars, and cafes.

Aid Cash Flow

Restaurant and bar business loans can help to sure up cash flow during quiet periods or act as a capital loan until your company is on its feet. You can use them to rent premises, purchase furniture, or stock the fridges full of fresh ingredients. Short-term loans can pay your staff salaries until you make your first monthly sales or become fully profitable.

If you run a seasonal business like a restaurant in a holiday spot, then a loan can tide you over until footfall picks up. It can be used to pay rent and salaries during the quiet months so that you’re ready to hit the ground running once peak season arrives. Some restaurant business loans have a balance transfer facility that enables you to restructure existing debt. Just ensure you have a plan for how you’ll invest the money to generate a positive return for the loan repayment.

Fund Business Growth  

If you run an established business, then you may be looking for ways to expand. One of the most popular business tips is to use financial leverage like loans to scale and grow. There are lots of options for restaurant expansion, from opening multi-site locations to offering franchise opportunities. Investing in social media campaigns, setting up online booking systems, or offering take away facilities can also boost revenue.

You can also use restaurant business loans to secure prime real estate in popular locations. They can be used instead of construction loans to fund the build and fit-out of a new venue. If you’re looking to purchase commercial property outright, then your funding partner should also be able to give you preferential mortgage rates.

These are just two of the most popular uses for restaurant business loans. But if you have a different use in mind, then get in touch with our friendly team. They can talk you through the best funding options for your business type and discuss a loan amount that’s realistic based on your annual revenue and time in business.

Restaurant Finance From Strategic Capital

Awarded the Best Alternative Business Loan Marketplace designation by LendVer, Strategic Capital provides restaurant business loans to a wide range of companies across the USA. Whether it’s to pay for your everyday costs, emergency repairs to equipment, or investing in expansion, we offer small business finance solutions without the hassle of traditional banks. Best of all, you’ll benefit from competitive terms and a simple application process, so you’ll soon have more money to reinvest into your business. Transparency, innovation, and expertise are the driving factors behind everything we do. With a talented team of advisors, a plethora of funding partners, and the best technology available – we go above and beyond to help our clients receive their capital rapidly with the industry’s most competitive repayment options and interest rates. We want to break speed records, not bank accounts. Upon submitting your application, it’s reviewed by a dedicated Capital Advisor. We generate the best rates and terms at lightning speed through our funding matrix and robust lender network. Yep… it’s that simple. Learn more about our restaurant business loans and other lending services here.