In this article we will tell you where and how the restaurant to obtain loans, with advice from industry experts and successful restaurant Owner.
restaurants usually have higher initial costs than many other types of businesses, average $ 500,000 according to an industry survey by RestaurantOwner.com. Operating costs are also generally higher. At the same time that restaurant owners need more capital, but it may be difficult to obtain financing because lenders restaurants perceive as high risk enterprises.
We will tell you what works and what does not for restaurants, including the following:
- What are your options for getting restaurant loans?
- The determination of how much capital you need
- The purchase of an existing restaurant or Restaurant Franchise
- How to increase your chances of qualifying for a restaurant loan
Best restaurant loans - Summary of options
| type of financing | Best for | Cost | Speed |
|---|---|---|---|
| SBA Loans Learn more | established and profitable restaurants. Owner needs 650+ credit score. Ideal for long-term investments such as hiring and expansion. | 7-9% APR | ~1 month SmartBiz |
| Alternative loans / lines of credit More information | founded , revenue producing restaurants. Owner needs more than 500 credit score. Great for short-term financing needs as supplies / raw materials. | 20-80% APR | ~ 1 working day with Kabbage |
| Equipment Financing For more information | The purchase or lease equipment. Owner needs 550+ credit score. | 20:05% | ~ 2-4 weeks with LeaseQ |
| Rollover for Business Startups (ROBS) Learn more | start a new restaurant or an existing restaurant to buy. Must + $ 50K retirement account have | $ 5,000 fee upfront and ongoing fees $ 0 / month | ~ 3 weeks with Guidant |
| crowdfunding Learn more | start a new restaurant. | on the type of crowdfunding website | ~ 1-2 weeks with EquityEats |
What are depending my options a restaurant loan for getting?
In order to find out the best financing options for your business, you will need to consider the following four factors:
- Whether you funding will need to start a new restaurant, buy an existing restaurant, or an established restaurant grow
- your personal credit score (you can use your credit score to enter free check)
- the type and size of the restaurant (eg you are a food truck or a full-service upscale restaurant?)
- What you want to achieve the loan for need (eg capital vs. tools)
Often restaurant owners combine several funding their funding goal. Below we break for restaurants some of the most popular financing options down
Option 1 :. SBA loans
If you have a strong credit score and a restaurant, which is already turning a profit, you are in a good position to get a SBA loan. SmartBiz which has provided more than $ 105 million in financing from restaurants available, we recommended SBA loan provider.
One of the least expensive options when it comes to restaurant loan, is a loan SBA. These are long-term (typically 10 years) government guaranteed loans, which generally have interest rates in the range of 7-9%. Restaurants are the # 1 type of business, the SBA loan obtained .
Although it can usually take several months to obtain an SBA loan, SmartBiz has the SBA loan process shortened to about 1 month. SmartBiz is not a lender, but will help to pack your loan for you and get funded. We at Fit Small Business get a loan through SmartBiz. They helped us, although many banks did not want to work with us. The process was quick and easy.
Although most loans SBA go to established companies, it is possible to obtain an SBA loan for a start or if you are an existing restaurant to purchase. You are a good shot if you strong credit, a 10-20% down payment and former restaurant industry experience. SmartBiz not work with start-ups or acquisitions, but you can work with your bank.
Learn about SBA loans for restaurants here.
visit SmartBiz
SmartBiz at a glance
| How much can you borrow | qualification criteria | repayment term | The costs |
|---|---|---|---|
| $ 30K - $ 350K | 650 credit credit score, 2 years in the business, cash flow positive | 10 years | 7-9% APR |
option 2: alternative loans
If you could be a restaurant for a while, but your income or credit score to qualify not quite high enough for an SBA loan, an alternative lenders owned had to be the solution. Alternative lenders are particularly well suited for short-term funding , for example, to buy restaurant supplies or raw materials.
Kabbage is our recommended alternative short-term lenders. They provide a revolving credit line of up to $ 100K and the application and funding processes are super fast. You just need the funds to pay you withdraw your credit line. How do you pay back what you borrowed your available credit increases. Kabbage is much more expensive than a SBA loan, but you pay in under 1 years Kabbage loans back while SBA loan 10 years loans generally.
visit Kabbage
Kabbage at a glance
| to how much you borrow | qualification criteria | repayment term | costs |
|---|---|---|---|
| $ 2K - $ 100K | 550 credit Score, 1 year in business, $ 50K + annual sales | 1- 12 months | 20-80% APR |
option 3: prolongation for Business startups (ROBS)
A study of RestaurantOwner.com found that the majority of first-time restaurant owners with personal savings or other personal sources of financing their restaurants are financed, like credit cards, home equity and retirement accounts.
If you have a retirement account, raise not only funds, because you have to pay an early withdrawal penalty and taxes. Instead, we propose a prolongation for business startups try (ROBS).
Guidant is our recommended ROBS provider. They help you invest pension funds, which are in a 401 (k), traditional IRA or other eligible retirement account to pay in your business without taxes or early withdrawal penalties. We like Guidant, because they found a wealth of expertise in helping small businesses have a ROBS. They have helped more than 8,000 companies that do a ROBS, more than $ 3 billion financing totaling.
A ROBS is most often a new restaurant to start using or to buy an existing restaurant, but it can also be used to recapitalize a restaurant that you already own. The primary advantage of a ROBS is that there is no loan. While there are fees to pay in advance and every month, there is no debt or interest to pay back. As a result, restaurants that can save more money a ROBS and can grow faster. While there is always a risk of losing your pension fund if the business goes under, the risk of the failure of companies there is no matter what kind of financing you are using.
more about rollovers for Business Startups learning here .
visit Guidant
Guidant at a glance
| How much can you borrow | qualification criteria | repayment term | The costs |
|---|---|---|---|
| as much as your retirement account contains | Eligible retirement account with at least $ 50K in it | Not applicable | ~ $ 5000 in advance fee plus ~ 0 $ / month ongoing fee |
option 4: equipment financing
need more equipment, tables, chairs, to buy games or other equipment for your restaurant, then a equipment Leasing or loan is probably the fastest and most economical source of funding. Equipment leasing and loans usually range selected for 2-5 years, and applicants with relatively low credit scores are often qualify able for equipment financing.
With LeaseQ, it's easy to apply online equipment financing, and 70 + equipment lenders compete to offer the best rate.
Visit LeaseQ
LeaseQ at a glance
| How much can you borrow | qualification criteria | repayment term | The costs |
|---|---|---|---|
| $ 500 $ 10 million | 550+ credit score | 2-5 years | 20:05% |
option 5: crowdfunding
If you are planning to open a new restaurant, your options are limited. It will be hard to get an SBA loan or bank loan, if you have great credit, a deposit, and past experience in the hospitality industry. For a start, you may have to get more creative by personal resources to increase loans from family and friends, or money via crowdfunding.
There are a variety of sites crowdfunding as Indiegogo and Kickstarter, that working with a number of businesses, including restaurants. EquityEats is designed specifically for restaurants. In return for their support, people who finance your campaign EquityEats is to use credit and cash in your restaurant. Food Start and PieShell are other restaurants for crowdfunding sites.
visit EquityEats
[1945047[ EquityEats can How much you borrow at a glance
| qualification criteria | repayment term | The costs | |
|---|---|---|---|
| no max | Each restaurant is entitled | Not applicable | bar or food / beverage credit to your followers Enter |
Other options for restaurant loans
the above options are just a few of the most popular options for restaurant loans, but they can not fit every restaurant needs or situation.
. For smaller purchases, such as ingredients, Credit may actually be a good choice to buy For larger amounts of capital, you can also check if you are a homeowner in knocking home equity .
If you plan to an existing restaurant instead, could beginning to buy one from scratch, Financing Seller , much of the funding you need form.
While we do not normally recommend merchant cash advances to small businesses because of how expensive they are, they are yet another option , This may be the only option for you if you are a new restaurant and have a checkered credit history. Merchant cash advances are fixed price advances of capital, which is repaid with a low percentage of your daily credit and debit card sales. While some restaurant owners appreciate the flexible nature of the repayment, it can significantly eat into your profits. and PayPal use
Square offer merchant cash advances, which are less expensive for the merchant, the place or PayPal to process payments. A food truck or smaller restaurant can benefit from it.
For a complete overview of all the major credit options, see our guide on How to Get a Small Business Loan Get .
Ultimately, you may have to combine different financing options. Adrian Bethel, owner of Coopers Cave Ale Co. , a family-run brewery and pub in Glen Falls, NY, his family says a variety of financing options over the years has used. First banks refused because the restaurant was not enough to do sales, so he and family members had business with personal savings Bootstrap. As sales increased, banks were more willing to work with them. When he had to lease equipment 4 years ago, he approached Key Bank, where he already had his business checking and savings accounts. Today he is almost done to this loan pays off and looking to get another loan to expand the business.
determining how much capital you need
Before you can receive restaurant financing in any of the above points, you need to know how much capital you need.
Here are some of the primary start-up and operating costs, you should consider when determining how much you need to borrow. These data are from RestaurantOwner.com:
| Type of costs | Average cost |
|---|---|
| Total start-up costs (excluding land) | $ 494,888 ($ 159 / sq. ft.) |
| Total start-up costs (including land) | $ 735,326 ($ 178 / sq. ft.) |
| Kitchen & bar equipment | $ 115,655 ($ 136 / sq. ft.) |
| food costs | ~ 30% of total food sales |
| alcohol beverage costs | ~ 10-15% of total beverage sales |
| alcoholic beverages costs | ~ 20-30% of total alcoholic beverage sales |
| employee payroll and benefits | ~ 15-25% of total sales (higher for restaurant management) |
| rent or mortgage | ~ 5-10% of the total sales |
For more details on the costs, click here .
There is often 1 to 2 years for a restaurant taking a profit to start turning so that they keep in mind when you made your financial planning. Bethel, a veteran restaurant owner, warns that The key is to fund a restaurant patience and understanding that "everything will be more expensive and take longer than you think."
All above costs will vary based on the type of food service operation and your location. Jim Laube, president of RestaurantOwner.com he says food truck drivers to do business than $ 10K has seen for as little as fine restaurants can cost millions of dollars. Your menu offerings and prices and opening times will affect your startup costs.
location also makes a difference. As you can imagine, a restaurant in New York City will have much higher costs than a restaurant in German, Maryland. Various state laws on minimum wage and tilting will also affect labor costs.
to make the purchase of an existing restaurant or franchise
Once these calculations, you will have a good estimate of how much financing you need. If the cost seems far outside your budget, think smaller.
"Do not start with a 0-seat full-service restaurant. Begin. With something small that you get to work your arms, like a little cafe it is less expensive, there is less money at risk, and a lot of time, it is easier to find a small restaurant for sale, as to start one from scratch. We recommend a small, existing restaurant to buy the currently is mismanaged, but you can make changes. you can for pennies on the dollar to get the space, equipment and existing customer base. "
-Jim Laube, president, RestaurantOwner.com
to buy an existing restaurant is often easier to finance because you financing Seller use or owner financing. That is, the current owner or the owner, where the restaurant is located will give a loan to cover the full or partial cost of the restaurants. Seller or owner financing may be combined with a SBA loan, ROBS or other types of financing. should
If you buy an existing restaurant, Laube says there 5-7 years on the left side of his lease, so you do not have to move.
to buy a restaurant franchiseis yet another possibility. It is often cheaper to buy than an independent restaurant, because the parent company offer the concept, marketing materials and brand recognition. If you decide to buy a franchise, ask the parents for Franchise Disclosure Document , the estimated start-up and operating costs are put. Also, check out our list of 50 best and worst franchises of SBA failure rates . Many restaurants are on the list.
How to increase your chances of a restaurant Loan
For decades, the conventional wisdom was that the restaurants were high-risk companies with rates high failure. But in recent years, it will become clear that restaurants are not necessarily riskier than any other company.
We recently business types based on space on the volume of SBA funding they received and the interest rates at which they repaid SBA loans , It turned out that restaurants get more SBA loans than any other type of business, and about 54% of the restaurants repaid their SBA loan. While this is not a large repayment rate, there were many other companies that fared much worse.
Despite this, it is true that restaurants do some unique challenges. They have a high cost and thin profit margins and the food service industry is highly regulated. In addition, Dave Gilbert, founder and CEO of National funding says: "eat a is risky new because owners must invest heavily in inventory and equipment items that lose value are fast and hard for the lender in the event of further sale that the restaurant goes under. " All this can make it difficult to obtain funding restaurants.
There are four things that you qualify your chances for a restaurant loan and get a good price can do to increase:
- improve your personal credit score (check score free here )
- have a good business plan
- maximize sales and profits
- your personal investment maximize
your personal credit score is the number one factor in whether you can qualify for loans restaurant impact. While there are options for bad credit are, the higher your credit rating, the more likely you are to qualify and your interest rate will likely be lower. To improve your credit score to pay bills on time, try just as much credit to use as you need, and do not apply for too many loans, how can hurt too many credit inquiries to your credit. You may also want to consider a credit repair service , when the time is running out.
After the credit score, your business plan is the most important factor when it comes to getting a business loan. Alternative lenders usually require no business plan. However, if you aim for an SBA loan or bank loan, then a business plan is an essential cornerstone of your loan application to be. You will want to spend more time on financial projections, so the lender can see how you are planning to increase profitability. You should also include your resume and highlight your previous experience in the hospitality industry or in running a business. We recommend Live Plan to easily create a business plan online.
The higher your restaurant are sales and profits, the easier it is your ability to the lender to pay back to will be shown. If possible try to wait until your restaurant is in a financially strong position before you apply for a grant. They are easier to qualify and get a better interest rate.
Finally, bring as many personal resources as you can on the table. This reduces your reliance on external financing. Furthermore, to make a personal investment you qualify for financing rather because it shows interest in the restaurant of success vested. when you start a new restaurant or purchasing an existing restaurant only, you have a 20-30% deposit.
Always ask about the interest rates, fees and prepayment penalties in advance before committing to a loan. This is later to avoid unpleasant surprises. The annual percentage rate (APR) of a loan tells you the cost of a loan of 1 year, and makes it easier to compare several lenders and loan products.
Bottom Line
Whether you specialize in pizza, fine French food, sushi, or something else, the options for restaurant loans through can you help start and grow. Remember that you can get to several sources of financing, the capital you need to combine for your restaurant. Although it may initially seem frustrating, with a little patience and planning, you will be able to secure the financing you need
.
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