Last Updated:
October 29, 2023

The Complete Guide to Restaurant Financing and Loans

Find the best financing and loan options for your restaurant business with our complete guide. Get expert tips and advice to secure funding for your restaurant!
The Complete Guide to Restaurant Financing and Loans
Angelo Esposito
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A successful business line takes dedication and perseverance. Opening a restaurant costs money, equipping it, and financing it until it becomes profitable. As more restaurants open, where does the money come from to invest in them? Some brave restaurant owners sell anything they own and use their money to start businesses. Many other people are looking for business partners with whom they can invest money.

Another way to get money is to get restaurant business loans, bank loans, SBA loans, or small business lending which can help you start your own business. A casual or expensive black-tie restaurant is what you want to open. To learn about restaurant loans and what to think about, keep reading!

Restaurant Financing and Loans

In the restaurant industry, when a restaurant owner wants to start, grow, expand, or rebrand their business, they can use restaurant financing, and a restaurant business loan to get the money they need. Restaurant owners can use the money they save on interest to make working capital loan improvements without dipping into their own pockets.

However, getting financial support from a restaurant loan for a restaurant business doesn't have to be a challenge. You must have an in-depth understanding of the business plan, flow, and seasonality of sales to raise money for a new restaurant venture successfully.

Why do business owners apply for financing?

As restaurant owners should be aware, businesses require access to a merchant cash advance to survive and thrive at the top and remain competitive. In business line, some of the most common reasons restaurant owners borrow money from outside sources are as follows:

  • Setting up a new business
  • Renovating their existing location
  • Purchasing new equipment
  • Expanding to more locations
  • Improving the restaurant's interior
  • Extending the space or reworking the floor plans to add extra tables to accommodate more guests
  • Financing operational expenses
  • Setting a reserve to be allocated to offset future unexpected costs
  • Working with a consultant to optimize operations, marketing activities, hiring process or purchasing decisions
  • Adding additional income streams such as consumer packaged products or catering
  • Rebranding

Many restauranteurs may need an additional restaurant loan, working capital loans, and equipment loans to prepare for COVID-19 restrictions to reopen or adjust operations. There are a number of COVID-19-specific expenses centered around sanitation and equipment necessary to protect your restaurant's guests and employees. Professional deep cleaning, plexiglass dividers, and other government-mandated equipment may be included in these costs.

If you want to apply for the best restaurant business loans, start thinking about how you'll use the money, plan about how you do restaurant financing throughout the process, personal guarantee, and gather some of the financial documents you'll need such as bank account, business credit card, and business credit score.

Which are the most popular restaurant financing options?

There seem to be as many business financing options available as there are reasons to apply for credit. Some financing options are best for short-term projects, whereas others are better suited for long-term business goals.

When business owners think of business financing, they often assume that they could only have options either to apply for business loans or they can only get limited funding from a traditional brick-and-mortar financial bank. It's worth noting that there are restaurant financing options that don't fit into the loan category including merchant cash advances, lines of credit, purchase order financing, and invoice financing is all solid forms of restaurant financing options. Alternative loan lenders are also more lenient and flexible than traditional banks when it comes to eligibility, qualifications, and repayment process than brick-and-mortar banks.

These are the best restaurant business loans options that restaurateurs  typically turn to when applying for restaurant financing from among a wide range of available alternatives:

  • An alternative loan
  • A merchant cash advance
  • A small business association loan, also known as an SBA Loan
  • A business line of credit
  • Crowdfunding
  • Merchant cash advances
  • Funds or equity from friends and family
  • Term loans from a “brick and mortar” bank
  • Restaurant equipment financing

Let's look at the characteristics of 10 popular restaurant financing options, ranging from restaurant loans to business lines of credit, to help you determine which is the best option for you, your restaurant, and your goals.

Traditional “brick & mortar” bank term loans

In restaurant financing and loans, Brick-and-mortar bank loans differ from one bank to another, from one business to business. Let's look at some of the advantages, disadvantages, and general characteristics of traditional brick-and-mortar bank term loans in greater detail.

Typically, a "brick-and-mortar" bank loan is:

These restaurant business loans have a time-consuming application process. The average brick-and-mortar term bank loan application process takes between 14 and 60 days. This may be a good option for you if your project has a flexible timeline or if you begin looking for funding well in advance of when you will need to have cash on hand to meet your needs.

To get restaurant loans, you'll need collateral. This could be personal or business collateral. Personal assets are used by 31% of small business owners with debt to secure financing, whereas business assets (such as real estate if you own your physical site, equipment, etc.) are used by 49% of small business owners. In some cases, putting up collateral or using a personal guarantee can lower your funding costs, but it is frequently required regardless of cost. In this situation, you must determine your risk tolerance and if less expensive financing is worth risking personal or business assets.

Having restaurant loans with accrued interest rates means that if you don't pay interest back on time, the amount you owe will skyrocket. If you work in a restaurant, you have to be ready for anything. If you don't keep up with your monthly payments, the maximum penalty can really add up, especially if interest is added.

In most cases, payments on a term loan are due on the same day of each month. Keeping track of a monthly bill is necessary for recipients. Typically, bank loans accumulate compound interest (as previously mentioned), which means that the further you get to pay, the greater your debt cost.

Flexibility in terms of predefined timeframe (usually 3-10 years) This flexibility makes it easy to customize the repayment period to the length of time that best suits your restaurant. The length of the term you decide will usually affect the cost. If you can afford to pay back your loan quickly, for example, a bank will usually offer you a lower interest rate than if you have to pay it off over a longer period of time. The longer it takes you to pay, the higher the interest rates you'll incur and the more money you'll have to pay back.

Alternative business loan

The traditional loan from a brick-and-mortar bank comes to mind when most people think of applying for business loans. However, alternative lenders from banks and non-bank lenders are a great option to consider if you're looking for working capital or funding to start a new project at your existing business.

In the line of credit, alternative loan products are available from some lenders to help approved many business owners obtain capital. These lenders typically have access to more sophisticated technology than traditional banks to determine whether a candidate is qualified, and they may also offer more flexible repayment options.

In addition, banks offering alternative loans may accept newer restaurants or base approval criteria on your business's performance and other factors rather than your personal minimum credit score. In contrast, brick-and-mortar banks look for companies to have operated for three years and require a high credit score from the business owner.

Alternative loans may also provide repayment options that are flexible in line with your daily sales. Alternative loans may offer daily payments as a fixed percentage of your credit card sales, rather than having you make one fixed monthly or daily payment for the duration of your loan, making it simpler for seasonal restaurants to keep up with payments.

A small business administration (SBA) loan

A loan from the Small Business Administration (SBA) of the United States is a government-backed loan. The SBA relies on a vast network of partner lenders to provide approved small businesses with the money they need to get their business off the ground, which is an important distinction to make.

Working with an established financial institution is a given. As a result, the time it takes to receive your money can range from one month to three months, depending on your loan size and type. It's still possible that loan approvals could take up to three months due to shifting risk profiles and many loan applications.

There are two types of SBA loans offered: Working capital loans and fixed assets.

The SBA loan typically requires borrowers to put up substantial personal or business collateral to prove their financial stake in the venture. SBA loans also have long and complex application processes that can take weeks or months to complete, requiring applicants to submit years of financial statements and receipts for major purchases made over time.

Furthermore, SBA loans may be suitable if your project has a flexible timeline and you don't need cash immediately. SBA loans also offer a range of funding options. Many SBA-approved lenders will originate loans up to $5.5 million, the SBA's maximum.

If you need to get a loan from the Small Business Administration, you must meet a few criteria.

" In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Normally, businesses must meet SBA size standards, be able to repay, and have a sound business purpose. Even those with bad credit may qualify for startup funding."

For a complete list of what you need to do to get a loan from the SBA, click here.

A business line of credit

Owning a business often comes with unexpected challenges, such as cash flow issues. A business line of credit can cover unexpected expenses, payroll, and supplier fees when revenue is down. In an emergency, a business line of credit can help business owners to secure funds.

In most restaurant business loans, traditional and online lenders offer business lines of credit. It's essential to understand how business lines of credit differ from traditional small business loans and whether they're suitable for your restaurant.

A business line of credit operates in the same way as a credit card: An open line of credit is extended to restaurant owners who have been approved by a traditional bank or an alternative lender. As with credit cards, a spending limit must be met either monthly or annually before a merchant can obtain additional credit. This option is advantageous for a variety of reasons, the most significant of which are as follows:

  1. It provides working capital to business owners when they require it while also allowing them the flexibility to decide how much they need.
  2. It assists business owners in improving their company's credit score.

Commercial real estate loan

Shortly, commercial real estate will not be less expensive. Commercial real estate (CRE) loans can be used by restaurants to make improvements to their buildings, parking lots, and gardens, among other things. Some lenders, particularly those participating in SBA schemes, may allow borrowers to include architectural and legal fees, appraisals, and additional construction costs in a loan.

Determine if it's worth getting commercial real estate loans to help you with your restaurant funding for expanding your business. If you're starting a new business and want to buy your restaurant location outright. Ensure that alternative lenders will be very interested in how well your restaurant is making money. Because most real estate loans are long-term, big-ticket deals, your cash flow, and overall flexibility could be significantly affected.

Equipment financing

A restaurant equipment loan is an advantage when you decide to open a restaurant. It assists you when you upgrade your equipment purchases or buy a new one. Equipment financing is a great way to obtain capital for restaurant equipment-related projects.

This is how it works:

  • An equipment financing lender either sells you the piece of equipment you need or provides you with the funds to purchase it, and you then pay them back in monthly installments over a specified period (plus interest).
  • Selling your paid-off equipment and obtaining a loan against it to fund small projects within your restaurant is another option available from some equipment financing companies. This is referred to as a sale-leaseback. Comparing the sale-leasebacks to other funding sources, sale-leasebacks typically have meager interest rates and favorable repayment terms.

Purchase order financing

Implementing different strategies can be accomplished by expanding your business, reaching new customers, and increasing profits. Test sales in grocery stores and other brick and mortar retail locations as a consumer packaged good (CPG) could be a viable revenue option for restaurants with a signature product, like hot sauce, bbq sauce, or jam.

Purchase order financing helps restaurants that have already taken orders but need more money to fulfill them get the cash they need. It can also be a good fit for brands that want to expand into catering or consumer packaged goods and need help scaling to meet demand.

With a better understanding of restaurant financing options and how they work, you're probably wondering how to pick the right restaurant financing option for yourself.

Merchant cash advance

It is called a "merchant cash advance." A provider will pay the restaurant a lump sum upfront to buy a percentage of its future sales (typically credit card sales).

It isn't like a loan, where a payment is due to your lender each month. Instead of the merchant cash advances, most lenders usually get the percentage of sales bought through a more automated method: restaurant owners apply and get the money they've purchased by taking money from a bank account every day.

In contrast to most restaurant loans, the cost of a merchant cash advance is usually shown as an interest rate or APR. The factor, for example, is usually a fixed percentage of the amount given to the restaurant. This percentage is then added to what the restaurant owes the purchaser.

A merchant's cash advances are significant for businesses that accept credit or debit card payments because it gives them extra money. To run a restaurant that doesn't take money, this may be a good choice for you.


Crowdfunding is the use of small finances of money from many people to start a new business, according to Investopedia. It is often used to test new product ideas or get a loan amount from early adopters for a new business plan. It's not very common for people to think of restaurants when they think of this word.

Popular crowdfunding sites are:

  • GoFundMe
  • Kickstarter
  • IndieGoGo
  • Patreon
  • Nextseed

Kickstarter has a whole section just for restaurants that want to raise money. It might be a good option for restaurateurs who need money but don't want a restaurant loan to open their first restaurant or start making their own hot sauce or jam to sell to customers.

It's an excellent concept since it can reach a large number of people, gain attention on social media, and speed up the crowdfunding process. If you want to raise funds through crowdfunding, regulations governing the amount of money an issuer can raise through crowdsourcing, as well as fees collected by the crowdfunding service provider, are all factors to consider. For example, Kickstarter's 5% success fee and 3% + $0.20 payment processing cost per pledge, as well as the disclosure requirements for certain business and fundraising information.

Asking friends or family members to invest

If your friends and family likely are some of the people who help you run your restaurant. They may have helped you start a business and put their own money into it without going through a restaurant business loan. They may have been your first and most loyal customers.

It makes sense then; many people start businesses and need money. They ask their parents, siblings, partners, and friends for money. Because they don't check your credit, they can help chefs and restaurant owners get working capital through term loans without checking your credit history.

It's also essential to keep your personal and professional lives separate. You'll also want to think about any conflicts of interest that might arise through your business decisions that don't line up with your lender's views on life. Choose a partner who will work best for your business idea. Make sure your investment is well-documented.

How to compare and evaluate financing options for your restaurant

When you've completed your restaurant loan and completed your business plan, inventory financing, and research on how to use the money, you're probably wondering how to compare the numerous solutions offered. Restaurant owners should consider the following factors when evaluating business financing options:

  • Cost
  • Term
  • Speed
  • One of your financial backers

We've added a few more things to keep in mind, such as:

  • The time it takes for you to get funds once your application has been accepted.
  • Return on investment (ROI) analysis
  • A comparison of a fixed-rate and variable-rate loan
  • Whether or not collateral is required
  • Lender's reputation

Consider how quickly you can get your capital from application to receiving

It is essential to think about how long it will take you to pay for your restaurant loan before deciding.

It will be a while before the money you need can be used for the project you have in mind. You should ask your potential alternative lender (or another third-party financing provider) what information they need, how long it can take to get back to you, and what projects they can help you with.

However, ask yourself how long can you wait for the cash and expand up over time.

How to evaluate the total payback period

Lenders utilize a variety of cost structures, and there are several aspects to consider when calculating overall cost, including total payback amount, annual percentage rate (APR), upfront fees, compounding interest or other penalties, and more.

A widespread misunderstanding is that annual percentage rates (APR) and interest rates are equal. The annual percentage rate (APR) is a calculation that considers all interest, fees, and the timing of those payments on an equal basis. APR is a percentage that shows the annual cost of borrowing money. While APR is useful for evaluating finance options, it isn't everything. Another consideration in determining the cost of a loan is the amount of money you will payback for the money you get (inclusive of application costs, interest, late fees, origination fees, etc.). The APR does not always equal the entire amount repaid for the amount borrowed.

Fixed-rate restaurant loans with a 3-year fixed interest rate

  • $10,000
  • 10% annual limited interest, not compounded
  • 3 years term
  • No extra charges

To illustrate, the $10,000 borrowed is repaid in full in this example is $11,616 for the money borrowed. That's a 10% APR.

Comparing the two examples above, this example's APR is higher, but its total payback is lower.

This loan is a bargain with a 9-month term and no interest accrued.

  • a ten thousand
  • N/A
  • 9-month term
  • It's a 1.16-factor rate (corresponding to a $1,600 fixed cost)

In this case, the factor rate is 1.16 times the $10,000 loan amount. A $10,000 loan with a $1,600 fixed cost equals $11,600. While the total amount you repay is roughly the same as in the previous example, this corresponds to an APR of 62 percent of your loan amount plus interest is repaid after some time (nine months vs. three years).

Compare the terms

The repayment term (if applicable) is the third characteristic to compare when comparing business financing options. You must repay the funds you receive within a specific time frame starting from when you received the restaurant loans.

An example of a fixed-rate loan. We've assumed a $100,000 loan with different term loans, such as 9-month, 6-month, and 3-month terms.

The 3-month term loan may have a lower total cost, but it has the highest APR of all available options. A short-term loan requires a higher daily payment, resulting in a higher annual percentage rate. Great if you can afford it, but not everyone can.

Consider the advantages of fixed vs variable rates.

If your restaurant business loan is approved, you must repay the dividend. The interest rate or factor rate (fixed cost) may be based on sales history, minimum credit score, time in business, and debt. There are fixed-rate and variable-rate loans, and the interest rates can change over time depending on the economy.

When comparing business financing options with an interest rate, consider whether a fixed rate is more cost-effective.

Find out if collateral or if adown payment is required

Investopedia defines collateral as "an asset accepted as security for a loan." If a borrower defaults on payments, a lender can seize the collateral and sell it to recoup losses.

Banks may ask you to offer an asset as collateral in exchange for a large loan, which they will own if you default on your payments. For example, houses and businesses you owned. You may lose something valuable if you default on your payments, so it's important to weigh the benefits and risks before signing on the dotted line.

Consider the reputation of the financial provider

Do you know the financial provider or previous clients? Late payments accepted or issues? How much do they sell it for? Do they only work with restaurants?

Try finding lenders who understand the restaurant industry's challenges, as they are likely to factor in seasonality when determining your rate rather than rejecting it. Restaurants have low-profit margins, which may be acceptable to online lenders but not brick-and-mortar financial institutions.

There is a higher likelihood of success and expansion for businesses that already have a relationship with a lender or partner with them. Some suitable partners for funding are POS vendors, accounting software (like QuickBooks), and payment processors.

You should ask as many questions about a potential lender as they should about you. You want to ensure the lender is trustworthy, has a good reputation, and won't pull a fast one.


The decision of a restaurant loan or financing plan is an important strategic decision for your business. While there is a variety of restaurant financing options accessible today, it's critical to pick out the best one for you.

Securing finance for a large project can be difficult, but by doing your research and arming yourself with the necessary skills and resources, you can make a good investment in your restaurant's future.

See your ROI on the rise when you utilize these financing strategies. Recognize that securing the right funds isn't just about restaurant management; it's a strategy for financial growth.


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