Restaurant Business Loans: A Guide to Funding in The Biz

Restaurant Business Loans: A Guide to Funding in The Biz
Dustin Clendenen
on March 24, 2020
Read in 4 min

There’s been some good news in the headlines for entrepreneurial foodies this year.

In January, Forbes dispelled the myth that most restaurants close in the first year.

In actuality, it’s only 17%.

And this year, the restaurant industry as a whole has seen $798.7 billion in sales, up over $200 billion from 2010.

These number should be encouraging to aspiring restaurateurs and seasoned owners alike.

Whether you need a loan to open a brand new dining establishment or funding to expand your little cafe, here’s a look at some of the best financing options for small restaurants and where to get them.

5 of the Best Restaurant Business Loans

The business lending market has grown incredibly diverse, with far more options than just traditional bank loans available to fund your company.

Here are some lending options available for aspiring and seasoned restaurateurs alike:

1. Small Business Administration Loans

SBA Loans are some of the most difficult loans to get, but believe it or not, full-size restaurants have benefitted more from these loans than any other type of business over the past decade, followed closely by limited-service restaurants and fast food.

This was no small feat for these restaurants, however – SBA financing requires personal guarantees and collateral in order to close the deal.

This often goes to the extreme, including as many personal assets as the borrower has available.

For SBA-backed loans, borrowers are literally putting their personal financial futures at stake in order to close these loans.

Check out our overview of SBA Loans for more useful information.

2. Working Capital Loans

Working capital loans are some of the most basic kinds of business loans out there and can be secured from a variety of lenders.

They’re a great catch-all for cash to cover everything from getting your new restaurant off the ground, to covering payroll during slow periods, to purchasing new equipment.

This option is best for restaurant owners who need relatively small amounts of fast cash for a short period of time (the maximum for this loan type is about $250,000.)

3. Restaurant Equipment Loans

If you need specific equipment instead of working capital, restaurant equipment loans could be the perfect, low-risk option.

One of the best aspects of restaurant equipment loans is that the equipment you’re purchasing itself is collateral for the loan rather than anything you personally own.

Typical loan terms are three years, which is often more than enough time to easily pay off.

Depending on your credit, you can secure loans for anywhere from 80% to 100% of the cost of equipment—the rest would require a down payment and therefore cash on hand.

Keep in mind, equipment financing may not cover any additional fees such as shipping or installation.

Learn more about Heavy Equipment Financing & Commercial Leasing

4. Restaurant Inventory Financing

In the same way that restaurant equipment loans are for purchasing the equipment, you need to run a restaurant (like a commercial stove, dining furniture, or an oven, etc.) inventory financing is a type of short-term loan or line of credit used for purchasing the ingredients and food you’ll be serving your customers.

The inventory you’re financing can also be used as collateral, but given that this is going to be perishable food, that probably won’t help very much in securing a loan for a restaurant.

5. Alternative Loans

There is a booming market of alternative lenders where small business loans can actually be secured online.

Often, these loans can be secured without much personal collateral or risk and can be used to fund everything from new equipment to hiring more employees or expanding marketing efforts. makes it easy to begin the process of connecting with a lender. Simply fill out an easy online form, and you’re ready to get started.

Qualifying for Restaurant Business Loans

Requesting a restaurant business loan is exactly like requesting other small business loans.

They can be as small as $10,000 or as large as $900,000, and funds can be secured within one business day in some cases.

But there are some assurances that need to be made in order to secure a loan, whether it involves collateral or not.

“Most lenders require a full business plan and wonder why anyone would want to eat there, what sets them apart, and how much wherewithal and reserves do they have for when times are tough,” says Corey Vandenberg, a lender based in Lafayette, IN.

Here’s an overview of what you can expect lender to ask for when requesting restaurant business loans:

A Business Plan

Especially for restaurants that haven’t opened yet or have been around for less than a year, lenders will need to know what your business plan is.

Focus on what makes your restaurant unique, what your revenue goals are, and how you intend to achieve them – the more detailed the better.

Financial Reports

For already established restaurants, lenders will need to see recent business’s bank statements, profit & loss statements, personal and business tax returns, cash flow forecasts and other documentation that builds a case for your ability to pay back your loan.

A Strong Credit Score

Like you, your business has its own credit score, and the best way to secure low APR business loans is to have a rock-solid score.

Unlike personal credit scores, which range from 300 – 850, business credit scores only range from 1 – 100 and is influenced by factors like how many times you’ve taken out a business loan and how quickly it was paid back.

Often your personal credit score still comes into play, but if you need to establish business credit, we have some good ideas on how to do that too.

The Bottom Line on Restaurant Financing

Opening a restaurant is one of the most challenging and risky ventures that an entrepreneur can take on, so passion for good food and a love of service are key.

Not having to worry about where to access capital helps restaurateurs focus on creating the best experience for their customers that they can… because there’s a lot more to competing in the foodservice industry than keeping an eye on the bottom line.

Regardless of whether you need startup money to get your restaurant concept off the ground or have a well-established eatery that you’re trying to expand, you can rest easy knowing there are restaurant business loans for many situations.

See Business Lenders

Dustin Clendenen Finance Journalist

Dustin Clendenen is an LA-based screenwriter, editor, and all-around storyteller.

He spends most of his time thinking about the “Big Picture” and obsessing over its details.