How Much of a Loan Can You Get For a Restaurant?

If owning a restaurant is your dream, then one of the hurdles you will need to overcome is financing. In general, starting a restaurant usually demands a large amount of capital upfront to buy or rent a restaurant location, purchase inventory and equipment, and much more. Learn more about the types of loans you can get for a restaurant and why financing restaurant equipment may be a good option.

How Much of a Loan Can You Get For a Restaurant?

The amount of money you can get for a restaurant loan will vary depending on the restaurant’s location, whether you are starting a new restaurant or purchasing an existing restaurant, the number of employees you will have, and much more. For example, some new business owners may qualify for a loan of $50,000 to $5 million.

Other things that may factor into the loan amount you can get for your restaurant can include your credit score, whether you have owned a restaurant in the past, if you are opening up a franchise, and how confident lenders are about your business plan. Because the restaurant industry can be unstable, lenders will usually be cautious about granting small business loans.

What Types of Loans Are Available?

For restaurant loans, there are several methods of financing that you can explore. In general, the type of loan you will use to finance a restaurant is a term loan, which is any loan that is repaid within a certain time frame and is compounded with interest. Your term loan can be short-term, medium-term, or long-term, based on the needs of your business.

Some loans may require collateral to qualify for the loan, particularly larger loan amounts. The interest rate on the loan may also be fixed or variable depending on the lender and the term limit of the loan. The type of loans available for restaurants include:

Business Line of Credit

For many restaurants, the most sensible type of loan for daily expenses and other capital is a business line of credit. This is a revolving line of credit that works similarly to a credit card. A business line of credit is a flexible financing solution for established restaurants and new restaurants, since you can qualify for a large line of credit but only use the amount you need to keep up with business expenses.

A business line of credit typically has a lower interest rate than a personal line of credit, but the downside is that a business line of credit may have a term limit. This means that you will only be able to use this line of credit for a certain time frame, and then you may need to open a new line of credit when your current business line of credit is closed.

Working Capital Loan

A working capital loan is another flexible finance solution for restaurant owners. A working capital loan is a type of short-term loan that is repaid very quickly. This loan will usually allow you to borrow up to $500,000 in working capital, but these loans also have a higher interest rate and other fees, which means it may not be an ideal finance solution for all restaurant owners.

Merchant Cash Advances

A merchant cash advance works by borrowing against the future profits of your business, specifically the profits accrued from debit card and credit card receipts. Essentially, a merchant cash advance will allow you to borrow a certain percentage of your restaurant’s future credit card sales, which will then be paid as payments for the loan and deducted from your daily sales.

The biggest advantage of merchant cash advances is that you can get funding for your restaurant very quickly without taking out a business line of credit. However, some merchant cash advances have a higher interest rate than other types of loans.

Small Business Loan

Finally, you may want to consider a small business loan. A small business loan is backed by the government and can provide you with a large amount of working capital, sometimes between $5 million and $20 million for certain programs. However, small business loans are difficult to qualify for and are usually your last option if other financing options, such as capital from investors, have been exhausted.

Is it Difficult to Get a Loan for a Restaurant?

Depending on the loan you are applying for, it may be somewhat difficult to qualify for a restaurant loan. The hardest loan to qualify for is a small business administration loan or microloan to set up new restaurants, while the easiest loan to get is usually a business line of credit. Some things you will need to get a loan for a restaurant will include:

Find Loan Based On Eligibility

Firstly, you will want to find the ideal loan for your restaurant based on your eligibility. There’s no use applying for a business loan that you will not qualify for based on your credit score or the size of your restaurant. Some loans for restaurants also require that restaurants be new or established, so you will also need to meet these qualifications.

Create Business Plan

For a small business loan or to get a loan from investors, you will generally need to create a business plan. The business plan will outline the forecast for your restaurant, including factors that will help your restaurant be successful. For SBA loans, you will not be able to apply for this loan without having a business plan. Some banks will also require business plans to grant loans to small business owners.

Complete Loan Application With Documentation

When you submit a loan application, you will also need to provide documentation about your personal and business finances. This is mostly to establish your credit history so lenders can assess how responsible you are with large sums of money. You will also need to provide personal identification information, tax information, and sometimes citizenship information for loans such as SBA loans.

Do You Need Good Credit for a Loan?

In general, you will need to have a good or excellent credit score to apply for a loan for your business. Even short-term loans such as merchant cash advances will require a good credit score to meet the eligibility requirement. A good credit score will give lenders more confidence that you are capable of paying back your loan.

Additionally, if you are applying for any type of lease – such as leasing restaurant equipment – you will also need to pass a credit check. Just like with a small business loan, leasing a location or restaurant equipment will usually require a personal credit score between 640 and 700 or a business credit score over 700. If you aren’t sure about your credit scores, you can always check with the credit bureaus before submitting your application.

What Can You Use a Loan For?

You can use most loans for all the capital expenses for your restaurant. For example, the same business loan can be used to pay for inventory, payroll, advertising, and much more. However, the most common uses for a small business loan include financing a new location, buying out an established restaurant, and financing restaurant equipment.

Why Financing Restaurant Equipment a Good Idea?

Financing restaurant equipment with a small business loan or another type of loan for restaurant owners is usually a good idea. Most of the time, you can find loans allowing you to lease restaurant equipment, either on a rent-to-own basis or on an overlapping lease, so you can upgrade equipment as needed. The benefits of financing restaurant equipment include the following:

Conserve Working Capital

You can conserve your working capital when you lease or finance equipment for your restaurant through special loans. This is because financing restaurant equipment with a restaurant equipment loan will save money on other types of loans you may have, which will then give you more flexibility for your daily expenses. This type of loan will also help you preserve bank and business lines of credit.

Budget With Fixed Payments

Loans for restaurant equipment also are easier to budget since these loans are typically paid back with fixed payments each month. Budgeting your restaurant equipment loan with a fixed payment can help with profit forecasting for your business.

Purchase Equipment Quickly

Using a loan for restaurant equipment also allows you to purchase equipment more quickly. For example, if you need to replace equipment or you need new equipment to keep up with changes in the restaurant industry, restaurant equipment financing is a good option.

What Types of Restaurant Equipment Can Be Financed?

You can use a loan for restaurant equipment to finance virtually all equipment necessary for your restaurant, including refrigerators, ovens, stove ranges, ice machines, beverage dispensers, and dishwashing machines. With your loan, you may also be able to finance furniture for your restaurant or HVAC services.

Opening up your own restaurant can be difficult if you don’t have adequate working capital. Fortunately, there are several types of loans you can use to get your restaurant off the ground, including special loans to finance restaurant equipment. For more information about restaurant financing, contact Noreast today.