Being a business owner isn’t easy, but being a restaurant owner comes with its own set of challenges that can be daunting. One of the biggest issues for restaurant owners is a lack of consistent cash flow that can leave them struggling to pay bills and make their payroll. Getting a restaurant loan is a solution that may relieve the stress.
At Select Funding, we work with restaurant owners to make sure they have the working capital they need to buy food and supplies, hire skilled staff, and more. If you’ve never applied for a restaurant loan before, you may be wondering how it works. Here’s what you need to know.
What Are the Financing Options for Restaurants?
Obtaining financing for a restaurant may be a necessary step, particularly if your restaurant is just getting started or has struggled to recover after the COVID-19 pandemic. There are several types of financing that you may want to consider.
Restaurant Loan
A restaurant loan provides the money restaurant owners need to pay for everything from rent and other overhead expenses to payroll to maintaining kitchen equipment in working order.
Loans often come from banks or credit unions but may also come from online lenders who have less stringent requirements. The Small Business Administration is a resource as well and SBA loans may be obtained through participating lenders.
Restaurant Line of Credit
A restaurant line of credit has the benefit of being more flexible than a restaurant loan. The funds in a line of credit may be withdrawn at any time during the specified period. Unlike a loan, where you pay interest on the entire amount, you’ll pay only for what you withdraw with a line of credit. You can repay borrowed funds and borrow them again if necessary.
Like loans, restaurant lines of credit may be obtained with an online lender or through a bank or credit union. They come with a withdrawal period, during which you can withdraw funds as needed, and a repayment period.
Equipment Financing
Equipment financing is a specialized form of financing that provides necessary funds to purchase or upgrade equipment. Restaurants all need specialized kitchen equipment and may also need funds to buy software, furniture, or delivery vehicles.
Restaurants can obtain equipment financing from a variety of sources, including banks and online financing companies such as Select Funding.
Where Do You Get Loans for a Small Restaurant Business?
As we mentioned above, there are multiple places that bar restaurant owners can go to get loans for their small business. Here are the options.
Banks
Banks give loans to all kinds of businesses and may be the first place you think of when you decide to get a restaurant loan. There are some potential downsides to going to a bank that you should know.
Bank lending requirements tend to be quite strict and inflexible. If your personal and business credit scores aren’t high enough, or if you’re just getting started and don’t have reliable monthly income, you may have a difficult time getting the funds you need from a bank.
Credit Unions
Credit unions have a lot in common with banks in that they offer most of the same services and loan options. Where they differ is that they are not-for-profit organizations and every account holder is a member and an owner of the credit union.
In many cases, credit union loan requirements are less strict than what you’ll find at banks. A credit union may be willing to loan you the money you need even if your credit score is less than perfect, although they are still likely to require a higher score than online lenders.
Online Lenders
Online lenders like Select Funding are an accessible lending source even if you don’t think you can meet the borrowing requirements at a bank or credit union.
Select Funding works with restaurant owners all the time. Our lending requirements are simple and make our restaurant loans accessible even if you have a low credit score or no collateral to secure your loan.
Private Loans
Private lenders may sometimes be willing to loan money to restaurants and may have lending requirements that aren’t as strict as banks and credit unions. However, there are some potential issues to keep in mind.
A private lender may want to be involved in your business as an investor. Borrowing from someone you know, such as a friend or family member, may not be ideal because it may impact your personal relationship.
What Does the Restaurant Loan Application Process Look Like?
The restaurant loan application process may look different depending upon where you go to get a loan.
Bank and Credit Union Restaurant Loan Application Process
The restaurant loan application process for banks and credit unions is essentially the same, although the specific requirements may vary:
- Check your qualifications. Qualifications for business loans vary from lender to lender, but most banks and credit unions want to see the following things.
- In business for required amount of time (often at least a year)
- A personal credit score of 690 or higher
- Minimum annual revenue (may be as high as $250,000 to qualify)
- Monthly revenue high enough to make on-time loan payments
- Research lenders. There are always multiple lending options to consider. You’ll need to find out which lenders are available to you. You may want to go through a prequalification or preapproval process to get a benchmark for interest rates based on your credit and business and narrow your choices before you apply.
- Complete a loan application. Fill out an application for your chosen lender and provide any necessary documentation to go with it. Examples may include copies of business reports, bank statements, and business tax returns. You may also need to provide information about your collateral if you’re applying for a secured loan.
- Respond to questions as needed. During the underwriting process, your lender may come to you with questions or to request additional information. Responding in a timely manner will streamline the process.
- Read the loan terms and conditions. Before you schedule your closing, we suggest getting a copy of the loan agreement and reading it thoroughly to make sure you understand your rights and obligations.
- Close on the loan. After you’ve been approved for a loan, you’ll need to schedule your closing with your lender. The closing is where you’ll sign your loan paperwork and receive your funds.
The loan process may take 30 to 60 days or longer depending on the lender and how complete your application is.
Select Funding Restaurant Loan Application Process
Select Funding has worked to create an application process that’s as simple as possible. Let’s start with our requirements for restaurant or bar funding. There are only three:
- Own your own business for more than a year
- A FICO score of 525 or higher
- A minimum of $100,000 in annual sales
We do not require collateral and you can complete our application in just a few minutes. The only documentation we require is our online application and copies of your most recent three months of business bank statements, which we will use to confirm your deposits.
We will review your application using our automated system. Provided you meet our requirements, you may be able to get your money in as little as 24 hours after approval.
How Much Money Can You Get with a Restaurant Loan?
One of the biggest concerns that restaurant and bar owners have before applying for a loan is wondering if they’ll be able to get enough money to meet their needs.
Our Select Funding small business financing allows restaurant and bar owners to borrow up to $250,000 to finance their businesses. You can use the funds from a loan to meet overhead expenses such as rent and payroll, hire and train skilled staff, or expand to a new location.
If you opt for equipment financing instead, you can use it to upgrade the kitchen and bar equipment in your establishment, redecorate the dining room to improve the guest experience, purchase restaurant management software, or even buy equipment and furniture for a new location.
Should You Apply for a Restaurant Loan?
You might be wondering if it makes sense for you to apply for a restaurant loan. Here are some reasons that you may want to consider it:
Your receipts are steady but you could use a cash injection to meet your business goals.
You want to expand your business to a new location.
You need to hire and train skilled kitchen staff, servers, or bartenders for your business.
You need to upgrade your kitchen appliances, invest in restaurant management software, or redecorate your dining room.
If any of these things apply to you and you meet our minimum lending requirements, we hope you’ll consider getting a restaurant loan from Select Funding.
Put Your Restaurant Marketing Strategy to Work with Small Business Financing
Marketing a restaurant or bar requires research, planning, and enough working capital to turn your goals into realities. The first step is writing a restaurant marketing strategy as we’ve outlined here.
Do you need working capital to execute your marketing strategy and turn your restaurant into a success? Select Funding can help! Click here to read about our restaurant financing options and apply today.
