Business Loans for Restuarants

Business loans for restaurants are available from both traditional and non-traditional sources.  Traditional sources include banks and non-traditional sources can be factoring, or accounts receivable lenders. Obtaining financing for a restaurants can typically be more challenging than getting other types of business loans because of the higher risk associated with food service operations. However, with a little preparation and perseverance you can find a lender.

Borrowing From Banks


A traditional bank business loan is difficult to obtain for a start-up restaurant, but it is a good place to start. Banks are less likely to grant a start-up business loan for a restaurant because the track record for success in the food service industry is poor. The statistics state that 75 to 80 percent of start-up restaurants fail within their first year. As a result, banks are hesitant to offer restaurant loans.

Despite their being reluctance to offer credit, don't rule out banks since their application process will prepare you for other funding sources. The bank loan officer can serve as your first point of contact for critique and objective view about your business plan.

It can be easier to get business loans for restaurants from banks if you are financing the expansion of an existing restaurant or purchase of a new or existing franchise. With a history of success, the bank's risk is reduced. But you will still need the experience, credit and plan to apply.

The Small Business Administration

The federal government's Small Business Administration makes dollars available for lending through thousands of commercial banks nationwide. A significant percentage of each loan is guaranteed by the government, which means the bank's risk is reduced. However, just as with commercial banks, the SBA has an extensive application and vetting process for business loans for restaurants. In fact, the documentation required tends to be more expansive than would be required with a traditional, non-government-backed loan bank loan.

The upside of a SBA loan includes market interest rates and slightly less stringent loan terms.  SBA loans offer a longer payback period, which can mean lower payments. On the downside, you  must have been declined for a traditional loan in order to apply for an SBA loan and you must be borrowing for an operating business, not a start-up company.

Non-Traditional Lenders


Purchasing a franchise operation or obtaining a license to build one can be an easier way to get business loans for restaurants. Franchise operations will have lending programs to get you into the business. As with all business loans for restaurants, you will have to demonstrate good credit. However, a lack of experience might not hold you back with non-traditional lenders. Good franchise operations train their new owners and managers.  The biggest drawback of restaurant business loans is the franchise fee.  The fee must be paid in cash in order to pursue construction or start-up financing.

Owner or Individual Financing


Many business loans for restaurants come from the existing owner of an enterprise selling out to new owners or financing additional locations.  Typically this method of financing means less paperwork, competitive rates and less credit requirements. The business owner knows you and believes you can run the business successfully. Many "handshake" deals can go wrong when the details are vague. Be certain you and the lender agree and understand all important terms.

Borrowing from an individual, such as a friend or family member, is another common lending source.  Many times, even these lenders will want to see a business plan and to be convinced of your ability to successfully run a restaurant.

Factoring Lenders


Finally, another non-traditional source of business loans for restaurants are factoring or accounts receivable lenders. These sometimes are called "cash advance" lenders. If you have a business that is generating good cash flow and need money for expansion or capital equipment, a factoring lender will advance you cash against your uncollected receipts. Typically these will be uncollected credit card sales, also called discounting. You sell your uncollected receipts for a little less than their actual value. The factoring company then has the risk of collecting them and earns the difference between the total value of the credit card receivables and the lesser amount they paid you.