Recipe for Growth: Small Business Loans for Restaurants

Hospitality businesses need a constant and healthy cash flow to keep their establishments afloat. While this may be easier for more established restaurants, it could be a challenge for smaller or newly established businesses.

That’s where small business loans that are designed for restaurant businesses can potentially help. 

You might ask, “How do small business loans for restaurants work?”

Here’s everything you need to know about securing small business loans for restaurants and how they could help your business thrive.

Types of Restaurant Business Loans

Restaurant loans vary in terms of loan terms and interest rates. These are the most common types:

• Business Credit Cards: Similar to regular credit cards, but can be used to cover your business expenses. You can get a business credit card from banks, alternative lenders like Lumi and credit unions.
• Business Line of Credit: From banks and online lenders that provide a specific amount, which you can withdraw at any time for your business’s costs.
• Equipment Financing: Equipment loans cover equipment costs, with the equipment being your collateral. 
• Secured Business Loan: To secure a loan, you can use business assets, like property or valuable equipment, as collateral.
• Online Unsecured Business Loan: The most common type of business finance accessible to small and large businesses, allowing withdrawals within the same business day.
• Business Overdraft: This functions like a line of credit by letting you withdraw funds as needed. However, a business overdraft doesn’t have specific repayments and requires you to repay interest on the outstanding balance.
• Bank Term Loan: These are typical restaurant loans but can often involve lengthy paperwork and stricter requirements.
• Merchant Cash Advances: This provides you and your business partner with a sum in advance which you repay using your future sales. A merchant cash advance for restaurants relying on many credit card sales is expected.

Benefits of Restaurant Business Loans

Restaurant loans can benefit any business owner, especially if you find the right type. These are the benefits of such loans:

• Buy an existing restaurant
• Fund your marketing campaigns
• Find interest rates you can cover
• Cover bills and salaries
• Manage cash flow during seasonal fluctuations 
• Increase investments in your business

How To Find The Best Restaurant Business Loan Lender?

Finding the right business loan and lender for your restaurant financing can be tricky, especially if you don’t know where to start.

We got you covered. 

Here’s a list of criteria to consider when choosing your preferred lender for your restaurant small business loan.

1. Fees 

Every lender charges different fees. Make sure you compare rates and the type of fees different lenders charge. Most lenders will charge other fees on top of your loan interest. For instance, some lenders might charge early repayment, exit or establishment fees. Others might charge admin, management or other ongoing fees. That’s why it’s very important to read the fine print and fully familiarise yourself with their fee structure.

It can be helpful to engage with a finance broker specialising in small business lending as they are experts in the field, have great relationships with trusted lenders and can often negotiate the best deals on your behalf.

2. Transparency 

How easy is it to get the information you need from the lender in question? How open do they communicate their products, price and policy? If you find yourself not getting the answers you need, it might be a red flag you should not ignore.

You want to choose a lender that’s fully transparent to avoid any negative surprises.

3. Service 

Reach out to your lender of choice via email, phone and social media. How fast and well do they respond to your questions? Customer Service is a critical point you should not disregard. You want to work with a lender that treats you like a person, not a loan.

A lender that’s responsive and helpful in their approach to finding lending solutions that help your business grow.

4. Ease of Use

Many online lenders now offer fully digitalised processes, meaning you won’t have to physically go into a branch to apply for your business loan.

This can be a big advantage. You just need to test their system and see if the digital experience is as easy as promised.

5. Speed 

Many lenders compete on speed nowadays. Depending on your loan amount and type, as in whether you choose an unsecured or secured loan, the application and approval process can vary greatly.

Often smaller loan amounts that are unsecured are the easiest to apply for, with the least amount of requirements. This often results in faster turnaround times.

For this type of loan you can typically expect to submit your online application within a few minutes, get an outcome within a few business hours and potentially have the funds in your bank account on the same business day.

Restaurant Business Loan Application Process

The loan application process can depend on where you plan to borrow money. They usually follow these simple steps:

• Go through your lender’s application process and provide the necessary information.
• Wait for approval and withdraw.
• Repay your loan and its interest.

Take note of additional fees, which may vary per lender, like interest rate, early repayment, and more.

What Lenders Look For in Restaurant Business Loan Applicants

When you’re applying for small business loans for restaurants, you’ll need to have these to increase your approval chances:

• Business Plan: Submit your business plan detailing your business’s purpose, nature, and goals to assess your loan application. It should include a realistic assessment of your costs, cash flow predictions, and an analysis of your competition.
• Security: You may need additional commercial property or cash to secure your loan, especially for more significant amounts.
• Financials: You need to show your business has financial data with a record of your annual revenue, profits, losses, costs, current debts, and assets.
• Skills and Qualifications: You should show certificates or proof of your skills to operate your business.
• Experience/ Time in Business: You can increase your chances of getting your loan approved if you’ve shown experience in the industry.

Tips to Get Started on Restaurant Business Loans

Applying for your loan doesn’t have to be complicated.

Here are a few tips to get you started on small business loans for restaurants:

• Have your documents verified by your local council (if any permits are required).
• Have a registered accountant double-check your finances.
• Make sure you can pay interest and additional fees with your restaurant loan.
• Research what documents you need to supply or work with a finance broker to help guide you. 
• Consult a financial adviser or specialist where relevant. 

FAQs

You may have more questions about small business loans for restaurants.

We’ve gathered some of the most common ones to help you with your research.

Will Lenders Check My Credit History?

Good credit reports can help make borrowing more accessible, especially for business lines of credit or credit cards.

If your business lacks financial documents, you can also opt for personal bank statements, as long as it’s connected to your business.

However, specialist lenders like Lumi can still provide loans to those with a less than perfect credit. 

These commercial lenders have helped tens of thousands of small business owners by providing more flexible options than banks.

Is It Better to Apply for a Loan From Banks or Alternative Lenders?

It depends on what you need.

Bank loans can be easier to apply for if you already have an account with said bank. However, they’re often more strictly regulated.

They can be a great option for established businesses who already have a good background in the industry.

On the other hand, small business lenders can provide competitive rates and more flexible packages tailored for small businesses, which is excellent for those starting a business.

Conclusion

Finding suitable small business loans for restaurants doesn’t have to be difficult, especially if you’ve prepared for them beforehand.