Published by WC Team

Loans for Restaurants

Everyone loves a fabulous new restaurant with delicious food and a fun atmosphere, yet there are many large expenses that simmer below the surface of owning a restaurant. Fortunately, there are a few types of loans for restaurants to satisfy even the hungriest restaurant budget.

Whether you’re starting a new restaurant or need financing for an existing business, loans for restaurants provide the capital restaurant owners need to buy or replace equipment, support inventory costs, or cover expenses during the slow season.

How to get a business loan for a restaurant

Before you begin the process of applying for a small business loan for your restaurant, first consider when you need the capital and for what purpose. There are basically four types of loans to consider:

Depending on your needs you should consider only applying for loans to cover those specifics needs. Maybe you need a new oven, pots and chairs; then you’d choose an equipment loan. Or, let’s say you need inventory and wages covered during the slow season; then you might consider a line of credit or working capital loan, depending on your consultation with your lender.

As with other loans, the business owner’s credit history, the restaurant’s revenue, and length of time the restaurant has been in business, will affect the loan amount and APR of the restaurant loan.

For example, let’s say a restaurant has been open for a year and your annual revenue is $50,000. A bank or lender may be able to loan the borrower up to $250,000. However, let’s say a restaurant has been in business for two years with annual revenue of $100,000, a lender may allow a restaurant owner to borrow up to $500,000. In fact, a great lender that you may want to reach out to is Cardiff Bank They’ve been helping mom and pop restaurants, franchises and those with multiple locations for almost 20 years.

The amount of money a restaurant owner can borrow will depend on the lender and the health of the business. The projected revenue of the restaurant and its growth will also have an impact. That’s why it’s best to prepare your documents and then apply for a restaurant loan that suits your needs. Finding a bank that you feel comfortable with, who understands what you’d like to achieve with your funding is also important.

How to find the best restaurant loan for my needs

As mentioned above, there are four types of loans for restaurants. Each type can serve a different budgetary need. The loan terms and interest rates vary depending on the loan you choose.

Need a new refrigerator or bakery oven? In a survey on, restaurant owners reported an average equipment cost of $95,000. Next to construction costs or the purchase of a building, equipment costs can be one of the largest expenses for a restaurant business.

Equipment loans can cover 100% of your equipment costs and taxes. A restaurant owner will need to cover delivery and installation fees with existing funds. Generally, these loans are three years at a fixed rate, that way the value of the equipment you buy doesn’t depreciate too much after you repay your debt with revenue from your restaurant earnings.

Inventory financing is very similar to equipment financing, except instead of equipment, your restaurant loan will be used to pay for food. Inventory financing is typically used for seasonal funding or when a restaurant is adding a new service to their current business to meet the demand of sales, like catering.

These restaurant loans are often short term, but may have a higher interest rate than equipment loans given that the collateral must be sold to repay the debt and food is perishable. Equipment is less of a risk, which is why the interest rate may be lower.

Lines of credit and working capital loans cover a range of restaurant expenses. Maybe you need equipment and help covering wages, or you are looking to open a second location or you’re concerned about slow season, a credit line can cover multiple types of expenses.

A line of credit is sum money a restaurant owner is able to tap as necessary and repay. The restaurant owner only pays interest on the money borrowed, but when it is replaced, the line of credit is full with no interest until more money is withdrawn.

A working capital loan is a small business loan for restaurant owners that will have a term limit and interest rate according to a business owner’s financials and business history. These loans can have longer terms than equipment and inventory financing since they have a more broad range of budgetary needs to cover.

Can I use a business loan to open a restaurant?

On average, it costs $375,500 to open a restaurant that serves 120 guests. Depending on the size of your restaurant these cost can be more or less. When restaurant owners need capital to open a restaurant the costs can add up very quickly. From a deposit and rent (or building purchase price) for a restaurant venue, to wages for staff, loans for restaurants can help with your startup costs.

With a sound business and marketing plan, experience in your field and some capital to put down as a deposit, chances are a lender will let a prospective restaurant owner borrow funds for startup costs. Good credit will be essential or there will need to be another form of collateral like a house mortgage.

How to finance a restaurant with no money

If a restaurant owner has no money to open a restaurant, some banks may still guarantee a small business loan if the prospective restaurant owner has other personal assets to use as collateral.

Crowdfunding, restaurant incubators, and investors are other ways to raise capital to open a restaurant. Restaurant incubators essentially rent kitchen space to restaurant owners open their business. Investors may be hard to come by since restaurants are considered a tricky business, but in some cases a wealthy mentor or someone who shares the restaurant owner’s passion may be able to help. These are also personal choices a business owner must consider.

How to apply for a restaurant business loan.

When you’re ready to apply for a restaurant loan you must have all of your paperwork and financials prepared to show your lender. You’ll need a sound business plan and for traditional lenders like banks, you’ll need 20-30% of your loan amount as a down payment.

Next, you’ll speak with lenders about your restaurant loan and choose a bank that works best for your situation and budgetary needs. Be sure to give yourself a few months for the process. Loans for restaurants can take time if an affordable rate is something you need. If you’ve done your work ahead of time and you have a solid plan in place, finding a loan for your restaurant shouldn’t be a problem.