Restaurant loans

Best Restaurant Business Loans for 2021

Whether you’re opening a new restaurant, expanding or renovating an existing one, you’re going to need capital to make it all happen. Our experts evaluated over 30 loan providers by common financing needs to help you find the right solution for your restaurant.

Poor cash flow is a common problem for many restaurants. Lines of credit or credit card can only carry a restaurant so far. Eventually, restaurants still need enough cash flow to cover recurring and seasonal expenses. If your restaurant is experiencing a capital problem, you need to take actions that will decrease overhead costs and increase cash flow. Read on to find the right financing solution for your restaurant and discover the top lending options.

Top 8 Restaurant Business Loans

Here is a table summary of the different types of restaurant business loans currently on the market. 

Financing Needs

Loan Type

Loan Features

Recommended Lender

Startup costs, expansion, equipment, inventory, working capital, or real estate purchases

SBA

  • Loans from $5,000 to $5.5 million
  • Interest rates vary depending on the type of SBA loan
  • Repayment period of 6 to 25 years
  • Turnaround time is 60 to 90 days

 

LiveOak Bank

Fast cash with no collateral

Merchant cash advance

  • Loan amounts from $2,00 up to $500,000
  • Interest rates are 10%-350% APR
  • Repaid in 3 to 36 months
  • Turn around time is 1 to 7 days

 

Rapid Finance

Cash flow, recurring expenses, seasonal business

A business line of credit

  • Loan amounts vary from $50,000 to $500,000
  • Interest rates run 7% to 25%
  • Repayment terms are 3 to 18 months
  • Processing time can be a low as 24 hours

 

Wells Fargo

Minor funding for an idea or product

Crowdfunding

  • Kickstarter - With 300,000+ completed projects
  • Fundrazr - With the highest success rate at 41%
  • Indiegogo - Projects have raised $41,634 each

 

Kickstarter

FundRazr

Indiegogo

Purchase new/existing property

Property renovation

Commercial real estate loan

  • Loans from $50,000 to $5 million
  • Variable interest rates of 3% to 17.5%
  • Repayment terms of 12 months to 30 years
  • Processing time can be as fast as 14 days

 

Bank of America

Purchase new or used equipment

Equipment financing

  • Loan amounts for 100% of the equipment value
  • Interest rates of 4% to 40%
  • Loan repayment terms of 5 to 6 years
  • Processing time as fast as two days

 

Balboacapital

Freeing up cash flow

Invoice factoring or invoice financing

  • Loan amounts up to 100% of the invoice value
  • 3% processing fee and 1% factor fee weekly until full invoice payment
  • Repayment complete when the customer pays the invoice
  • Turn around times as quick as one day

 

BlueVine

Restaurant Business Loans Explained

Of the seven restaurant business loan types outlined above, you’ll need to decide which loan is right for you. Here we’ll explain the features of each of these loans in detail to make your choice easier.  

1. SBA Loans

Created in 1953, the Small Business Administration helps entrepreneurs secure funding and supports the interest of small businesses. SBA restaurant business loans cover expenses like start-up costs, expansion, equipment, working capital, inventory, and real estate. Unfortunately, limited loan amounts, a lengthy approval process, and bad credit can deter borrowers. Ranked the #1 SBA lender, we recommend Live Oak Bank, who specializes in small business loans. Their online application process eases uploading documentation and monitoring loan progress.

2. Merchant Cash Advance

Merchant cash advances are lump sum payments available to borrowers using future credit/debit card sales as repayment. Fast cash with no collateral upfront doesn’t require good credit; however, high interest rates and daily minimum payments can disrupt cash flow. Requiring only three months in business and a minimum personal credit score of 550, Rapid Finance is our choice for merchant cash advances with funds of up to $500,000 available in 24 hours.

3. Business Line of Credit

Fifty percent of all business owners experience cash flow issues. A business line of credit can provide flexible access to capital for recurring expenses and seasonal business flow. Like a credit card, with a spending limit and monthly or yearly payments, this revolving line of credit allows you to borrow the minimum amount you need while only paying interest on that amount. A secured credit line requires collateral, but the payoffs may include a considerable loan amount and a lower interest rate. 

Unsecured credit lines may be more expensive due to more lender risk, but no collateral is required. Wells Fargo takes the top spot here as a national bank with extensive experience lending to startups and young businesses with some of the lowest interest rates on the market.

4. Crowdfunding

With over six million crowdfunding campaigns last year and $17.2 billion generated in North America alone, this industry is expected to grow by at least 14% next year. Creating and maintaining a social media presence helps reach a vast audience. Business owners present their ideas or products in exchange for benefits such as free meals, invitations to the opening, or monthly reservations. With no credit checks, collateral, or financials required, campaigns take 11 days to prepare and run for nine months. 

The crowdfunding experience can be time-consuming with no guarantees of reaching your funding goals. This growing market could reach $300 billion by 2030, so the time and effort may be worth it. We recommend you visit the following three sites for more crowdfunding information:

5. Commercial Real Estate Loans

For projects designed to purchase new/existing commercial property or renovate an existing structure, commercial real estate loans use your property as collateral to secure funding. Commercial real estate loans, or business loans to buy a restaurant, offer flexible interest rates, payment schedules, and repayment terms that compliment your business schedule and budget. Receiving tax breaks while building equity adds value to your business.

Most banks require a 20% down payment, with some requiring a minimum of at least two years in business under the current owners and $250,000 in yearly revenue. Be wary of short-term (5-7 years) “balloon loans,” which offer low monthly payments with the entire balance due at the end. 

With over $290 billion in U.S. commercial loans, 4,400 branches, and a robust mobile banking system, we recommend Bank of America as a solid choice for your commercial real estate loan needs.

6. Equipment Financing

Equipment financing is a form of small business lending that provides capital for purchasing new and used equipment. You can borrow up to 100% of the equipment value, which is then paid back over time with interest. Lenders can also finance capital using paid-off equipment as collateral without a personal guarantee. Leasing equipment tends to be expensive. Sale-leaseback loans allow you to take a small loan on paid-off equipment to fund small restaurant projects, with lower interest rates and more attractive payback terms than other forms of funding.

Balboa Capital is our choice for equipment financing with its same-day processing, higher loan amounts, one year in business, and $100,000 in yearly revenue.

7. Invoice Factoring Vs. Invoice Financing

Referred to as accounts receivable financing, restaurant owners get a capital advance in exchange for unpaid invoices. Invoice factoring involves selling your outstanding invoices to an invoice factoring company at a discount, while invoice financing requires paying off the advanced capital on unpaid invoices with interest. Lenders finance 85% of the total invoice and the final 15% upon full payment. These loans are easier to get, and freeing up your cash flow is always a win-win situation. 

We recommend BlueVine, which will fund up to $1 million to borrowers with a 530 credit score, who have been in business for at least three months, and show an annual revenue of $120,000.

How Much Does it Cost to Open a Restaurant?

Restaurant startup costs can run between $95,000 and $2 million, depending on your detailed business plan. Half of all restaurant owners start businesses using personal savings, so having a  clear vision of your dream helps you plan and know how much funding you’ll need. Listed below are current estimates for the essentials:

  • Food costs: The average amount of food costs run 28%-35% of sales, with steakhouses exceeding this at 40%.
  • Operations: $10,000-$100,000 will cover equipment depending on the restaurant size.
  • Labor costs: The number of employees, their salaries, and benefits should range from 28%-35%
  • Rent and building fees: Owning your space averages $178 per square foot, while leasing average $159 per square foot. 
  • Hidden costs: Approximately $180 a month will buy restaurant insurance that can offer some protection when unexpected events occur.
  • Technology costs: Monthly costs of $100-$400 for technology, such as, but not limited to, point-of-sale terminals, handheld and at-table sale systems, self order kiosks, digital displays, cash drawers, and printers, could provide a significant return on your investment. 
  • Marketing costs: Low budget marketing costs average about $1,000 a month. This may include branding, the website, and social media, to name a few.

How to Choose the Best Restaurant Loan Option

You’ve created a detailed business plan and read through the popular restaurant business loans presented by our experts on this page; now is the time to consider which loan is right for your restaurant business. Prospective business owners should examine the loan cost, terms of repayment, processing speed, and available lenders. You may also want to consider these additional details:

  • Lender reputation
  • Fixed vs. variable rates
  • Need for collateral
  • Payment schedules
  • Cash availability time after approval

While the financial details are most important, good lending relationships are also crucial. Your lender should be supportive and be there throughout the term of the loan. Owning a restaurant could be the most significant and rewarding investment of your life.

The Bottom Line

After analyzing seven types of restaurant business loans, we’ve armed you with the tools and knowledge to make an excellent investment choice. The SBA offers guidance, coaching, help in completing business plans and loan applications, and special financing programs for women, veterans, minorities, and the disabled. There are even restaurant loans available for those with bad credit. So whether you seek conventional or alternative funding, there is a lender ready to service your needs. So what are you waiting for? Let’s get going!