Everything You Need to Know About Restaurant Startup Loans

Jessica Elliott

Jessica couples her 24 years of restaurant and hospitality industry experience with meticulous research to deliver insight into technology, operations, and marketing topics. Her optimized copy helps companies engage their audience while strengthening their communication with clients, employees, and management.

Due to the high cost of restaurant operations, most restaurateurs rely on startup loans to help cover opening costs. But, navigating the financial arena can be tricky. Not only do you need a long list of documents, but lenders often require collateral or a down payment. However, there are several financing options available to restaurant owners. Review your startup costs and types of loans available then prepare your documents ahead of time.

People discussing a loan

Restaurant loans and needs

Restaurant owners require funding for various elements of their business. Depending on what you’re using the startup loan for, multiple options will be available to you. Start by determining if you need funding for:

Restaurant loans vary by term lengths, credit scores, and what the loan covers. Your best bet is to assess your personal financial situation and loan needs then talk to a variety of lenders to determine which is right for you.

Traditional loans. With a lower annual percentage rate and payment, conventional financing is an excellent option for foodservice operators. However, it helps to have a high credit score, a form of collateral, and a current banking relationship. Traditional loans may take longer to process, so be prepared to wait it out.

Line of credit. These short term loans have less stringent requirements and are flexible. You’ll only pay for what you use. But, you may spend more money on higher interest rates and extra required payments.

SBA loans. The Small Business Association partners with private lenders to provide loans to restaurateurs. There are three main types of financing that restaurant operators turn to:

  • SBA Express. This loan offers an expedited process that helps you address unforeseen startup problems, like a cooler failure.
  • CDC/504. Use this type of financing if you need to purchase or renovate real estate or equipment.
  • 7(a). The SBA loan program provides both working capital funds for inventory and operating expenses, along with money for equipment purchase.

Documents required for a restaurant loan

Although the SBA loans demand the most amount of documentation, each lender requires various documents before loan approval. Webstaurant Store says that “the more information you’re armed with, the better off you’ll be.”

Business plan – A detailed plan that includes competitive analysis is crucial for securing financing. Prepare to explain the different sections during your loan application interview.

Financial documents – You’ll need bank statements, plus tax returns for you and any partners in your business. Plus, lenders want to see profit and loss statements along with an estimate of your cash flow for the next one to three years.

Down payment cash – Traditional loans may require a significant down payment, whereas some SBA loans accept a smaller percentage of the loan as a down payment.

Original business license and building lease – SBA loans require these documents in hand before they’ll fund your business.

Although getting a loan can be complicated and time-consuming, having access to capital is crucial for restaurant startups. Avoid a situation where you can’t afford to fix a major piece of equipment or keep your doors open by preparing your documents ahead of time. Even if you’re funding the majority of your business on your own, having access to a line of credit or being pre-approved for a loan will provide additional peace of mind.

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