How To Get a Loan To Start a Restaurant & 20 Other Sources of Funding

There are numerous ways to finance a restaurant, and the best option for you will depend on your specific circumstances. In this article, we walk through the types of loans, the process of getting the loan to start your restaurant, and provide 20 other sources of funding for restaurants, including grants, crowdfunding, and investment.

 

Types of Restaurant Business Loans

Getting a restaurant business loan is one of the most common ways to finance a new restaurant concept. Loans can come from a variety of sources, including banks, credit unions, and online lenders. There are also different types of loans available, each with its own terms and conditions.

Small Business Loan

The most common type of traditional loan for a restaurant is the small business loan. These loans are typically available from banks and credit unions and have relatively low-interest rates. The amount you can borrow will depend on the lender, but most small restaurant business loans range from $5,000 to $500,000.

SBA Loans

Another option is an SBA loan, which is a government-backed loan offered by the Small Business Administration that offers lower interest rates and longer repayment terms than a traditional small business loan. You can apply for an SBA loan through banks and online lenders, and the maximum amount you can borrow is $5 million.

Business Line of Credit

If you have good credit, you may also be able to qualify for a business line of credit. This is a revolving line of credit that you can use as needed, and you only have to pay interest on the amount you borrow. A business line of credit typically has a higher interest rate compared to small restaurant loans, but they can be a good option if you need flexible financing.

Equipment Loans

If you need to finance the purchase of restaurant equipment, you may be able to qualify for equipment financing. These loans have relatively low-interest rates and can be a good option if you have collateral to use as security for the loan.

Commercial Real Estate Loans

If you’re looking to finance the purchase or renovation of restaurant space, you may be able to qualify for a commercial real estate loan. These loans typically have higher interest rates than traditional small business loans, but they can be a good option if you have collateral to use as security for the loan.

Short-Term Loans

If you need funding for a short-term project or need to bridge the gap until your restaurant opens, you may be able to qualify for a short-term loan. These loans have higher interest rates than traditional small business loans but can provide the funding you need quickly.

Working Capital Loans

If you need funding to help with the day-to-day operations of your restaurant, you may be able to qualify for a working capital loan. These loans typically have higher interest rates than traditional small business loans but can provide the funding you need quickly.

Each type of loan has its own terms and conditions, so be sure to compare the different restaurant financing options and the terms of the loan before you decide.

 

The Process of Getting a Loan To Start Your Restaurant Business

The process of getting a restaurant business loan is generally the same no matter where you apply. To put yourself in the best position to get approved for a loan, there are a few things you can do:

1. Prepare Your Business Plan

One of the first things you’ll need to do is prepare your restaurant business plan. This document will outline your restaurant concept, market analysis, financial projections, and more. Having a strong business plan will improve your chances of getting approved for a loan and help you get better terms on the loan.

2. Get Your Financial Documents in Order

You’ll also need to gather your financial documents and have them in order before you apply for a loan. This includes your tax returns, bank statements, and financial projections (income statement, restaurant startup costs, balance sheet and cash flow statement). Having all of these documents in order will improve your chances of getting approved for a loan and help you get better terms on the loan.

3. Find a Lender

Once you’ve prepared your business plan and gathered your financial documents, you’ll need to find a lender. You can apply for a loan through banks, credit unions, online lenders, and government-backed programs like the Small Business Administration (SBA). When you’re comparing lenders, be sure to compare the interest rates, fees, and repayment terms of the loan.

4. Apply for the Loan

Once you’ve found a lender, you’ll need to fill out an application for the loan. The application will ask for basic information about your business and your financial situation. Once you’ve submitted the application, the lender will review it and make a decision on whether or not to approve the loan.

5. Negotiate the Terms of the Loan

If you’re approved for a loan, you’ll need to negotiate the terms of the loan with the lender. This includes the interest rate, repayment term, and any other conditions of the loan. Be sure to get everything in writing before you sign any loan documents.
 

 

If you’re applying for an SBA loan, the process will be slightly different. The SBA does not provide loans directly to businesses, but they do guarantee loans made by participating lenders. To apply for an SBA-backed loan, you’ll need to:

1. Find a Participating Lender

The first step is to find a participating lender who is willing to make you a loan. You can search for SBA-approved lenders on the SBA’s website or through your local chamber of commerce.

2. Submit Your Loan Application

Once you’ve found a participating lender, you’ll need to submit your loan application to the lender. The application will ask for basic information about your business and your financial situation. The lender will then review the application and make a decision on whether or not to approve the loan.

3. Get Approval from the SBA

If the lender approves your loan, they will then submit it to the SBA for final approval. The SBA will review the loan and make a decision on whether or not to guarantee it. If the SBA approves the loan, they will provide a partial guarantee to the lender. This guarantee gives the lender protection in case you default on the loan.

4. Negotiate the Terms of the Loan

Once you’ve been approved for an SBA-backed loan, you’ll need to negotiate the terms of the loan with the lender. This includes the interest rate, repayment term, and any other conditions of the loan. Be sure to get everything in writing before you sign any loan documents.

5. Start Making Loan Payments

Once you’ve signed the loan documents, you’ll need to start making payments on the loan. The repayment terms will be outlined in the loan agreement, and you’ll need to make sure you make all of your payments on time. If you default on the loan, the lender can collect from the SBA guarantee.

If you’re not approved for a loan, don’t give up! There are many other funding options available for restaurants.

 

20 Other Sources of Funding for Restaurants

In addition to loans, there are numerous other ways to finance your restaurant. Here are 20 other sources of funding:

1. Business Credit Card

You can use credit cards to finance your restaurant, but be sure to only charge what you can afford to pay back. Find a credit card with a low-interest rate and no annual fee, or a credit card that offers perks including cash back or rewards points.

2. Personal Savings

If you have savings, you can use it to fund your restaurant. This is a good option if you don’t want to take on debt or if you’re looking for a smaller amount of financing.

3. Family and Friends

You can ask family and friends for loans or investments in your restaurant. Be sure to put everything in writing so there’s no confusion about the terms of the loan or investment.

4. Crowdfunding

Crowdfunding is a great way to raise money from a large group of people. You can create a campaign on a crowdfunding platform like Kickstarter or Indiegogo, and set a goal for how much money you want to raise. People who support your campaign can make pledges, and if you reach your goal, you’ll receive the money that was pledged.

5. Merchant Cash Advance

A merchant cash advance is a type of financing that gives you an upfront sum of money in exchange for a percentage of your future credit card sales. This can be a good option if you have high credit card sales and need quick access to funding.

6. Donations

You can ask for donations from individuals or businesses. This is a good option if you’re raising money for a specific purpose, such as to make repairs after a natural disaster.

7. Partner Buy-In

If you’re looking for a partner to help finance your restaurant, you can offer them a percentage of ownership in the business. This is a good option if you need a large amount of financing and you’re confident in your ability to run the restaurant.

8. Government  and Small Business Grants

There are many government grants available for small businesses, including restaurants. To find out what’s available, visit www.grants.gov.

9. Local Business Financing Programs

Many cities and states offer financing programs for small businesses. To find out what’s available in your area, contact your local chamber of commerce or economic development office.

10. Buying a Business Out of Bankruptcy

If you’re looking to buy an existing restaurant, you may be able to find one that’s for sale through a bankruptcy auction. This can be a good option if you’re looking for a turn-key operation, but be sure to do your due diligence before bidding on a business.

11. Selling Personal Assets and/or Business Assets

If you have assets that you can sell, such as a home or a car, you can use the proceeds to finance your restaurant.

12. Leasing Equipment

You can lease equipment for your restaurant instead of purchasing it outright. This can be a good option if you don’t have the cash to buy the restaurant equipment, but be sure to read the terms of the lease carefully before signing.

13. Bartering

You can barter goods or services in exchange for what you need for your restaurant. For example, you could offer to design a website in exchange for accounting services.

14. Subleasing Space

If you’re looking for more income and you have the space to sublease, you could sublet part of your restaurant to another business. You can have local vendors set up a pop-up shop, or you could sublet the space to another restaurant in need of larger event space.

15. Using A Second Job To Fund Your Restaurant

You can use your second job to help finance your restaurant. This is a good option if you’re looking for a smaller amount of financing and you’re confident in your ability to run the restaurant.

16. Equipment Financing

You can use the equity in your home or other assets to finance the purchase of restaurant equipment and supplies for your restaurant. This is a good option if you have equity but you don’t want to take on debt.

17. Sponsors and/or Advertisers

You can sell advertising space in your restaurant to local businesses. This is a good option if you have a high-traffic location.

18. Vendor Financing

You can ask your vendors to finance the purchase of equipment and supplies. This is a good option if you have a good relationship with your vendors and you’re confident in your ability to make payments on time.

19. Angel Investors

You can ask for investment capital from individuals or businesses. This is a good option if you’re looking for a large amount of financing and you’re confident in your ability to run the restaurant.

20. Home Equity Loans

You can use the equity in your home to finance your restaurant. This is a good option if you have equity but you don’t want to take on debt.

 

Fortunately, there are many restaurant financing options available for restaurant business owners. The best option for you will depend on your individual needs and circumstances. Be sure to explore all of your options and choose the one that’s right for you.

 

Restaurant Business Plan PDF

Download our restaurant business plan PDF here. This is a free restaurant business plan example to help you get started on your own restaurant plan.