Maybe you’re looking to upgrade your restaurant with new state-of-the-art equipment, increase staff to provide a better customer experience, or need some cash under your belt to keep your business afloat during turbulent times.

Whatever the case, securing a loan can be critical to your business’s success. And while today there are many more options for restaurant owners to access business loans, it can get confusing and leave you wondering where to begin.

This article sheds light on how to get a business capital loan for a restaurant. We discuss the requirements for obtaining a loan, the different types of financing your restaurant may qualify for, how to get financing when you have bad credit, and how you can be eligible.

Restaurant Business Capital Loan Requirements

Loan requirements differ slightly between traditional and non-traditional lending institutions. Here's what is required to apply for financing from a non-traditional lender:

  • A credit check
  • Three months’ bank statements
  • Credit card statement
  • Federal identification
  • Driver’s license
  • A void check

On the other hand, traditional lending institutions, including the best banks for restaurant loans, typically require that a restaurant is in operation for at least a year.

In addition to the above requirements, you’ll need to supply the following:

  • 2 years’ tax returns
  • A year’s financials (to-date)
  • Your business plan
  • Personal financials
  • Details of other loans you’ve taken
  • Bank statements

As you can see, it's harder to obtain cash advances from traditional bank lenders and merchant cash advances, mainly because of the one-year operation requirement.

However, there's another option, and you need not feel stuck if you’re denied a loan by a traditional lender. Non-traditional lending institutions can provide loans to restaurants with much looser guidelines.

And more great news about non-traditional loans is, once you submit your application, the whole process can (in some cases) take as little as 24 hours.

Restaurant Capital Loans Your Restaurant May Qualify for

Getting the right financing to supplement your cash resources can be a hurdle. However, knowing the different types of business loans for restaurants that are available can make it easier for you. Below are four types of restaurant financing that your restaurant may qualify for:

1. Equipment Loans and Leases

Restaurant equipment is expensive. Some necessary pieces of equipment include, industrial ovens and tabletops, commercial dishwashers, and walk-in freezers, all of which are hard to pay for out-of-pocket.

Fortunately, help is available. With restaurant equipment financing, it's possible to finance up to 100% of the value of your new equipment. And what's great about this type of loan is that the equipment itself serves as collateral, meaning you don't need to put your assets as collateral to obtain a loan.

Restaurant equipment leasing is another option. You can lease all the kitchen equipment you need for a fraction of the retail cost, making it easier for you to upgrade to expensive machinery.

2. Working Capital Loans

Working capital loans are short-term loans to help you cover expenses and maintain the smooth running of your restaurant finances.

It's not a loan for purchasing long-term assets but an ideal way for restaurant owners to obtain small business loans for restaurants’ seasonal expenses (temporary needs). For example, you may be going through a turbulent time and need help sustaining cash flow, or you may want to launch a marketing campaign.

Therefore, when you need a loan quickly, that isn't too large of an amount, a working capital loan is an excellent option. The amount you can secure depends on the lender and your financial status, but usually, the maximum amount you can borrow is $250,000.

3. Lines of Credit

Lines of credit are a flexible financing solution that provides a pool of funds to use when the need arises.

Upon approval, a line of credit is available for you to use when you have a cash flow need, and you only pay interest on what you draw from it. And when you finish repaying, it’s topped up to the original amount.

Credit requirements for lines of credit are not strict. However, compared to other financing options, lines of credit can be more expensive.

Lines of credit  are helpful with the expected fluctuations of owning a business. For example, if you run a seasonal restaurant, lines of credit provide funds to help you survive a recession. Or when business gets slow, and you must cover your regular operational costs, or you need to adjust to staffing needs. Also, you can access restaurant loans during the Covid19 pandemic.

Therefore, lines of credit ensure your business is constantly running smoothly.

4. Small Business Administration Loans (SBA)

The SBA is a widely used source of loans, guaranteeing up to $23 billion annually every year. This popularity is attributable primarily to the SBA guaranteeing repayment of loans, eliminating risk for lenders, and making it easier for restaurant owners to access funding.

The two main types of SBA restaurant loans are:

  • SBA 7(a) loan program: Upon approval, this loan can provide $350,000 in funding. It’s the most popular SBA and can cover funding for inventory, working capital, real estate, and some debt restructuring.
  • SBA CDC/504 loan program: This loan is ideal for buying equipment, real estate, and other fixed assets, although you can also use it to expand or renovate your business. It’s not popular but still provides a good option for an SBA loan for a restaurant.

Getting Financing for Your Restaurant When You Have Bad Credit

Can you still obtain a loan for your restaurant with bad credit?

If you ask a bank, the typical answer is no. Banks are generally reluctant to approve loans for two main reasons: It's a volatile industry with, among other things, high overheads, shaky profit margins, and complex supply chain, and also banks generate more income when they go upstream and target large enterprises.

Unfortunately, banks categorize restaurants as "high risk"; therefore, they’ll require you to provide more financial documentation than owners of other industries viewed as more stable.

So, where can you obtain financing? From non-traditional restaurant financing companies.

With alternative non-traditional lenders such as ROK Financial, you can qualify even with bad credit. What’s more, the application process is easy and much faster.

How to Qualify for a Restaurant Loan

Given that restaurants fall under a regulated industry with small margins, access to restaurant business loans is vital. Here are some tips to help increase the odds of you receiving financing for your restaurant:

  • Stay on top of your business finances by using automated accounting software and an accountant to oversee the business finances.
  • Be able to demonstrate your capital needs in detail.
  • For SBA or traditional lenders, preserve operating cash to convince lenders you’re capable of sustaining your business with or without funding for the short term.
  • Keep your business and personal finances separate.

Next Step

Applying for a small business loan can be an overwhelming process for business owners. Give one of our business financing advisors a call to discuss your business’ best financing options.

About the Author, Madison Taylor

Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.