A Guide to Business Loans for Restaurants

Lending experts discussing business loans for restaurants

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Key Takeaway Table

Key PointDescription
Uses for loans in the restaurant industryRestaurant owners seek business loans for various purposes, including startup capital, buying and upgrading equipment, marketing, major renovations, business expansion, and general improvements. Owners also seek loans to pay for day-to-day expenses and cover emergencies.
Types of business loans for restaurantsLoan options for restaurant owners include traditional term loans, both secured and unsecured loans, business lines of credit, fitout finance, and equipment finance, and mature businesses may seek loans to pay out tax debt as part of an overall debt consolidation strategy. Each loan type caters to different needs and can have varying approval criteria.
Factors to consider before applyingIt’s crucial to consider the purpose of funds, required amount, desired loan term, monthly payment capacity, security, documentation, credit score, and urgency of needs. Business owners should also look at industry-specific trends and current interest rates.
Application Process and RequirementsThe application process for business loans can differ greatly depending on the loan type and lender. Each type will have different approval criteria, and some lenders may ask for documentation, security, guarantee, or good credit standing. However, not all lenders ask for that many requirements and some loans are easier to get than others.

The restaurant industry took a huge hit during the height of pandemic restrictions. Restaurants saw a significant dip in revenue since 2020, but things seem to be looking up. The industry shows signs of recovery and stability as its market size increased by 31.1% last year, according to research by IBIS World. For aspiring and current restaurant owners, now may be a good time to jump into new opportunities. Whether you aim to start, renovate, or expand a restaurant, you’ll need a good business loan to help you achieve your goal.

Uses for Restaurant Business Loans

Here are some of the common reasons why restaurant owners seek business loans:

Types of Business Loans for Restaurants

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Term Loans

Traditional term loans provide a lump sum the restaurant repays over a set period with fixed monthly payments. Term loans can be secured or unsecured, depending on your loan amount and lender. Term loans are best for one-time large expenses, like renovations or opening a new location.

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Business Lines of Credit

A business line of credit gives borrowers a predetermined credit limit. Borrowers can borrow any amount within the limit, and when they repay, the limit renews, making the funds available to borrow once more. You only need to pay interest on the borrowed amount and not on the entire credit limit. Business lines of credit are perfect for managing cash flow, paying for day-to-day expenses, and covering emergencies.

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Equipment Finance

Equipment finance is designed for purchasing or leasing restaurant equipment. The equipment serves as security, so equipment finance loans usually get approved quickly. Lenders also typically require less documentation, and there are no-doc loan options available up to $500,000.

Factors to Consider Before Applying

The first step to getting a loan is always assessing your specific needs. There are several types of loans, each with different terms, fees, and requirements. Pinpointing your exact business needs can help you find both the right loan and lender. Ask yourself the following:

As a business owner, you also need to consider other factors. Look into market projections in your industry, and check the current interest rates. Thankfully, projections for the food service industry are great in the next few years, but that might not always be the case. When the market is more challenging, you need to adjust your plans accordingly.

Application Process

The specifics of a loan application process can vary significantly from lender to lender​​. It also varies a lot depending on what loan you’re applying for. After you determine your business needs, the next step is to match your needs with the right loan.

If you need a large lump sum for startup capital:

  • Look for lenders that offer low or no-doc loans
  • Approval can be quick, but interest rates are typically higher.
  • Prepare proof of property ownership for security
  • Equipment finance is also available to startup restaurants

If you need a large lump sum for renovations or anything similar:

  • You can get a term loan from a bank or non-traditional lenders. 
  • If your business is established, has good financials and credit score, and has no tax debt, you can get a loan from a bank, which typically offers lower interest rates and longer loan terms.
  • If you have some issues with your credit history and have tax debt, you can still get loans from non-bank lenders. Lenders will want to know your assets and liabilities and your exit strategy.

If you need new restaurant equipment:

  • You can apply for equipment finance.
  • You don’t always need full financial documentation as there are no doc and low doc solutions.
  • It’s possible to get approved even with bad credit or tax debt.
  • Many equipment finance options can be approved within days.

If you need working capital:

  • You can look at secured and unsecured overdrafts.
  • Secured overdrafts with larger limits can be obtained from banks. Bank applications will require full documentation but do not always require security.
  • Unsecured overdrafts are available at both bank and non-bank facilities. Non-bank options are available with no doc application processes, available for limits up to $500,000.  If you’ve been in business for over 2 years and can service a loan, you can get approved within a day.

Find the Right Business Loan for Your Restaurant

Looking to start, expand, or improve your restaurant business? Secure the funds you need to get your business flourishing. Darkhorsefinancial.com.au can point you in the right direction so you can find loan solutions that are right for you. Contact us to learn more.

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