What You Need to Know
When you’re running a restaurant, you’re constantly investing in your business to stay ahead of the curve and keep customers coming back. You need to invest in marketing efforts to keep bringing in new customers and engaging with returning ones, hire top-notch kitchen staff, and upgrade your dining space regularly.
At the same time, your cash flow may be uneven as you go through the busy and slow season, order kitchen supplies upfront, or cover unexpected costs like equipment repairs.
Financing for your restaurant can help. A line of credit or short-term loan can help you smooth out cash flow, purchase supplies, or finance new kitchen equipment. Here are some ways that a small business loan for your restaurant can help.
When to consider a small business loan for your restaurant
Keeping your kitchen stocked with fresh ingredients can get expensive, especially since you have to cover costs upfront before you get paid by your customers. A line of credit can help you invest in the ingredients you need to keep customers happy.
One area you’ll likely invest in the most when running a restaurant is purchasing kitchen equipment, like ovens, stoves, deep fryers or refrigerators. You may also need to replace dining furniture, like bar-top tables and café booths. A short-term business loan can be a good fit to shoulder the up-front costs of purchasing new kitchen appliances for your restaurant.
Managing cash flow
Your restaurant likely has busy seasons and slow seasons. Additionally, you’ll need to pay for supplies – like produce and meat – upfront before you get paid by your customers. For all these reasons, you can end up with uneven cash flow when running a restaurant. A business line of credit can be a good way to help you cover everyday expenses.
Types of loans available for restaurants
1. A Business Line of Credit: A business line of credit gives you access to flexible, revolving funds when you need them for your restaurant. With a line of credit, you borrow what you need, pay down the balance, and the funds are replenished so you can use the line again. Many restaurant owners find a line of credit helpful to bridge cash flow gaps, manage payroll, and purchase the inventory they need to keep their kitchen running.
2. A Short-Term Business Loan: Many online lenders offer short-term business loans for small businesses like restaurants. With terms that range from three months to three years, this type of financing makes it possible for a restaurant owner to borrow capital and repay it quickly—often making the total dollar cost lower than a longer-term loan. Getting a short-term business loan from an online lender can be much quicker than getting a traditional loan from a bank – typically, the borrower can apply in minutes and get their funds within days. Many restaurant owners will use a short-term loan to make improvements to their kitchen space or dining area, purchase inventory, or replace kitchen equipment like an oven or freezer.
3. Equipment Financing: Equipment financing is another way to finance the purchase of business equipment, besides just using a loan or line of credit. Any tangible asset used in business operations can be considered business equipment. For restaurant owners, this can mean an oven, deep-fryer, commercial refrigerator, or even kitchen shelving units.
4. A Bank Loan: As a business owner, the financing option you’re likely most familiar with is a traditional bank loan. A bank loan typically requires collateral to secure the loan, and the application process tends to take several weeks. The length of the loan can be anywhere from 2-20 years. While the interest rates on a bank loan can be attractive, restaurants may find it difficult to meet stricter bank requirements for a loan. Restaurant owners may also find the process too slow for their cash flow needs.
5. The SBA (Small Business Administration) Loan Guarantee Program: Although the SBA is not a lender and provides financing through participating banks and credit unions (among others), the SBA Loan Guarantee Program will sometimes qualify a borrower who might not otherwise meet the more rigid criteria required by the bank. If your restaurant is an established business, with a few years under its belt, and your personal credit score is above 680, this could be an option for your business. However, the application process tends take several weeks, so restaurant owners may find this too slow for their cash flow needs.
“OnDeck was different because I felt like they really understood who we were. They understood that we were small. They knew some of the challenges that we face, and I felt like our representatives that we worked with really cared about what we were doing and where we were going with our money. ”Erin Bradley and Janet Meyers
Tea by Two
Bel Air, MD
Resources for Restaurants
When to Use a Restaurant Business Loan to Fund Expansion
Outgrowing your current space? Here are three signs it’s time to expand, and tips on how to get the most out of taking out financing to expand.Learn More
8 Tips for Hiring Top-Notch Restaurant Employees
Hiring successful employees as a small business owner can be difficult. If you’re a restaurant owner this can be especially tricky, as the food services industry tends to have high staff turnover. Read on for some tips on how to attract top-notch hires without breaking the bank.Learn More
How to Evaluate and Evolve Your Small Business Marketing Plan
As a restaurant owner, every resource you invest in your business is precious. While marketing is essential to sustain your business, how do you evaluate which initiatives are working?Learn More
What type of loan makes sense for your business?
Financing options to help you grow your business
If you’ve ever heard the adage, “It takes money to make money,” you must be a small business owner. Fortunately, there are more small business loan options available today than ever before—you just need to know where to look and what to look for. You don’t need to be a financing expert to build a successful business, but you do need to consider all the business loan options available to determine which one is best to meet your business need.
Small Business Loans and Lines of Credit
With online lenders and lines of credit, there are more options available today than a traditional term loan from the bank when you need extra capital to fuel growth or fund other business initiatives.
Loans with a Purpose
Depending upon why you’re borrowing (your loan purpose), there could be an option custom fit to meet your business need. Here are some of the financing options available with specific use cases in mind.
Non-Traditional Financing Options
Sometimes it takes a different approach to meet a business’ financing needs. There are a number of options from micro-loans to funding sources that won’t even be described as a small business loan.
Each industry has specific loan types that may be better suited for your business. Here are some of the most common industries we work with and the financing options available to them.