Everything about Restaurant Financing


Financing is the biggest challenge to launch a new restaurant. Running a restaurant successfully requires a passion for bringing people over a mouth-watering meal. It takes money to make the culinary venture a success. You can fund your restaurant by using alternative loans, traditional business loans, private investors, personal savings, crowdfunding and strategic partnerships. Then you need to manage for ongoing working capital.

When you are in long and short term financial need, Term loans can help you. In this kind of loans, the lender will provide a huge sum of money which you can repay within a certain period of time. It may be unsecured or secured. It depends on how much you are borrowing and for what reason you are using it. Depending on the lender, the repayment can last for 3 months or over 7 years as well. These loans can also use to address a host of problems which are unique to restaurants. When you are running low, a term loan can be valuable.

Here are some scenarios:

  • Holidays are approaching and you need some staff to handle the anticipated surge in traffic.
  • You have to attend a local food expo and have to buy extra equipment and supplies for cooking demonstrations.
  • Your restaurant is at a point where you will either have to open second location or expand the existing premises to keep a pace with sales.
  • Suddenly, your range has stopped working so you have to replace it to avoid temporary kitchen shutdowns.
  • You have a seasonal restaurant which gets full in summer and you need money to cover the day to day operating expenses in the slower winter months.
  • You are planning to revamp the marketing campaign and change into new advertising mediums but your current budget won’t accommodate.


Here are some common costs that how much money you will need for the restaurant:

  • Insurance
  • Staff wages and benefits
  • Building renovations
  • Front of house furniture
  • Inventory stock
  • Working capital
  • Loan fees
  • Utilities
  • Opening event costs
  • Business and license fees
  • Deposits and lease payments
  • Employee and sales tax
  • Kitchen equipment
  • POS system
  • Kitchen and serving tools
  • Marketing budget
  • Debt payments
  • Accounting and legal fees


Few types of loans which are available to Restaurants:

Merchant Cash Advances

It allows you to borrow against future sales. This type of loan is negotiated with the current credit processor or has to contract with the one which will offer you in advance. The terms usually involve the processor and takes a portion of daily credit card sales till you repay the original advance with the agreed upon increase. The company, which will provide you the advance will see that whether you have sufficient business to give back the loan amount. Often these loans can be quickly processed and don’t need a pristine credit. Merchant cash advances carry APRs from 50% to 250%. It is quite expensive so make sure to repay it as quickly as possible.

Inventory financing

Inventory financing covers the food and beverage costs. The inventory acts as collateral. Usually, this kind of loan has a shorter repayment term. This term assume that you can sell off the new inventory quickly. It is of 6 to 12 months term. If you have a seasonal restaurant, the short-term nature may be a perfect fit. Read all the details carefully before you take these type of loan. As some have above-average interest rates. Some of them even need a UCC Lien which can be risky for some restaurant owners.

Equipment financing

These loans cover specialised equipment costs. The lenders use it as collateral. If you want to add some new pieces or give the kitchen an overhaul, an equipment loan is perfect. Some of these loans need down payments. Most of them come with fixed interest rates. It is a short term loan that takes an average of three years to repay.

SBA loans

Small Business Administration (SBA) offers large sums of money for restaurant owners and other entrepreneurs with longer repayment terms. It can be used for several purposes. For example, the 7(a) loan empowers the restaurant owners to borrow up to $5milion. You can take ten years or longer to repay these types of loans. Aside from Merchant cash advances, it comes with higher interest rates compared to most loans. These types of loans are best for those restaurant owners are financially stable and want to open a second location or want to launch new ventures. It needs 10% of down payment which can be a barrier if the restaurant doesn’t have enough money. Funding speed is another problem of this loan. The online lenders can put money in the bank account in few days whereas the SBA loan can take weeks or months to fund.