It can be hard to find the right balance between managing cash flow and taking advantage of growth opportunities in the restaurant industry. Although cash management can be difficult for any business, it is vital for the success of your company. It’s more challenging for restaurant owners because your inventory costs fluctuate dramatically from week to weeks.

There are many financing options available to you, including term loans and business lines of credit, equipment financing, advances, and business advances. Although all of these options can provide the capital you need to remain competitive and manage your cashflow, the structure of each one may be more advantageous for your particular situation. A term loan, for example, provides funds in one lump sum payment. However, you can draw capital as required with a line of credit.

Each restaurant is different and has its own needs. One person might prefer flexibility from a business credit line, while another may require the structure of a term loan. You will need to consider the circumstances of your business and the challenges you face. However, you will not know the best financing options for you unless you are fully informed about them.

You don’t have to worry. This article will cover everything you need to know regarding restaurant financing, as well as the five most popular types of loans that entrepreneurs use in this industry.

Why would a restaurant need financing?

Restaurants of any size need cash flow. Restaurants of all sizes need cash flow.

Financing is a way to get around these obstaclesspan styling=”font-weight 400 ;”>. Instead of struggling to find additional cash or dipping into your savings to keep your business running smoothly you can get restaurant financing. Some financing options like term loans offer a lump sum payment you can use to support the business for the entire term. The loan amount is then repaid through timely payments that are agreed upon with the lender.

There are other options like business credit lines that offer greater flexibility for restaurant ownersspan styling=”font-weight 400 ;”>. A line of credit allows you to draw cash on a short notice and ensure that your business operates at its best. You can use your credit line to get the cash you need when you see an opportunity to expand. Restaurants can use business lines of credit to make forecasting easier. You’ll have capital available at all times, so you don’t need to forecast to the penny. And, even more important, you will always have an emergency fund in case things go wrong.

Five Restaurant Loan Options for Entrepreneurs

There are many options for restaurant loans. Each has its own benefits and drawbacks. This will impact the way that you use the funds to grow your business. These are five restaurant loan options entrepreneurs often use to help their business grow and develop.

Restaurant Term loans

Term loans are the most common type of loan that people associate with the word “business loan.” They are made in lump sum payments that you pay back to your lender over the agreed-upon period. They can be used for any purpose you choose, however you may need to inform the lender of your plans to use the loan amount before they approve you.

A term loan structure provides large cash influxes, but not all businesses will benefit from it. Restaurant term loans can be a good option if you have a clear idea of how much money you will need to make your purchase.

Restaurant Business Lines of Credit

Entrepreneurs in the restaurant business have the best financing options available. Business lines of credit offer flexible financing. These lines of credit are a revolving credit line that you can draw on an as-needed basis to help your business grow. A restaurant business credit can be used for any type of business expense. You don’t need to speak with your lender before you make any purchases.

Although flexibility is a strength of a business credit line, it can also pose a risk. Exercising your credit limit too high can lead to financial hardship that is difficult to escape. The interest will add to your outstanding balance over time. This creates a snowball effect, where you are struggling to repay an amount that keeps increasing. For this reason, it is recommended that you stay below your maximum credit limit. This allows for some flexibility for unanticipated costs in the future.

Financing for Restaurant Equipment

Equipment financing can be used to finance large equipment purchases. This allows you to make smaller monthly or weekly payments and makes it easier to keep your restaurant competitive. The interest rate means that you can finance nearly any piece of equipment including kitchen appliances and dining units. However, your total payment will be higher than if the equipment were purchased outright.

Because they don’t want equipment to cost more, many entrepreneurs won’t accept financing at higher interest rates. It’s financially sound, but you need to consider the business benefits that equipment will bring.

Let’s suppose you want to buy a freezer unit twice the size of the one you have now. The new equipment will allow you to hold twice as much inventory over a longer time period, which will reduce overhead and help your company better manage supply chain issues. The revenue boost you’ll see after the fact makes it a smart move to finance the equipment if your overhead reduction is greater than the interest rate offered from your lender.

Restaurant Business Advances

Your future revenues will be aided by business advances. After reviewing your business and its profitability, the lender makes an offer based upon what you can pay back over the term. The lender will take a small percentage of the funds to ensure that you can secure your future revenue.

The best business advances can help you get through slow seasons and periods of high sales. Restaurants may only do their majority of business during a few months of the year. This leaves them with little to no time for “slow seasons.” The ability of restaurants to survive the slow season will be affected by their performance during busy periods. Cash flow management and economic factors also play a part. A business advance can help you secure the funds you need for managing your low sales months, and more importantly, to ensure your business is able to thrive during high-sales seasons.

Accounts Receivable Financing

Lastly we have accounts receivable funding

Credit cards are more commonly used than cash in modern times. Although credit cards are popular due to their ease of use, businesses can face cash shortages if they have trouble collecting payments. Late payments and customer invoices can cause you to run out of cash. Accounts receivable financing converts late payments into cash.

The lender’s fee will prevent you from obtaining the full value of your outstanding payment, much like restaurant business advances. You can expect to recover between 80% and 95% depending on which lender you deal with.

How to get a restaurant loan for your business

Finding a lender is easy and they will meet the minimum requirements. However, getting approval for funds is more complicated. To ensure you are choosing the right one for your needs, it is important to compare offers and shop around. This process is time-consuming and requires effort. Entrepreneurs can’t afford to lose this while managing their restaurant’s day-to-day operations.

National’s award-winning team can help you speed up the process by allowing you to apply to multiple lenders using one digital application. Our service is a time-saver for business owners. It reduces the process to hours and not months to allow you to grow your business according to your terms, not the banks.

Our Business Finance Advisors are there to assist you in every step. They will also provide expert advice and support you in making informed decisions that will ensure the success of your business. We will work with lenders to get you the best possible offers if you’re not satisfied.

Streamline your Search for Restaurant Loans with National Business Capital

Do not waste time applying to each lender one-by-one. Instead, team up with National and let our team handle the heavy lifting. You can submit one digital application to 75+ lenders, reducing the time it takes to find competitive financing. To ensure that we can connect you with the right lender for you, we take the time to get to know you and your company. There is no one-size fits all approach to business financing. You can trust our team to treat your like a person and not just a number.

National can help you create sustainable growth in your restaurant company with $2 billion of funding secured for entrepreneurs across the country, over 2,000 5-star reviews on Trustpilot and an award-winning team behind each deal.

To see all the options available, complete our online application now!

FAQs

How do restaurant businesses get funding?

Restaurants have many options for capital sources. These include banks, credit unions and non-bank lenders. FinTech marketplaces are also available. Angel investors are another option. First, you will need to determine the amount of money that you are going to need. You can then start to send applications to lenders, and wait for their responses. Your funds will be delivered to your account promptly if you are approved. However, a denial can prove more difficult.

Denials of business financing are not the end Your application could have been rejected due to an error or your business may not meet the requirements of the lender. Either way, denials can be time-consuming. This is why it is important to work with a marketplace that allows you to apply to multiple lenders such as National Business Capital.

How do I qualify for a restaurant loan?

The type of financing you are seeking will determine the qualifications required for a restaurant loan. National’s requirements for a term loan are, for example, 1 year of business, a minimum 580 credit score and $120,000 in annual sales. Our equipment financing requirements are easier to meet: Either a minimum credit score of 650 or $120,000 annual gross sales, and a minimum of 6 months in business.

Each lender has different eligibility criteria. It’s best to Apply with as many as you can to get the best deal.

What are the interest rates on restaurant loans?

Your business’s financial status, the amount of funding you are seeking, the type and repayment terms you choose, as well as the lender you deal with will all affect the interest rate for restaurant financing. Interest rates at banks and credit unions range from 3% to 7 percent, while non-bank lenders have an average of 11% to 44%.

Banks and credit unions offer lower interest rates but have strict eligibility requirements that prohibit businesses with poor financials from being approved. Non-bank lenders have a lower eligibility requirement and offer higher interest rates. To get the best possible results, it is a good idea to apply with several banks and non-bank lenders.

How do you repay a restaurant loan?

A restaurant loan is repayable according to the terms agreed upon by your lender. Monthly or weekly payments will be made on the principal and interest. These payments can be done through digital or physical checks. You will have no debt after you pay all of your debts. This is a major advantage of debt financing over equity financing.