My Business Credit Lines

Restaurant Loans: Tips for Financing a New Restaurant

As more culinary reality shows increase ratings, the number of restaurant loans continues to grow. Restaurateurs need to remember that in order to obtain a loan or money for their restaurant businesses; they need to have experience in the field. To obtain necessary experience, they can consider taking part-time jobs in restaurants, taking cooking classes, etc. These small, but necessary steps, can help increase their chances of being approved for bank or private lending financing.

Several places for restaurateurs to find restaurant business loans include the following:

  • Small Business Association – This includes both General Small Business Loans 7(a) and loan programs. Government loans are often complicated and take a substantial amount of time and energy to obtain.
  • Personal Resources – Credit cards, savings, IRA accounts, home mortgages, family, friends and personal assets.
  • Private Investors – Better known as hard money lenders, these entrepreneurs can provide working capital loans, short term business capital and specialized restaurant loans.
  • Commercial Financing – These types of companies include equipment leasing companies and traditional government-regulated banks.
  • Friends and Relatives – Restaurateurs need to make sure that if borrowing money from friends or relatives that all paperwork is complete by an attorney. This should include the loan repayment schedule, including interest.
  • Assets – Real estate assets can be leveraged to finance businesses, provide they have enough equity to be accepted by a private investor or bank.
  • Life Insurance – Some life insurance policies have loan values, which allow policyholders to borrow the cash value of the policy at a low interest rate.
  • Housing and Urban Development – The government’s HUD program can help rehabilitate and restore buildings in certain geographic areas. While, they will not provide funds to finance businesses, they may provide renovation funds for real properties.

Restaurant loan applications generally include written statements that require business plan descriptions. This includes details, such as anticipated income, injections of cash, how requested loan funds will be used, how loan funds will be repaid, what business plan software programs will be implemented in the restaurant, etc.

Lenders recommend that restaurateurs have their business plans complete approximately six months before applying for business loans for restaurants and approximately two months of cash to completely operate a restaurant before applying for a loan. Additionally, restaurateurs should shop for the best terms and interest rates, obtain financing before negotiating a lease, obtain loan agreements in writing, hire a lawyer or account to review any agreements before executing and confirm there are no prepayment penalties.



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