Loan Types for the Restaurant Industry
Owning a restaurant is an exciting endeavor, but a lot of work goes into it as well; and with work, comes expenses. Whether you are just starting out or your eatery is already established, there are many reasons for which you could decide you need more working capital. Several types of loans are available in the restaurant industry to help you secure financing.
Traditional small business loans are available for many restaurant owners. Banks provide term loans or lines of credit with interest rates of 5-10 percent and repayment terms up to 25 years, but they can be difficult to obtain if you have less-than-stellar credit of business financials.
If you are set on a traditional loan, one possible solution is to obtain one through the Small Business Administration, which supplies the funding to a traditional lender. Depending on whether you choose a 7(a) or 504 SBA loan, this financing option can provide you with $5 million or more in funding, low interest rates and terms of up to 25 years. While you can still expect to need good credit, the requirements are not quite as strenuous as if you went through the bank itself.
A restaurant needs dozens of different items to operate successfully. A popular means of securing equipment in the restaurant industry is via equipment leasing. Leasing what you need allows you to pay a smaller (or no) down payment, instead purchasing the equipment on a “rent-to-own” option for monthly payments. As an added benefit, many lease providers will maintain or replace items as needed for the duration of the lease. While this is an excellent option if you don’t have a lot of working capital upfront, it is important to remember that you’ll pay up to 25 percent interest and may need to pay it as a lump final payment. The lease terms can range anywhere from a year to a decade, depending on your needs.
Merchant Cash Advance
If you need working capital quickly for unexpected expenses, a merchant cash advance is probably the solution. Lenders that provide this option can offer you a lump sum within a few days. Instead of paying a fixed monthly payment, you’ll repay the lender with a percentage of your credit card sales each time you process a transaction. This is especially preferable for restaurants operating in tourist areas with seasonal lulls in business.
When seeking a lender, consider finding one that specializes in providing financing for the restaurant industry. They are more likely to understand the types of ups and downs that may come with financing this type of business and can find something that meets your needs.