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A Guide To Restaurant Business Loans

The restaurant industry isn’t for the faint of heart. About 60% of restaurants fail within the first year and even more—about 80%—fail within the first five years. Common reasons for failure are lousy location, inexperience, inflated costs, improper pricing, lack of marketing, and disorganization.

On the flip side, however, are the 20% of restaurants that succeed for the long term. According to The Menu Store, there are three core elements that are most important in working toward success as a restaurant owner:

  • Customer service and staff—Provide a high level of service, hire good people and make them feel part of the team
  • Food—Choose the right type, use high-quality ingredients and present dishes attractively, consistently updating and tweaking the menu
  • Marketing—Define your brand, which includes music, décor, ambience, cleanliness, service style, and look and feel of the menu, among other things, then invest in appropriate advertising

Understanding these elements alone won’t guarantee a restaurant’s success. Along the way there may be bumps in the road that require you to consider a restaurant business loan.

What Are Restaurant Business Loans?

Restaurant loans are just what you think they are—business loans designed to meet restaurant owners’ unique needs. They may be used to fund short- or long-term goals and may be structured for startups and brand-new restaurants or those that have been operating for at least a year or two.

Why Do Restaurants Need Business Loans?

Restaurant business loans can be molded to suit a variety of needs, providing funds for activities such as:

  • Opening a new location
  • Introducing a new service
  • Remodeling an existing location
  • Upgrading kitchen equipment
  • Growing staff
  • Adjusting for seasonality

Depending on what you need the funds for, there are a number of different business loans available to you.

What Types of Business Loans are Available to Restaurants?

Since each restaurant is unique, there’s no one-size-fits-all solution when it comes to financing but one of the following seven options may be right for your situation:

  • Restaurant term loans—A loan that’s repaid with interest over a set time frame, ideal for meeting short-term expenses or funding longer-term business investments
  • Restaurant equipment financing—A loan that supports the purchase of new equipment, which usually serves as the collateral
  • Restaurant inventory financing—A short- or medium-term loan that helps purchase inventory when it’s needed, with what’s purchases serving as collateral
  • Restaurant working capital loans—A flexible financing option for short-term needs like paying suppliers or meeting payroll, ideal for owners who can quickly repay the loan
  • Restaurant business lines of credit—A revolving line of credit that can be used as needs arise, like a credit card, with interest only being paid on the amount used
  • Restaurant Small Business Administration (SBA) loans—Loans for new and established restaurants that have exhausted other financing options and can meet tough qualification demands
  • Restaurant Merchant Cash Advances—A way of borrowing against future debit and credit card receipts, usually between 50 and 250% of average card sales, with payments being deducted from daily sales

Once you decide which type of loan is right for you, you can move forward to determining what you will need to qualify.

How to Qualify For a Restaurant Business Loan

It’s a good idea to review your business and personal credit history before you apply for any loan to have an idea of how lenders see you from a risk perspective. You should also have all your financial statements available and if your restaurant is newer, a business plan as well. Typically, lenders will want to see the following:

  • Operating history
  • Revenues and profitability
  • Personal and business credit scores
  • Collateral

When you have all your “ducks in a row,” it’s time to find the right lender.

How to Apply For a Restaurant Business Loan

Do your homework by shopping around with different lenders to compare terms. Be aware that the annual percentage rate (APR) is the most effective way to evaluate your options but also focus on:

  • How much you can borrow
  • How long you’ll have to repay the loan
  • Any fees associated with the loan
  • Collateral requirements
  • Personal guarantee requirements

Also, find out how quickly your loan can be funded if time is an issue.

When you find the lender that seems best for your needs, fill out an application, submit the required documentation and wait to get an answer or a request for more information.

Contact Clear Skies Capital today at 800-230-9822 to see if you qualify for a restaurant business loan.