A complete guide to restaurant business loans
Whether you’re starting a new restaurant or expanding a current one, you’ll need capital to make it all happen. Through loans for restaurants, you’ll be able to get all the funding you need.
If this is your first time taking out a restaurant business loan, we got you covered. Below is a simple guide that will bring you up to speed on everything you need to know about this kind of financing option. Let’s dive in!
What is a restaurant business loan?
A restaurant business loan is basically a financing option that allows you to borrow money for your restaurant. As with other types of loans, you’ll have to pay back what you borrowed alongside interest.
Through restaurant business loans, you’ll have the financial means to jumpstart your dream restaurant. Alternatively, it will help you expand an already existing one, allowing you to renovate the premises or use the money to open a new branch altogether.
Considerations when getting restaurant business loans
The success or failure of your restaurant business loan application will heavily depend on several factors, including:
Loan provider reputation
Not every lender is created equal, and some loan providers offer better deals than others. So before applying for one, make sure you pick the best loan provider you could find. For starters, check if they have the following:
- A physical address
- A professional website
- A working contact number or email address
If the lender doesn’t have either of these, then better choose another. Additionally, watch out for any hidden charges; reputable lenders don’t have these.
Processing time
Next, check how long their processing time is. Depending on your current situation, you might want to get your loan application approved as quickly as possible. If the lender has a reputation for having a long, tedious application process, best move on to another provider.
Borrowing amount
At the same time, you should check how much you’ll get from the lenders offering the restaurant loan. Even if they have a quick application process, it’s pointless if you end up getting less than you need to fuel your business. That being said, it’s also a bad idea to take out too much money, as it will be more tempting to misuse (not to mention it will be harder to repay).
Credit score
Almost every single money lender will take a look at your credit score whenever you’re applying for a loan. So make sure yours is as high as you can make it to be. Now credit scores range from 300 to 850. Strive to make yours reach past 500. But if you want to increase your chances, try raising it to 700 or above.
Cash flow history
Aside from your credit score, lenders will also look for your business’ cash flow history. This will help them see if you have the means to return the money you borrowed. Furthermore, it will help them determine the amount of money they’ll grant you. The higher your disposable income is, the bigger the amount you could take out. So best prepare a copy of your cash flow history before heading out to the loan provider.
Debt-to-income ratio
As defined in Investopedia, a debt-to-income ratio is “is the percentage of your gross monthly income that goes to paying your monthly debt payments”. Lenders use it to determine your borrowing risk, which could have an effect on your loan application. The lower it is, the higher your chances of getting approved (and getting high amounts of money). So if you can, keep yours as low as 30%. If it gets past 43%, then the loan provider will probably reject your application.
Collateral (if required)
Some restaurant business loans come with collateral requirements. That is, you’ll have to pledge one of your assets as security. So in case you end up defaulting on the loan, the lender will consider said asset as the payment. The value of your collateral will determine how much you could borrow. So if you’ve chosen this path, better be ready to pledge one of your high-value assets.
Repayment terms
Before taking out a restaurant business loan, you should check the repayment terms being offered as well. If you’re uncomfortable with the amount of monthly payments you have to make (as well as the scheduling), ask the lender if you can have it revised. On the off-chance they say no, move on to another loan provider.
Interest rates
Simultaneously, you should take a look at the interest rates. These will determine the overall cost of the restaurant business loan. There are a lot of money lenders (even banks) that offer financial assistance at lower interest rates than others. If you want to minimize loan costs, then best stick with these providers.
Loan fees
In an ideal world, loan providers don’t charge any hidden fees to their prospective clients. Unfortunately, reality isn’t as perfect as that. There are lenders out there who put hidden fees on their financial products, most notably:
- Origination fees
- Processing fees
- Non sufficient funds fees
- Late fees
So before picking a loan provider, check if they have these hidden fees first. If they do, you would do well to choose another lender instead.
How to get a restaurant business loan
The process for applying for a restaurant business loan is pretty much the same as applying for other types of loans. For the most part, it involves the following steps:
- Visit your preferred loan provider
- Submit all the requirements
- Wait for your loan application to get approved (or rejected)
- Once approved, wait for the borrowed money to get released
Depending on your chosen loan provider, there might also be additional steps to take. So better do your homework and learn about these extra steps.
Final thoughts
Through restaurant business loans, you’ll be able to give your new restaurant a good head start. Alternatively, it will help you take your established restaurant to greater heights. So if you’re running low on funds and you want to make your dream restaurant soar high, best consider taking out this kind of loan.