Getting a restaurant loan is tough. This is because lenders are reluctant to offer loans to restaurant owners because they believe that restaurants are volatile businesses. The Small Business Administration (SBA) guarantees such loans so that more lenders can offer such loans. Once the SBA guarantees such loans, it is less risky for the lender to grant these loans. Hence, SBA business loans are the best loan options for restaurant loans. Apart from SBA loans, there are other funding options for restaurants. These include invoice factoring, invoice financing, term loans, merchant cash advance, and equipment financing.
How to Apply for a Restaurant Loan
- Determine your eligibility
All lenders have their requirements and you can only access a loan if you meet these requirements. One of these is the credit score requirement. Most lenders have a minimum credit score requirement for loans. Even if you have a poor credit score, it should not be below 500. If you have a credit score below 500, you can consider repairing your credit before applying for credit. You can also consider applying to lenders who have no credit score requirement. Most lenders also request for collateral. Some of them request for a personal guarantee. Loans that are backed by collateral are called secured loans. There are unsecured loan options for businesses who cannot provide collateral. However, unsecured loans have higher interest rates. Some lenders also require that you make a down payment before accessing a loan. This down payment ranges from 10% to 30%.
- Find a Suitable Lender
Lenders have varying requirements, rates, fees, and amounts they offer. When you need to apply for a loan, you will need to get a lender whose requirement you can meet. Look at the lender’s minimum credit score requirement. Your credit score should be more than that of the lender. Other requirements such as a minimum number of years in operation are also important. You should also look at the amount the lender is willing to offer. If the lender does not offer the amount you require, you should consider another lender. You should also check the terms and conditions. Make sure you are comfortable with them before signing up. Another thing is the lender’s payment terms. Can you afford to pay the loan at the period stipulated by the lender? When you realize that you can meet all these requirements and you are comfortable with the lender’s offer, you can proceed to work with him or her.
When you are finding a lender, you should also consider the purpose of the loan. Some loans have specific uses and they tend to be problematic when you use them for other things. For instance, invoice factoring is only suitable for business owners whose customers have not paid their invoices. In the same way, equipment financing funds are only ideal for the purchase of machinery.
- Prepare your documents
Lenders will ask for proof of business ownership, driver’s license, personal tax returns for a three year period, bank statements, and other financials that support your business. They will also request for business tax returns for a three-year period. Other documents include YTD balance sheets, YTD P and L statements, Owners’ resumes, business licenses, business plan, projected business financials for the next three years and your application. Get these ready before you apply for the loan.
- Apply for the loan
Once you have everything intact, you can go ahead and apply for the loan. The lender will notify you if your loan request is approved. During the process, you will need to discuss the rate, fees, and repayment terms. When the lender approves your loan, it is now dependent on you to make payments. It is important that you make payments on time so that you can develop a good relationship with the lender. If you do not make payments regularly, you are jeopardizing your chances of accessing a loan the next time you need one.
Kabbage offers up to $250,000 in the business line of credit. Kabbage checks your credit score but there is no minimum credit score required for qualification. You will, however, need a minimum annual revenue of $75,000 to qualify. The APR ranges from 24% to 99% and the repayment terms are 6 months, 12 months, 18 months. They have a very fast funding process – they can even fund your loan in minutes. The funding process can also take a few days.
StreetShares offers a wide variety of loan options. This lender offers loan amounts between $2,000 and $250,000 for term loans. They also offer amounts ranging from a 5,000 to $250,000 for a standard business line of credit, and they can also offer you up to $2 million in invoice factoring. The loan term ranges from 3 months to 36 months. For term loans, the APR ranges from 9% to 40%. The APR for other selected products also ranges from 1% to 5.5%.
- Credibility Capital
Credibility Capital can offer you an amount that ranges from $10,000 to $350,000 and the APR ranges from 10% to 25%. The loan term for their loans is 1, 2, and 3 years. This lender funds your loan in 7 days or less.
You can access an SBA 7 (a) loan from Smartbiz. This offers this loan option at an APR that ranges from 8.53% to 9.83%. The loan amount also ranges from $30,000 to $350,000. Funding SBA loans take time and it usually lasts from seven days to several weeks. Loan repayment terms can be up to 10 years.
OnDeck also offers fast loans for restaurants. You can complete the online application in less than 10 minutes. You can get loans up to $500,000. You will need a minimum credit score of 660. The APR ranges from 16.7% to 99.4%. The repayment term ranges from 3 to 36 months. You will be expected to make daily or weekly payments depending on the schedule you agree on.
If you realize that your credit score is poor and you do not need the cash urgently, you can consider improving your report before applying. A credit repair company can help you with that. You can also do it yourself by filing a dispute to correct the errors on your credit report. You can also maintain a good payment history by paying off your loans on time. You can also reduce your expenditure where possible.
When you apply for a restaurant loan, make sure you only apply for the amount you need. If you can afford to wait for a few weeks to get the cash, the best loan option is the SBA loans. These loans are easy to access because they are guaranteed by the Small Business Association. They also have lower rates since it is not risky for lenders to grant such loans.
If you decide to get an SBA loan, you should work with an SBA preferred lender. These lenders process your loan faster. They have also dealt with several SBA applications and so they know how to process these applications. SBA lenders check your debt service coverage ratio. You should also gather as much collateral as you can. Although SBA lenders do not specify the amount of collateral you need, when you provide them it increases your chances of accessing a good SBA loan. You can submit a mix of business assets and personal properties as collateral. You should, however, note that you risk losing those assets if you are unable to pay the loan.