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Having a passion for providing good food, drinks, and welcoming aesthetics is what drives many restaurants. However, sometimes, even this passion isn’t enough to keep a restaurant business going. For a restaurant to become and remain successful, it needs adequate capital to keep operations going.

As a restaurant owner, meeting the financial needs of your business may be challenging. Whether opening a new restaurant or looking for capital to buy new equipment for your business, it doesn’t hurt to have extra financial help. When in need of extra financial help, securing restaurant business loans is the best option for you.

In our guide to securing restaurant business loans, we will discuss everything you need to know about loans in the restaurant business and how to get them.

Two restaurant owners working with laptop and documents in closed cafe

What Are Restaurant Business Loans?

Restaurant business loans are financing options that enable restaurants to access instant or near-instant funding for business needs. These loans refer to money borrowed, sourced, or loaned to help restaurant owners start, refurbish, or sustain a restaurant business.

Restaurants have integral needs to be operated. From furniture to equipment and even fresh ingredients, restaurants need capital to run. However, restaurant owners often struggle to meet these financial responsibilities to sustain their businesses.

Whether you have big dreams and a new restaurant business plan or a vision to renovate your current restaurant business, financing is important. Instead of putting a hole in your wallet to realize these dreams, restaurant financing options are a great solution.

But how exactly does a restaurant loan work?

Restaurants usually meet lenders to secure business loans. These lenders are financial institutions like large national banks, small regional banks, or alternative sources like private institutions. This money is secured with interest that is said over a specific period.

Every loan includes terms such as the maximum amount allowed, collateral needed, and the repayment period. These terms vary widely with the lender and type of loan being secured. As a result, it is essential to be knowledgeable about loan terms and processes before trying to procure a loan.

This will make it easier for your loan application to be accepted and ensure the loan process is seamless and hitch-free.

Why Do Restaurants Need Loans?

One trouble many restaurant owners face is knowing if and when they need loans. Every business comes with financial obligations, but not all businesses require a loan to fulfill these obligations. If you are a restaurant considering taking out a loan, it is safe to say you are not alone.

As of 2021, there were more than 660,936 restaurants in the United States, and more than just a handful of these restaurants seek business finance options. There are numerous reasons restaurants need loans. These include:

1. Opening A New Restaurant

Opening a new restaurant can be an extremely exciting business action. However, it can also be extremely expensive- so expensive that these future business owners do not have enough budget to cater to all the emerging business needs.

Opening a restaurant requires money to get the establishment up and running. This includes making provision for a public space, investing in equipment, paying staff, redecorating, and marketing, amongst others. These costs range from a few hundred thousand to millions, depending on the business plan. However, sometimes, the budget isn’t enough to cover all requirements of setting up a new restaurant.

Instead of scraping their wallets clean on every dollar, people apply for restaurant loans to make it easier to finance the requirements. This makes it easier to manage existing finances and set up the business as planned.

2. Renovating A Restaurant

Has your old commercial deep freezer finally stopped working? Does your HVAC system need to be repaired and returned to optimal performance? Or does the building need to be expanded, repainted, and redecorated? 

A fully functional restaurant is a successful one. Sometimes, when equipment or parts of a restaurant gets too old to run a kitchen operation properly, it is essential to refurbish or replace the affected areas. However, these renovations or refurbishing can easily get too expensive for the business.

Taking out a loan is the best option in these instances. With a loan, you can quickly get much of the capital needed to renovate the restaurants. With this option, you do not need to worry about expenses for returning your restaurant to good shape.

3. Rebranding

If your restaurant has used the same brand image for years and you’re considering changing that image, rebranding is a great option. Restaurant rebrands are a part of the evolution of the business and impact the growth and success of that business.

Rebranding can be extremely expensive, so many restaurant owners seek out restaurant loans to carry out the process. These loans cover everything from changing brand logos to redecorating the establishment.

4. Investing In New Equipment

Restaurants produce food on a large scale. To do this, they need the necessary equipment to make food preparation easier. This equipment ranges from ovens to kitchen stoves, ice makers, and deep fryers. New restaurant equipment can be extremely expensive, which makes buying them too much of a financial burden for small and medium restaurants.

Restaurant loans offer an easy way out by providing access to enough capital to purchase new equipment.

5. Expanding

If your restaurant has grown very successful with a large customer base, you may consider expanding the brand to different locations. While this is a great idea and an excellent way to open new income streams, it requires finances to be executed.

Finding the perfect location, creating the perfect establishment, and putting everything in place to reflect your sterling reputation in your new restaurant require money. Restaurant loans offer the finances needed to set up another restaurant without eating up your business’s current budget. This way, you can quickly expand the business and live out your dream without being limited by financial restraints.

6. Handle Operational Expenses

There are dry spells in every business. During these periods, businesses may find it difficult to settle operational costs such as paying workers and rent or making other vital purchasing decisions. In times like these, it doesn’t hurt to have a little extra help with finances outside the business wallet.

With a business loan, restaurants can settle important operational expenses that will keep them above water. This loan can also be used to create a financial reserve that can be used to offset future unavoidable costs.

7. Returning To Business

The Covid-19 pandemic wielded a largely negative impact on restaurants globally. With the restrictions in place, customer levels in restaurants dropped drastically. To keep business open, many restaurants had to integrate other pandemic-friendly operations, such as home delivery.

While this was a great idea, the pandemic also caused restaurants to cut employees and costs. The result was a failing business that was struggling to keep open. Although these restrictions have been relaxed, the affected restaurants still struggle to return to normalcy.

One major challenge they face during this period is a lack of extra finances to help their business bounce back.

How To Get Restaurant Business Loans: Loan Options To Consider

You have decided you need a loan for your restaurant. However, now you’re faced with the challenge of figuring out how to get a loan. Whether it is to fund new equipment or start up your restaurant, numerous options exist when looking for a business loan. Some of these include:

1. Traditional Brick-and-Mortar Bank Loans

Traditional brick-and-mortar loans refer to those gotten from traditional banks. These banks can either be large national banks or small regional banks. In this loan option, the bank is the lender. However, it is important to remember that the loan terms vary with the bank.

The bank will decide on the amount to lend you, the interest rate, and the repayment period over time.


  • Small businesses can be awarded a loan ranging from $146,000 to $593,000
  • A potentially lower interest rate than other options (depending on the bank.


  • A lengthy application process between 14-60 days. This is not a great option for emergency financial needs
  • Requires collateral that is either personal or from the business. 31% of small business owners use personal assets, while 49% choose to use business assets.
  • May have compounded interests that accumulate when the debt is not thickly paid 
  • Low approval rate
  • A good credit score is necessary.

2. Alternative Loans

Alternative loan providers are entities outside of the bank or traditional option. These non-bank lenders offer capital in the form of alternative loans to restaurants. Alternative loan providers include online companies like OnDeck, Kabbage, and LendingClub. Alternative lenders offer restaurant loans as low as $50,000 and as high as $500,000.

However, like brick-and-mortar institutions, the terms of the loan process depend on the loan provider.


  • Easier and faster to apply for/receive than traditional loans
  • Higher approval ratings
  • Do not require an extremely high credit score


  • High-interest rates

A U.S. government Small Business Administration aka SBA loan application form

3. Small Business Administration (SBA) Loan

Unlike other lending options, SBA loans are not directly funded by the Small Business Administration or SBA. The SBA does not pay out loans out of its pockets. Instead, it partners with numerous traditional lenders to help small businesses get approved for loss.

Essentially, the SBA vouchers for the borrower (after thorough background reviews) and agrees to shoulder a larger percentage of the risks associated with the transaction if the borrower defaults on payment.  There are various types of SBA loans for businesses.

For example, if you want to purchase a building for your restaurant, a 7(a) SBA loan option is best. If you are more interested in financing a large equipment purchase, the 504 loan program is a better option. If you want a small loan to finance basic business operations, the Microloan program is a better choice.

The SBA’s 7(a) loan is the most common type of loan issued by the SBA. It guarantees a maximum amount of $350,000. This loan can be used for restaurant owners for real estate purchases and renovations, equipment purchases, and as working capital

To qualify for an SBA 7(a) loan, you need to:

  • Be a for-profit venture
  • Be small, according to SBA size standards
  • Be located in the United States
  • Have reasonable invested equity
  • Have used alternative financial resources (including personal assets) before seeking financial assistance
  • Prove a need for loaned funds
  • Utilize the loaned funds for good business purposes
  • Not be delinquent on any existing debt obligations to the U.S. government

Specific regulations guard every SBA loan type. Knowing which loan suits you is key to getting the best financing solution.


  • Higher approval ratings than alternative and traditional option
  • Does not require a high credit score (690 is acceptable)
  • Reasonable interest rates
  • Loans may be up to $5 million


  • Funds may not be given until 60 days
  • Large loan amounts may require collateral

Are you considering applying for an SBA loan? Here is a breakdown of things you need to know about the process:

  • You will need to apply through a lender (such as a bank)
  • You will require several documents, including your personal information, your business partner’s personal information (if applicable), detail about past loan applications, your personal income tax returns, your business income tax returns, a copy of your business lease, and a copy of your business plan
  • The SBA will review your application
  • The application wait time ranges from 30/60 days
  • An SBA agent and your lender will contact you if the loan is approved.

4. Business Line Of Credit

A business line of credit is a bank-issued debt and functions like a credit card. In this financing option, the business owner is given an open line of credit with a spending limit. This option can be gotten from a traditional brick-and-mortar financing institution like a bank.

A business line of credit has a specific credit that gives the restaurant enough finances to use for operations. The restaurant only pays the amount they use out of the limit. For example, if the restaurant owner is issued a $500,000 business line of credit and uses $350,000, the restaurant owner only needs to pay back the $350,000 and any added interest.

More importantly, because this financing option is revolving, the more money the restaurant pays back, the more money they have access to on their card. The money withdrawn and used from a business line of credit must be repaid monthly or annually. This lender usually sets the repayment term and offers a flexible loan repayment method. 


  • Interest only accumulates when you withdraw or borrow money from the business line of credit
  • You can choose to continue using the credit line as you repay, thereby ensuring you continue to have access to finances when necessary
  • It offers a great way to improve your credit score


  • Higher lending standards than some other lost options
  • Can not borrow a large amount.

5. Merchant Cash Advance

A merchant cash advance is an alternative finance option that is not a traditional loan. It is mostly used by small businesses that accept customer card payments. This is because the merchant cash advance involves collecting an upfront sum from a repaid lender using a percentage of your debit and credit card sales.

The collection of a merchant cash advance loan is done weekly through an automated process. The lender collects the money owed through a daily ACH (Automated Clearing House) deduction from a bank account. Essentially, you only repay the loan as cash (via a cashless system) flows into your business.


  • Builds credit score and history 
  • Suitable for restaurants with short trading histories
  • Competitive interest rates that vary with the lender
  • Fast approval


  • Accrued interests from day one
  • High-interest costs
  • Low regulation due to unconventional funding
  • Risk of a business debt trap.

What You Need To Apply For A Business Loan For Your Restaurant

When applying for a loan, you need to have some required documents. Your lender will review these documents to determine if you should get the loan or not. As a result, it is important to ensure every necessary document is in place.

Some things you need for the loan application process include:

  • Personal background and financial statement
  • Business profit and loss statement
  • Business projected financial statement 
  • Business ownership and affiliation documents
  • Personal and business loan application history
  • Business certificate or license
  • Income tax returns
  • Business overview
  • A personal resume (for every business partner)
  • A loan application letter.

Getting A Business Loan For Your Restaurant

Establishing a successful restaurant involves having access to enough finances to keep the business running. One great way to access capital when you need it is to take out a loan. At Coastal Kapital we are dedicated to solving your restaurant finance options by providing fast and easy financing options.

Whether you need working capital or funds to purchase equipment, we have the financing solutions you need. To apply for a loan, complete our online application form and begin the process with three easy steps!

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