Restaurant Funding: The Essential Guide to Restaurant Loans

According to the National Restaurant Association, 7/10 restaurants are single-unit operations and more than 9/10 restaurants have fewer than 50 employees. Restaurants form a significant proportion of the nation’s small business landscape, with restaurant workers accounting 3.8% of the total US workforce and employment projected to reach 17.2M by 2030.

Restaurants are also one of the industries hardest hit by the COVID-19 pandemic—sales in 2021 were down $65B from 2019, and total employment also dropped by 1M employees compared to pre-pandemic levels.

Many restaurants, especially independent operators, are struggling to protect their margins as food costs rise, wages increase, and federal support wanes. Unprecedented labor and supply chain pressures will drive significant changes in the restaurant industry in 2022, pushing operators to cut costs by changing menus and investing in labor-saving technology to free up cash for rising food costs and wages.

Restaurant funding can help bridge gaps in cash flow and provide the financing you need to invest in new technology and innovation that will help reduce costs, increase efficiency, and improve profit margins.

Multiple types of funding are available to help restaurant operators overcome challenges and continue to grow. Long- and short-term funding is available, as well as secured and unsecured loans, including:

1. SBA restaurant loans
2. Bank loans for restaurants
3. Alternative funding
4. Lines of credit
5. Equipment financing
6. Restaurant revitalization funding program

Let’s take a closer look at these options:

The Small Business Administration (SBA) doesn’t directly provide restaurant loans—instead, funding is approved and disbursed by partnering commercial lenders like banks or credit unions, and is guaranteed up to 85% by the SBA. This reduces the risk to the lender and, in theory, encourages them to grant more loans.

Because the risk is lower, SBA restaurant loans will have the lowest rates and longest terms. However, the application process is also the most rigorous, with strict eligibility and extensive documentation requirements. Some estimates suggest that it can take up to 30 hours to compile all the information you need, and it can take weeks or months to get a decision with no guarantee of approval. Most applicants are rejected, especially if they have no collateral, a history of unstable cash flow, are seeking short-term funding, or are operating in a higher-risk industry.

SBA loans are typically term loans. Multiple types of SBA funding are available—here are two of the most popular:

• 7(a) Guaranteed Loans: 7(a) loans are the most popular SBA loan for restaurants. Funding up to $5M is available with the longest repayment terms and lowest rates. There are no restrictions on how funds are used, but collateral is often required. Express loans are available with a 36-hour turnaround and there are no collateral requirements for loans under $25,000.
• 504 Local Development Company Loans: 504 loans are long-term, fixed-rate loans that are often used to purchase real estate. This funding is provided by Commercial Development Companies through commercial lending institutions, and requires the borrowing business to use their financing to create or retain jobs, or to uphold other public policy goals such as rural development, revitalizing a business district, or supporting minority-owned businesses.

Restaurant owners may also be able to access the funding they need through commercial lenders like banks or credit unions.

Bank loans for restaurants are most often term loans that are repaid over a set period of time with fixed or variable interest rates. Collateral may also be required. Terms and rates are typically competitive, but may not be as low as the SBA since the loan is not guaranteed, and will depend on the size of the loan and your credit history.

Lending requirements are often strict but may not be quite as strict as the SBA, especially if you have an existing relationship with your lender. Because banks tend to prefer granting loans for larger amounts or loans to large businesses with collateral, restaurants and other higher-risk industries with unstable cash flow and low margins may find it tough to get the funding they need from these sources. Similar to the SBA, applications can take weeks or months to approve, and most applicants are rejected.

Alternative funding from direct online lenders like Greenbox Capital® emerged from the 2008 recession in response to a greater need for accessible small business funding. With flexible approval requirements that place less emphasis on your credit score, fewer documentation requirements, and faster turnaround—sometimes in as little as one business day—loans from these lenders are typically easier to acquire than bank or SBA loans. Collateral is typically not required and these lenders are also more likely to approve younger businesses, though some will not lend to businesses in operation for less than 6 months.

Because approval requirements are more flexible, rates may be higher than other types of restaurant loans. Repayment terms are often daily or weekly, depending on the type of alternative funding you receive.

Multiple types of funding are available from these lenders, including lines of credit and real estate collateral loans, as well as non-loan forms of financing like merchant cash advances and invoice factoring:

• Merchant cash advances, also known as a purchase of future receivables, provide a cash advance in exchange for a percentage of your daily or weekly credit and debit card sales. Payments are automatically deducted based on your daily sales, so days with higher sales will have higher payments and days with fewer sales will have lower payments. MCAs are ideal for businesses that process a lot of card transactions, such as restaurants. Learn more about merchant cash advances.
• Invoice factoring, also known as accounts receivable financing, helps businesses leverage their unpaid invoices in exchange for working capital. Essentially, a business will sell their outstanding invoices to a lender, called a factor, in exchange for an advance of working capital. The lender will provide up to 90% of the invoice’s value up front and pay out the remainder (minus any fees) when the invoice is paid. Invoice factoring is ideal for businesses that have long accounts receivable periods or large invoice values. Learn more about invoice factoring.

Alternative lenders may also have special funding programs for underserved communities, such as women- or minority-owned businesses.

Lines of credit function similarly to business credit cards, but with longer terms and lower rates. These are one of the most flexible forms of restaurant funding, allowing restaurant owners to draw and repay from the line at any time.

There are no restrictions on how the funds can be used, and you’ll only ever pay interest on the amount borrowed. This makes lines of credit ideal for covering unexpected expenses, financing occasional large purchases of inventory or equipment, or managing other major expenses that don’t require a larger loan but can still strain your cash flow.

Equipment financing is designed specifically to finance the purchase of new equipment, such as industrial appliances, kitchen or dining room fixtures, new computers, point of sale systems, automation technology, delivery vehicles, and other special equipment.

Lenders will typically cover 80-100% of the cost of the new equipment and the equipment will serve as collateral to secure the loan, which may result in lower rates. These loans are often repaid in monthly installments, with a term length that corresponds to the length of time your lender expects the equipment will last.

The Restaurant Revitalization Funding Program is an SBA funding program that was made available to eligible restaurants, bars, and other food services businesses during the COVID-19 pandemic. Applications are now closed and this SBA funding program is no longer available, but restaurants who received funding are still able to use their funds for specific purposes.

The Restaurant Revitalization Funding Program provided restaurants with funding equal to their pandemic-related revenue loss, up to $10M per business and no more than $5M per physical location. Recipients are not required to repay their funding as long as the funds are used for eligible expenses no later than March 11, 2023. Eligible expenses include:

• Business payroll
• Business mortgage obligations
• Rent payments
• Debt payments
• Utility payments
• Maintenance
• Construction of outdoor seating
• Business supplies
• Food and beverage expenses
• Covered supplier costs
• Business operating expenses

While applications were open, the Restaurant Revitalization Funding Program had extensive documentation requirements on par with other SBA funding programs. Priority was given to businesses that were more than 51% owned by veterans, women, or socially and economically disadvantaged groups.

The best restaurant loan depends on your goals. Your funding, including the amount you borrow and your repayment terms, should always be used to serve a specific purpose that aligns with your business goals, such as expanding to a new location, hiring new staff, or changing your menu to meet new consumer demands.

For short-term funding, non-loan forms of financing like merchant cash advances can provide a fast infusion of working capital. This type of funding can be used to hire staff, purchase inventory or technology, fill in cash flow gaps, or market your restaurant.

For long-term funding, SBA and bank loans are the best option. SBA restaurant loans offer the best rates but are the most difficult to acquire, while bank loans will offer similarly competitive rates and terms and may be easier to acquire if you already have an existing relationship with a lender. However, both SBA and bank loans can be tough for restaurants to acquire due to perceived risk, low margins, and industry volatility. Some alternative lenders also offer long-term funding options with easier approval requirements, such as small business loans and collateral business loans, but rates may be higher.

For fast funding, alternative lenders are always your best bet. These lenders can approve and deposit funds in as little as 24 hours, while the SBA and banks can take months to assess an application with no guarantee of approval.

As the restaurant landscape shifts due to supply chain challenges, staffing shortages, and changing consumer expectations, restaurateurs will face a number of opportunities to grow, such as:

• Automation: Half of restaurant operators plan to adopt automation tech in the next 2-3 years, including automating simple back-of-house tasks like dishwashing and preparation of easy foods, voice-activated AI at drive-throughs, and self-service ordering kiosks for quick-service restaurants. Sixty-two percent of restaurant owners also believe automating inventory management will help streamline online, dine-in, and delivery orders, but only 36% of these respondents have upgraded business technology in the last year. Restaurant funding can provide the working capital you need to invest in automation technology that will help reduce reliance on employees, minimize costs, and maximize efficiency.
• Technology: Use of apps, third-party ordering, and direct online ordering surged during the pandemic and is unlikely to wane in 2022. Restaurants with strong integration between back-of-house operations and front-end technology like app ordering systems will be in the best position to navigate these changes. Restaurant loans can help you upgrade point of sale systems, reporting software, inventory management, and other technology so you can streamline operations and strengthen integration between your front- and back-of-house operations.
• Changing demand: 78% of millennials say they’d rather spend money on an experience such as dining in a restaurant versus purchasing an item. On the other hand, 41% of consumers say they’d buy a make-at-home meal kit from their favorite restaurant if it were offered. Restaurant loans can help you navigate these changing preferences, whether that means providing an exceptional dining room experience or adding new products to your offering to help meet changing consumer demands.
• Online presence: 90% of guests look at a restaurant online before dining. Seventy-nine percent of customers trust online reviews as much as they trust personal recommendations, and a one-star increase on Yelp can boost profits by up to 9%. Monitoring reviews on sites like Yelp, Facebook, and Google can make a big difference to the success of your restaurant, but requires time and effort that you may not be able to accommodate without hiring more staff. Restaurant funding can give you the capital you need to hire staff and free up time for your managers to respond to reviews and maintain a strong presence that will reflect positively on your restaurant and help drive more traffic to your website.
• Hiring staff: Restaurant loans can provide the financing you need to take on more staff, which will free up more time for you to focus on higher-level management concerns. Seventeen percent of restaurant professionals admit they don’t regularly check sales, labor, and menu reports. Reviewing these reports regularly can unearth opportunities to cut costs, such as removing underperforming menu items and streamlining supply chain to improve your profitability.
• Delivery: Seventy-two percent of limited-service restaurants added enhanced delivery and online ordering in 2022, and 27% of people who use food delivery services are willing to pay extra for fast delivery. Margins on third-party delivery using apps like UberEats are low and can seriously cut into your bottom line. Restaurant owners can use their funding to innovate their delivery model by creating online ordering options and reducing their reliance on third-party partners.
• Online ordering: Offering online ordering directly through your website can help you avoid surcharges and fees offered by other meal delivery services like UberEats. Other virtual services such as making online reservations can also be beneficial, but these features may require assistance from an experienced web developer and an investment of capital in order to implement. Restaurant loans can provide the funding you need to meet your customers’ needs online so you can capture more share of stomach and increase your revenue.
• Healthy menus: Sixty-one percent of diners say they are more likely to eat healthy at a restaurant now compared to 2 years ago. Other trends like zero-waste cooking and local sourcing are also increasing in popularity, but can pose challenges for restaurants who are looking to adapt but may not have the working capital to do so. Restaurant funding can provide the working capital you need to adjust your menus to offer healthy options, reduce waste, and prioritize local sourcing in order to meet these changing demands.
• Plant-based options: The increased adoption of plant-based diets presents a promising opportunity for restaurants, especially as supply chain pressures increase and the cost of animal-based proteins rises. Plant-based menu items can reduce costs for restaurants and smooth out supply chain issues when other proteins are not available. Restaurant loans can provide the funding you need to adjust your menu to meet these demands.
• Expansion: Food halls are growing in popularity and many developers that started planning projects pre-COVID have been left with large spaces to fill, presenting small restaurants with an opportunity to expand while commercial real estate prices are low. Restaurant funding can be used to expand to a new location, create a satellite location at a food hall, or adopt a “ghost kitchen” model that can help you reach more people with lower overhead costs.

Restaurant loans can also help restaurant owners overcome the unique challenges of their field, including:

• COVID-19: With some diners slow to return to indoor dining, restaurants are still dealing with cash flow challenges after two years of lockdowns and restrictions. Staff shortages are also common as more employees are out sick or caring for loved ones who are ill. Restaurant funding can help you shore up your cash flow, or even hire new staff so that you’re better prepared to manage unexpected staffing changes.
• Staffing and employee turnover: Fifty-one percent of restaurant owners list staffing as a top challenge, and 35% say training is a top challenge. It can cost over $2,000 to hire and train a new employee, and up to $15,000 to hire and train a new manager. Experts believe the best way for restaurants to move forward is to attract and retain talent from a young age and provide opportunities to advance and grow from entry-level positions. Restaurant loans can help you implement these training and mentorship programs, or give you the working capital you need to attract the best talent and train new employees, including managers.
• Supply chain: Staffing shortages abound in agriculture, food production, and transportation, creating ripple effects through the entire supply chain. Supply chain issues are also impacting non-food goods like takeaway containers and other disposables, leading to increased prices that can strain already challenged profit margins. These issues are pushing restaurants to change their menus—8/10 restaurants offering table service have had to shorten their menus due to supply chain issues. Restaurant funding can provide the working capital you need to navigate these changes without putting further strain on your cash flow.
• Food costs: According to the National Restaurant Association, wholesale food costs were up 2.9% in 2021. Fifty-two percent of restaurant professionals named high operating costs and food costs as a top challenge, especially for meat, poultry, and fish. These costs have led to shorter menus—total restaurant menu items had fallen 10% from pre-pandemic highs by the end of Q3 2021—in an effort to reduce labor costs and waste. Restaurant loans can help shore up cash flow so you obtain the supplies you need to maintain your current menu or make adjustments to reduce costs.
• Rising cost of wages: Forty-seven percent of restaurant owners admit they have scheduled employees fewer hours each week due to minimum wage increases, and 16% say they’ve had to stop hiring to reduce labor costs. Low labor force participation rates coupled with high quit rates suggests that restaurant owners will have to increase wages to attract talent and improve employee satisfaction, but it can be difficult to do so when cash flow is already strained and margins are tight. Restaurant loans can provide the funding you need to increase wages and offer competitive hiring packages to attract new talent.
• Equipment: 47% of restaurateurs would replace or update equipment if they had money on hand. Equipment such as industrial ovens, fridges, coolers, ranges, and smaller machines like espresso machines and stand mixers can all streamline operations or open up new revenue streams, but require an investment of capital that may be difficult to make when cash flow is strained. Purchasing new equipment is a common use for restaurant funding.

Restaurants are considered to be a higher risk industry, which means applicants will have more hurdles to overcome when applying for funding, especially from traditional lenders like the SBA or a bank.

Make sure you have a firm understanding of your restaurant’s background and financials before you apply, including:

• Your operating history
• Revenue and profitability
• Personal and business credit scores
• Collateral

You should also prepare your financial statements and documentation in advance in order to reduce any wait times. Compile the following documentation before you apply:

• Bank statements
• Profit and loss statements
• Personal and business tax returns
• Cash flow forecasts

You may also need to provide a business plan or purpose statement. Traditional lenders will require a detailed plan outlining how you plan to use your funding, as well as how you plan to repay it. Alternative lenders may also require a purpose statement. It’s best to have this information prepared ahead of time in order to reduce any delays in receiving your funding.

Check out our small business loan documentation checklist for a comprehensive list of required paperwork.

As an alternative lender, Greenbox Capital® can approve more restaurant loans than traditional lenders. We can also approve loans for restaurants faster, with funds deposited in as little as 24 hours. We offer several types of restaurant funding to help grow your business, including merchant cash advances, invoice factoring, lines of credit, and more, with funding from as low as $3,000 up to $500,000.

Greenbox Capital funds all restaurant specialties. Our expert Funding Advisors will work closely with you to determine which funding option will help you achieve your goals without compromising your business’s cash flow.