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📅 Last Updated: June 21, 2023
✏️ Written By Chrissy Kapralos
🕵️ Fact-Checked by Caitlin Wood
Business Loans Restaurant

No matter what city you live in, being a restaurant owner can be a very successful business plan. After all, foodies and families alike are often on the lookout for a new and exciting place to eat. Nevertheless, running any restaurant takes a lot of dedication, manpower and of course, money to maintain a certain level of success. When you want your seats filled and your menu complimented, you need to give it everything you’ve got. And, as any good restaurant entrepreneur will tell you, getting your business to prosper is about more than just making good-tasting food.

Why Should You Finance Your Business Using a Loan?

When it comes to your restaurant, in order to maintain this level of success, a solid business loan might be in order. While it is often possible to use your own funds to keep your restaurant afloat, a little financial assistance can definitely go a long way.

Consider a Small Business Loan

Small business loans are funds offered by a lender to be paid back by the borrower in an agreed-upon length of time, with variable or fixed interest rates. There are a variety of lenders who offer small business loans, like banks, credit unions, and private lenders. They can be big or small amounts, depending on the type of business. Small business loans are an essential part of running any small business and can help owners build their business and achieve short-term and long-term goals.

How Small Business Loans Can Help Your Restaurant 

The cost of owning and operating a restaurant is very high. There are many expenses that one must consider before opening a restaurant, and there are also many expenses that may come as a surprise as one begins operations. With one of the smallest profit margins, a restaurant business can be hard to keep afloat. Here are some costs that restaurant owners must consider before opening up their business:

  • Slow months. Not all seasons will be busy, so restaurants must be prepared for lower-income or cash flow shortages in certain months of the year than others. 
  • Marketing. To advertise your business, you might want to consider advertising on billboards, online ads, or social media. All of these have associated costs.
  • Opening Costs. Startup costs for opening a restaurant can range between $50,000-$500,000, depending on how big the establishment is. 
  • Staff. Staff is a big expense for restaurant owners. Labour costs encompass more than just an hourly rate. You also have to consider applicable taxes, and benefits like health care and vacation time for full-time employees. 
  • Expansion. If you want to expand your business, whether it’s with a new location or additional business like catering, you need to be prepared to pay additional costs. 
  • New Equipment. Ovens, industrial fans, dishwashers, furniture, espresso machines, and more might be needed to operate a restaurant business. 
  • Inventory. Inventory for restaurants is trickier than for other businesses. With food as your inventory, you need to consider the possibility of losing money since food can go bad if it isn’t sold.

Business Financing For Any Industry

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Where Can You Get a Small Business Loan? 

Banks aren’t the only place to look for a small business loan. Here’s a list of some options, including banks, where a self-employed individual can look for a small business loan. 

Banks

Banks are a traditional place to look for a small business loan. You will often need a good credit score and collateral to obtain a small business loan. 

Credit Unions

Credit unions are very similar to banks but have smaller operations. Usually, you can get away with having a slightly lower credit score and still get a loan from a credit union; however, their interest rates tend to be a bit higher than traditional banks. 

Alternative or Private Lenders

Private lenders are great options for people who have bad credit scores, or for any other reason cannot access loans through a bank or credit union. Their processes are often much simpler than other financial institutions like banks and credit unions, but the interest rates tend to be the highest. 

AmountAPRTerm (months)
SharpShooter Funding1k-300kFee-Based: Starting at 9%12- 60 Learn more
OnDeck5k-300k8% – 29% 6-18Learn more
Lending Loop1k-500k+5.9%3-60Learn more
Thinking CapitalUp to 300k8%-22%6-12 Learn more
Merchant Growth5k-500k-6-18Learn more
BDC100K +6.05% +60Learn more
IOU Financial5K-100k15%+12-18Learn more

What Do You Need to Apply For a Small Business Loan?

There are a few criteria lenders look for before lending to a business owner. Usually, lenders want to see that your business has been running for at least 12 months, and have monthly sales of at least $10,000. Other criteria include:

Alternatives to Small Business Loans

If you cannot access a small business loan, there are other options. 

Merchant Cash Advance

This type of cash advance is borrowed against a restaurant’s future card sales. The restaurant pays a percentage of debit and credit sales to the lender until the amount borrowed is repaid. Merchant cash advances are desirable because a borrower does not need to provide collateral or a credit score, borrowers get the money faster than in other loan scenarios, and repayment volumes depend on sales activity, which can soften cash flow issues. It’s important to note, however, that merchant cash advances are expensive, with up to 200% in APRs. 

Business Line of Credit

A line of credit is a popular way for small businesses to borrow funds. With a line of credit, the borrower is provided with access to a set credit limit. The borrower can then withdraw from this line of credit, up until the limit, but doesn’t need to use the full amount. Since the interest is only charged on the amount of money used, borrowers can save on interest charges as they pay back the line of credit. Business lines of credit are desirable for restaurant owners because borrowers can use the money for anything they need, and they can align the amount of credit used with their current financial scenario and operational needs. 

Equipment Loan

Equipment loans are cash advances that a lender will provide a borrower in order to purchase a piece of equipment or asset that is needed for the restaurant. This cash advance cannot be used for anything else. If for whatever reason the borrower is unable to pay back the loan, the piece of equipment is used as collateral. Equipment loans are great because the interest rates tend to be lower, there are no liens on personal assets, and cash flows easier. 

Final Thoughts

If you are a Canadian looking to open up a restaurant or other kind of business, there are many small business loan options to help you get started. With careful planning and discipline, restaurants can thrive and become successful with the help of a small business loan.

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