The sizzle of the grill and the cadence of a busy kitchen fuel the excitement of running a restaurant, but restaurateurs are familiar with the pitfalls: broken equipment, customer gripes, employee turnover. The financial requirements, in particular, can be overwhelming, even for the savviest business owners.
That’s why running a restaurant often requires funding, whether from investors, business credit cards or small-business loans.
But not all business loans are created equal. Certain financing will be a better fit, depending on how you plan to use the funds. When doing your homework, check out the range of small-business loans that could work for your restaurant.
- Restaurant loans for everyday expenses
- Restaurant loans for inventory
- Restaurant loans for big investments
- Summary of options: Restaurant loans
Restaurant loans for everyday expenses
Having access to funds to help cover everyday expenses — be it payroll or broken equipment — is crucial to keeping your restaurant up and running.
If your personal credit is lacking, Kabbage is a good option because the lender does not require a minimum personal credit score; qualifications are linked to alternate data sources, such as bank accounts or payment systems. However, you’ll pay higher borrowing costs with Kabbage. If your credit score tops 600, StreetShares offers a lower APR range, starting at 9%. The peer-to-peer lender does cap its loan amount at 20% of your annual revenue.
Restaurant loans for inventory
Food costs are a top challenge for restaurants, and those costs are rising, according to the National Restaurant Association’s 2015 industry forecast. If you need cash to buy nonperishable ingredients or paper goods for your restaurant in bulk, Dealstruck offers an inventory line of credit to help you cover the cost. OnDeck is another solid option for a line of credit. Unlike Dealstruck, though, OnDeck’s line of credit can be used for both perishable and nonperishable items.
Both OnDeck and Dealstruck require a minimum 600 personal credit score, but OnDeck has looser qualifications; you only have to be in business nine months compared with Dealstruck’s 12, and your revenue needs to top $75,000 versus Dealstruck’s $150,000.
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Restaurant loans for big investments
You’ve established yourself and are going strong. Now you’re looking for financing to renovate, open a second location or invest in new equipment. SmartBiz and Funding Circle offer low-cost term loans to help you meet larger expenses. SmartBiz provides SBA loans through its online platform, connecting you with the lowest rates — 7% to 8% — among online alternative lenders. Funding Circle offers competitive APR for long-term growth capital, from 8% to 33%.
Both lenders require at least two years in business, but they differ in revenue and personal credit score requirements. To qualify for SmartBiz, you need at least a 600 personal credit score for smaller-size loans or at least 650 for loans over $150,000, $50,000 in annual revenue and strong cash flow. You also must meet the SBA’s stringent application requirements. In contrast, Funding Circle does not require a minimum annual revenue. The lender, however, has a higher credit score threshold at 620.
Summary of options: Restaurant loans
Want to compare more financing options?
NerdWallet has created a comparison tool of small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged the lenders by categories that include your revenue and how long you’ve been in business.Compare business loans
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
Updated Aug. 26, 2016.