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Restaurant Startup Loans: What You Need to Know

Restaurant Startup Loans: What You Need to Know

Last updated on 9/03/2017

Few people can finance a restaurant out of pocket, but new restaurants are opening all the time, so where does that money come from? Some particularly gutsy restaurateurs sell everything they have and use personal funds to get their restaurant up and running. Others seek out business partners to invest. Often, it's a mixture of both. On the other hand, one source of funding that budding restaurateurs seem to neglect is startup loans. Convention holds that restaurant loans are too risky for banks and that new restaurants are doomed to fail. Therefore, restaurateurs often discount startup loans altogether! No one is saying it's easy to get a loan, but it certainly isn't impossible. Whether your dream is to open a cool neighborhood hangout, or a swanky black-tie-only restaurant, we've got the information you need to secure a loan and start turning that dream into reality!

Expenses to Consider:

Asking a bank to invest a large sum of money in you is daunting, so the more information you're armed with, the better off you'll be. Before you try to convince a lender to go forward with your proposal, be sure to have some numbers in mind. Any personal funds you invest, together with the loan you're applying for will need to cover the following costs:

  •  Loan guarantee fee – Percent of the loan amount guaranteed to be paid to the lender, in order to protect the lender, if the recipient is unable to fully repay the loan
  • Loan repayment plus interest – Money paid at a regular percent rate for the use of money lent; interest rates are typically negotiated between the lender and the loan recipient
  • Commercial lease – Cost per month to rent the space in which you plan to open your restaurant
  • Restaurant insurance – Coverage that protects your restaurant from losses that may occur during the normal course of business, including property damage, accidents and injuries, crime, and workers’ compensation
  • License fees – Specific licenses and fees will vary depending on your location, but common licenses include Food Service Establishment Permits, Liquor Licenses, and general business licenses
  • Staff wages and benefits – Mandatory wages for tipped employees differ throughout the United States (you can find a state-by-state breakdown of tipped employee wage requirements here). Non-tipped employees must be paid at least the state minimum wage, but their wages are ultimately at your discretion as the restaurant owner
  • Renovations – Your space may just need a new coat of paint or it may need to be completely outfitted with proper gas, water, and electrical lines. Do your homework to find out what is required of a restaurant in your area and properly budget those costs
  • Kitchen equipment – Make kitchen equipment one of the first items negotiated in your loan meeting to ensure the costs are covered, just in case you are not approved for the amount you originally planned. According to RestaurantOwner.com, the average cost to outfit a new commercial kitchen is $115,655
  • Beginning stock and inventory – It’s easy to get caught up in all the money talk and forget that to open a restaurant, you actually need food to serve your customers! In addition to food stock, you’ll need dishes, flatware, serving utensils, furniture and linens
  • Working capital – You must have some money put back to cover operating costs while your restaurant has more expenses than income. Working capital is the amount of money it takes to keep the restaurant running on a daily basis. Ideally, you will budget 6 – 12 months of operating costs to tide you over until the restaurant becomes profitable
  • Marketing capital – Much advertising for a new restaurant happens by word of mouth. If you choose, however, to fund a marketing campaign to get the word out, be sure to account for those costs in your total loan request

Where to Secure a Loan:

Most regional and national banks offer small business loan options. In fact, the majority of banks offer their small business loans through a partnership with the U.S. Small Business Administration, the government agency tasked with aiding, counseling, assisting, and protecting the interests of small businesses and business owners. When considering a loan to start a restaurant, the SBA is the first place you should look.

What Does the SBA Offer?

The SBA offers several funding programs for small businesses, but their Guaranteed Loan Programs are most pertinent to restaurants. Through these programs, the SBA sets guidelines for loans, which the SBA’s lending partners then give out. The SBA guarantees the repayment of loans, which eliminates risk for the lender and makes loans more attainable for small business owners.

General Small Business Loans: The 7(a) Loan

The SBA’s most common type of loan, 7(a) loans can be granted in a maximum amount of $350,000 and are repaid with monthly payments of principal and interest. Loans may be granted for real estate purchase and renovations, equipment purchase and maintenance, and working capital. Loans for real estate must be repaid in a maximum of 25 years; equipment loans in 10 years; and working capital loans in 7 years. According to the SBA, to qualify for a 7(a) loan, your restaurant must:

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

For more information on eligibility and qualifications, please visit the SBA 7(a) Loan Program Eligibility page.


Applying for a Loan:

When it’s time to apply for a startup loan, be sure to have a detailed business plan in place (this article focuses on bakeries, but provides an excellent introduction to the business plan process). Consider questions like what type of restaurant you plan to open, where you plan to open your restaurant, why it will be successful, and what your future goals are. Potential lenders won’t even consider someone who shows up unprepared, so put in your due diligence and cover all the bases to demonstrate to potential lenders that your restaurant is a worthwhile investment.

When applying for a loan, be sure to have the following:

  • SBA loan application – Located here
  • Personal background and financial statement – This includes a Statement of Personal History and a Personal Financial Statement
      • Profit and Loss Statement – Must be current within 90 days of your application and include supplementary schedules from the last three fiscal years
      • Projected Financial Statements – A detailed, one-year projection of income and finances, along with a written explanation of how you plan to achieve that projection
  • Ownership and affiliation documents – A list of names and addresses of any companies you own, partially own, or hold a controlling interest in, including any affiliations you may have with stock ownership, franchises, or business mergers
  • Business certificate/license – Must be your original certificate or license for doing business
  • Loan application history – Record of any past loans you have applied for
  • Income tax returns – Be sure to include signed personal and business federal income tax returns for the previous 3 years
  • Resume – Include a personal resume for each business partner involved
  • Business overview / history - Brief outline of your restaurant and why you need an SBA loan


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