By industry
Restaurant financing: what lenders think before you say a word
Restaurants are one of the hardest industries to finance and one of the best served by the SBA. Here is why, and what to lead with.
The reputation problem, and how to work with it
Restaurants carry a higher failure rate than most sectors, so many conventional lenders restrict the category outright. What survives that filter is SBA lending, equipment financing, and the fast-money market — which is why restaurant owners get so many merchant advance calls.
The good news is that SBA lenders finance restaurants routinely and well. A 7(a) is frequently the best available money for a restaurant, and 504 financing works when you own the building.
What restaurants finance, and with what
| Need | Best fit | Notes |
|---|---|---|
| Buying an existing restaurant | SBA 7(a) | 10% down, 10-year term. The dominant vehicle in this sector. |
| Build-out of a new location | SBA 7(a) | Leasehold improvements amortize over the lease term or 10 years |
| Kitchen equipment | Equipment financing | Fast, asset-secured, works with mediocre credit |
| Buying the building | SBA 504 | 25-year fixed. Transformational for a restaurant's economics |
| Seasonal working capital | Line of credit | Set it up in a strong quarter, not a weak one |
| Emergency repair | Equipment financing or a line | An advance should be the last option, not the first |
The numbers a lender will look at
- Prime cost — food plus labour as a percentage of sales. Under 65% is healthy; above 70% will be questioned hard.
- Occupancy cost — rent plus related charges as a percentage of sales. Above roughly 10% makes the model fragile and lenders know it.
- Lease term remaining. This is the one restaurant owners underweight. A lender will not write a ten-year loan against a lease with four years left. Renew or extend the lease before you apply — it can be the single thing that unlocks the deal.
- Sales trend, month by month. Twelve months of POS data, not an annual summary.
Franchise versus independent
A franchised restaurant on the SBA Franchise Directory with a strong Item 19 is substantially easier to finance than an independent concept, because the lender can point at hundreds of comparable units. An independent restaurant with three years of solid returns is also financeable. An independent startup concept with no history is the hardest file in this sector, and usually needs a large injection and personal collateral.
Questions people actually ask
Can I get a loan to open my first restaurant?
It is difficult but not impossible. Expect to contribute 20% to 30%, to need documented restaurant management experience, and to pledge personal collateral. A franchise with a track record is materially easier than an original concept. Buying an existing profitable restaurant is easier still, and often cheaper than building one.
Why do I get so many merchant cash advance calls?
Because restaurants have daily card revenue, which makes them ideal MCA customers, and because UCC filings and industry lists are sold as leads. The frequency of the calls is not a signal that it is a good product for you.
What credit score do I need for a restaurant loan?
680+ for SBA at most lenders. Equipment financing works from around 600. Below that you are into advances, and the daily debits are particularly dangerous against restaurant cash flow, which is seasonal and weather-dependent.