restaurant finance options
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One of the most common small businesses in America is restaurants. Restaurants, whether family-owned or franchise-owned, represent the core of what it means to run a small business. Small business owners connect with their communities and customers by establishing great relationships through serving great food. Running a small business restaurant is by no means easy, but it is a fulfilling process that can be rewarding and profitable when done right.

Restaurant owners face a variety of challenges. From keeping the doors open to hiring and retaining employees and from consistently serving good food to maintaining relationships, the restaurant business can be quite difficult. Finding the right balance is key, and maintaining a restaurant’s financial health is also important.

You might be interested in buying or building your own restaurant. You may be looking for kitchen equipment. Alternatively, you may be interested in better management of your working capital. Or, your restaurant or prospective restaurant may have inventory needs that require financing. In all cases, you might be interested in the most efficient ways to deploy capital to get your restaurant to the highest level of success.

Whether you are starting your own restaurant or looking for ways to get funding for your existing restaurant, you might be interested in restaurant financing options. You have come to the right place! In this post, we will review all of the information you need to know about restaurant financing, its importance, the distinctions within it, the financing options available to you, and how to choose between them. We’ll cover the following topics in detail in this article:

What is Restaurant Financing?

Restaurant financing is the use of financing to support the ongoing expenses or startup costs of your restaurant. You might raise equity or take on debt to support your restaurant financing efforts. If you need to purchase real estate for building your restaurant, remodel your current restaurant or location, buy inventory or equipment for your restaurant, or deal with damage, expenses, or other affairs, you might consider restaurant financing.

Restaurant financing provides a way for small business owners to make things happen for their small businesses that they otherwise would not be able to do. Some of the expenses associated with running a restaurant are simply too high for a restaurant to be able to manage its cash flows. Taking on debt allows a restaurant to pay overtime for expenses as opposed to having to pay upfront. This can allow businesses to survive and thrive, whereas, with the absence of debt, this would be much more difficult.

Moreover, some restaurant owners want to take cash flow out of the business and use the cash that they are earning. Managing cash flows more efficiently can be difficult in the event of an unexpected expense. However, a restaurant owner might be able to make more money by taking some of the money out of the restaurant and having a line of credit instead for unexpected expenses. In doing so, the restaurant will still be able to operate profitably, and a restaurant owner can ensure that they can take out the amount of money in profits that they want.

Restaurant financing encompasses equity raises, but it also includes many popular debt options such as SBA loans, term loans, lines of credit, equipment financing, credit cards, merchant cash advances, and crowdfunding. Each type of debt option comes with unique upsides and downsides, and each should be considered in the context of your new restaurant or currently operating restaurant to achieve the best results.

Why is Restaurant Financing Important?

Restaurant financing is an important option for your small business because it can allow your business to grow at rates it otherwise would not. You might be interested in expanding your restaurant or acquiring a second location. While this might be possible with debt, it may not be possible to do in the short or medium term by simply funding its opening through your cash flow.

At the same time, you might have some expenses that your restaurant cash flow cannot support. You might have sold through a lot of inventory unexpectedly and need to order more on short notice. Since funds might not have settled from credit card transactions, you might be short on some of the cash that you need to fund the inventory purchases. As a result, you might need to turn to some sort of business financing on short notice.

In all, whether you are seeking to grow your business or keep your business in operation, restaurant financing can be a vital tool. Even if you do not need restaurant financing immediately, understanding your options can help you understand how you might be able to increase your small business’s profitability as a business owner.

Equity versus Debt Restaurant Financing

Before we get into the nuances of different debt financing options for your restaurant, it might be beneficial to provide you with a wide overview of the funding options available to your restaurant business.

When raising funds for your restaurant, you can choose to raise between equity or debt. Equity works by allowing you to sell a stake of the company’s ownership in exchange for funds. These funds can help by being used for remodeling, construction, expansion, or more. However, this sale of equity is permanent and cannot be undone. Moreover, it will likely be difficult for you to find someone willing to purchase equity in your restaurant. Raising via equity can also reduce the upside available to you as an entrepreneur.

However, a more traditional type of funding available to your restaurant is known as debt financing. Debt financing is widespread in the restaurant industry, which is set up and meant to help restauranteurs take care of their necessary expenses. Debt financing allows restaurant owners to retain the equity in their business while simply needing to pay interest on their loans. There are various types of loans and types of financing available to restaurant businesses to allow restaurants to have the flexibility to choose the right debt for the funding purpose that they need.

Whether your restaurant is part of a new business or an ongoing restaurant business, there are a variety of loan options that can be right for you. These options include different loan amounts, eligibility criteria, application processes, and providers. Your business may be able to benefit from lower interest rates based on the purpose of your loan. In all, as a restauranteur, you can be confident that you will have enough restaurant financing options to enact your business plan goals for your restaurant or keep it operating in the event of an unexpected expense.

Understanding Restaurant Financing Options and How to Select Them

A necessary prerequisite to reviewing restaurant financing options is understanding how to select the restaurant financing option which is best for your restaurant.

The first question that you should answer is the purpose of the financing that you are looking for. If you are looking to acquire commercial real estate, you are likely going to need an established business and certain types of lenders. You may be interested in equipment, like ovens, which likely require a type of restaurant equipment loan to get the lowest interest rate and best repayment terms. Restaurateurs may also be interested in restaurant loans that provide special rates on construction projects with small business loans that they could not acquire elsewhere. In any case, envisioning the purpose of your loan is important to help distinguish the type of loan that your restaurant needs.

Second, you should think about the stage and circumstances of your business. Having a new restaurant business will limit some of the funding options that you can seek. However, there are some options, especially from alternative lenders, that might be able to help you. If your restaurant business is ongoing, you will have a lot of restaurant financing resources available to you as a borrower. However, some loans, such as those from the Small Business Administration, may only be made available to your restaurant if your restaurant is not able to find traditional forms of financing. As you read through the financing options available to your restaurant, consider which you may be eligible and qualify for.

In all, understanding your restaurant business situation will help determine the restaurant financing options available to you. When reviewing your options, keep this in mind to save you some time and energy.

Restaurant Financing Options

As a precursor to choosing between restaurant financing options, it is important to review the restaurant financing options open to you and your restaurant. These include a variety of formal and informal financing options from different types of formal and less formal lenders.

SBA Loans

If you are a small business owner and looking for a great, affordable restaurant financing option, an SBA loan might be for you. The United States Small Business Administration’s (SBA) purpose is to help entrepreneurs succeed in their small business goals. The SBA recognizes that small businesses face unique financing challenges when compared to those of corporations. As a result, they have started affordable loan programs with good protections and reasonable interest rates for small business owners.

One of the most famous examples of loan programs that the SBA offers is known as the SBA 7(a) loan program. The loan program provides businesses like your restaurant with cheap loans for a variety of purposes. They include working capital needs, acquiring real estate, purchasing inventory, or buying equipment for your restaurant. The loans stem from maximum loan amounts of up to $5 million, which can provide your restaurant with a great deal of flexibility. In certain cases, this can be even better than commercial real estate loans.

An SBA 7(a) loan might be a great option for your business due to the incredibly low-interest rates. The SBA also prohibits SBA 7(a) loan lenders from charging for prepayment, which means that your restaurant can get out of debt quickly and affordably once you start turning profits.

While the SBA does not loan to restaurant owners themselves, they do help direct prospective applicants to lenders who do. Part of the reason that the SBA can make the repayment terms and interest rate so favorable to restaurant owners is that they guarantee a portion of the loan for lenders. As a result, this less-risky loan is often a great option for a whole host of restaurant expenses. However, it is important to note that the 7(a) loan program requires you to have sought out other financing options first.

If you are interested in an SBA loan for your restaurant financing needs, you can find more information about the eligibility and application process on the SBA’s website. Moreover, the SBA can help direct you to lenders who can review your loan application.

Term Loans

A term loan is another kind of restaurant financing option available to your restaurant, which is essentially a bank loan. This alternative financing option can help your restaurant fund a multitude of needs by providing you with a large sum of cash. Term loans usually have a fixed interest rate. Term loans are best used for your restaurant when you have a short-term investment that needs to be made. Examples of this include repairing water damage to a restroom in your restaurant or buying a lot of inventory. Since these are temporary expenses, a term loan might be a good idea for your restaurant to finance these purchases.

Term loans can be granted by both banks as well as online lenders. Banks have a reputation for usually offering lower interest rates to restaurant owners, but the process for applying for them can be long, grueling, and may even lead to being rejected. The due diligence process of bank lenders is harder, as they will likely analyze your bank account statements, financial statements, business plan, personal and business credit score, credit history, and more. The application will take a bit of time to process, and it may lead to a rejection, depending on the restaurant and funding purpose.

However, alternative lenders (like Biz2Credit!) may be able to help your restaurant get the funding you need and get it faster! The application process for alternative lenders is typically shorter, with less hassle and due diligence. You might be able to get a loan for your restaurant even if you have bad credit. You should know though that alternative lenders are likely to have slightly higher interest rates than a traditional bank due to the increased risk the lender is taking on with a quicker and less-intrusive approval process.

Lines of Credit

While SBA loans and term loans can provide your restaurant with good financing options for larger purchases, you might be looking for a restaurant financing option that you can have on hand and provide you capital on short notice. In this case, a business line of credit might be what you are looking for.

Your restaurant might be experiencing seasonal business. In this case, profits will be higher at certain times of the year, whereas other times of the year threaten your margins and profitability. You might even need a funding source during those times of less business to fall back on. Moreover, you might occasionally experience the need to buy more inventory or deal with larger expenses on short notice, and you may not have enough cash in your restaurant accounts to be able to handle the expenses.

As a result, you might need a sort of ongoing loan that you can draw down on for your restaurant. A line of credit works very well in this case. A line of credit is similar to a credit card. A lender will offer you the maximum amount that your restaurant can borrow over a period of time. As you need the money, you can draw down on the line of credit to use for your expenses. You pay interest on the money that you borrow. Usually, lines of credit are revolving, which means that you can borrow again on the money that you pay back. Lines of credit usually have variable rates.

Lines of credit originate from both banks and alternative lenders. The pros and cons of each lender depend on your restaurant’s situation, history, and preferences. However, if you need a longer-term solution for better working capital and cash flow management, a line of credit might be the right restaurant financing option for you.

Equipment Financing

Equipment financing is an especially relevant form of financing available to your restaurant business. If you are considering building your own restaurant, doing renovations, or purchasing new equipment, you might be interested in restaurant equipment financing options.

The good news is that there are a lot of cheap debt options available to restaurants that want to purchase equipment. The monthly payments are much more affordable due to the lower interest. The lower interest comes from the fact that the collateral on the loan is the equipment. Since equipment for restaurants retains a lot of its value in the event of a borrower defaulting, there is less risk and downside for lenders.

So, if your restaurant is looking to finance POS systems or grills, you might want to consider the equipment financing options available to you.

Within equipment financing for restaurants, there are also several options to lease your equipment purchases. Leasing can help allow your restaurant to get access to the newest equipment and take part of the risk of quickly-depreciating equipment away from your restaurant’s financial position.

The first option in equipment leasing is known as lease financing. Lease financing works by allowing a person who is leasing to pay lease payments each month for a certain period of time. When the lease ends, the restaurant can decide whether to continue the lease, return the piece of equipment, or outright purchase the equipment. As a whole, this can reduce the upfront risk and hassle of buying equipment on a loan.

Other options include capital leasing and operating leasing. Similar to a loan, capital leasing ends with the person who is leasing owning the equipment. This leasing option is ideal for your business if you know that you want to hold onto the equipment that you use. Aside from capital leasing, operating leases work where a person who is leasing leases a piece of equipment and definitively returns the equipment when the lease is up. This choice is best when a piece of equipment depreciates quickly and can be a hassle to hold on to.

Merchant Cash Advances

If you have an ongoing restaurant business with a history of credit card sales, a merchant cash advance is a type of funding that may be available to your restaurant. A merchant cash advance is a type of funding agreement where a provider will give you an upfront amount of cash in exchange for an agreement to pay them back with a factor fee, which is like an interest rate over time. The cash advance is paid back via a holdback on your daily credit card transactions.

Essentially, a percentage of your credit card transactions will go straight to the merchant cash advance provider until the agreed-upon amount is recuperated. The amount of interest you pay in the factor fee and the repayment terms can be unfavorable in most long-term situations that most restaurant business loans would be good for. However, if you are already looking at short-term loans for your restaurant business and are having trouble qualifying for them or need an amount of funding on short notice, a merchant cash advance might work well. One advantage of a merchant cash advance is that you do not have to provide a personal guarantee in the form of collateral.

Credit Cards

While credit cards are not a good long-term financing option for your restaurant, they can be a great and valuable financial tool for your restaurant in the short to medium term. Credit cards allow your restaurant to buy the inventory, equipment, repairs, and remodeling expenses that you need without necessarily having to acquire a large loan. If you cannot pay the amount in full, credit cards have the option for you to pay over time.

However, this is usually not recommended because of the high APR of credit cards. Yet, if you need to be able to pay for something for your restaurant on short notice and do not have the upfront ability to do so, credit cards can be a useful tool. You should consider the use of your business credit cards when a situation may necessitate it.

Credit cards are issued by a variety of providers, from banks to companies with credit card rewards programs. One of the benefits of using a credit card is the rewards that you can accumulate in the form of cashback, travel benefits, or more.


If your restaurant is operating in the local community and you have great connections, crowdfunding may be an option for you. There are also online platforms like Kickstarter which can help you advertise your crowdfunding efforts for your restaurant online. Crowdfunding works by allowing people to chip in money in exchange for something, like certain free meals from your restaurant, equity, or something else.

While crowdfunding can be a way to engage the community while raising money for restaurant expenses such as expansion, a new location, or other related expenses, it may not be a perfect option. Crowdfunding assumes that you can provide something that people giving money will want to receive in return. Moreover, you will have to organize a crowdfunding campaign and spend a lot of time trying to push it out to the right people with no guarantee of success.

While crowdfunding is an option to get financing for your restaurant needs, you might be better off selecting a different type of financing that can guarantee you the funding you need quickly.

How to Choose Between Your Restaurant Financing Options

Now that you have reviewed restaurant financing options for your restaurant, it is time to choose which financing option is best for your restaurant’s situation.

First, you need to choose what is best for your business goals by determining whether an equity or debt raise is better for your small business. You should consider whether you want to give up some of your company without having the obligations of debt or retain your equity while taking on debt.

Next, you should outline what the purpose of your restaurant seeking financing is. By understanding this purpose, you can narrow down the debt financing options for your restaurant business. Moreover, you should understand the stage of your business and the current financial conditions that it is in to further hone in on what kind of lenders and loans your restaurant will need to choose.

At last, with all this information together, you can consider your restaurant business information alongside the options of SBA loans, term loans, lines of credit, equipment financing and leasing, merchant cash advances, credit cards, and crowdfunding options. Among these, you can finally determine what is best for your restaurant financing needs.


At Biz2Credit, we recognize how difficult it is to run a successful and profitable small business and the amount of strain this puts on small business owners. To help them in their efforts, we work hard to provide them with the tools and resources they need to succeed. As part of this, we run our Biz2Credit Blog, where we post new content related to all things small business related each weekday. So, please continue to check back here for all our posts, where we cover the latest information pertaining to news, trends, and events impacting small business communities across the nation.

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