The complete guide to restaurant financing

To understand restaurant financing we need to look at how money is sourced, how outside partners and banks contribute to the launch of your business, and the steps that you take to secure capital to extend or improve your restaurant. By amassing additional capital, restaurant owners become capable of developing a sustainable business and moving closer towards their long-term objectives. 

If you've attempted to explore the world of restaurant financing solutions, you know that there are many different alternatives for you to choose from. When making a choice, it’s important to consider the maximum sum that you can obtain, the difficulty of the application process, the timescale for funding, as well as term lengths for repayments. In this article we’ve put together a comprehensive list of all the financing options that you might be considering, as well as giving you advice to deal with the challenges you might encounter along the way! 

What’s the point of applying for financing?

The highly competitive market of the food service industry, along with other factors such as high employee turnover rates, high operating costs, and the vulnerabilities that food service businesses are exposed to during economically challenging times such as the COVID crisis, lead to high rates of failure for restaurants during their early stages. As many as 60% of restaurants fail within a year of opening!

This means that you should be trying to constantly reinvent your business and always stay ahead of the competition. This includes:

  • Opening new branches of your existing brand, or starting new parallel businesses as a fallback.

  • Increasing the capacity of your restaurant to accommodate more guests.

  • Investing in new furniture, equipment, uniforms, etc.

  • Refurbishing your location or undertaking much needed repairs that might pose a potential hazard to your customers. 

What are the main available financing options?

Now, let’s look at some of the most popular financing solutions, and we’ll explore some of the advantages and disadvantages that come with each.


With the rise of crow-funding platforms in the last 10 years, increasingly restaurants have turned online to find support for their projects. 

This might seem like a very attractive option to begin with, with many different platforms available to get you started, such as Kickstarter and Indiegogo. But in reality, crowd-funding has  become a very competitive marketplace, and if you don’t have a very unusual concept that might catch the eye of potential sponsors, it might be challenging to gather enough support. 

Often these initiatives gain traction through word of mouth on social media, which means they’re often most likely to succeed if your business needs urgent financing due to personal tragedy or force majeure, as people often connect with this kind of story on social media.

Independently sourced capital: friends, family and savings

This might have been the first place you turned to when you started exploring different financing solutions. Financial advisers often recommended using some of your own capital, but you have to make sure to set enough money aside as a fallback, in case you’re not able to pay yourself a salary from your business at some point in the future.

Likewise, getting money from close friends and relatives can be one of the most hassle-free solutions available to you, but it’s crucial for you to be as upfront and transparent with your close ones as possible. Make them aware of all the potential risks, and explain to them what measures you plan to take to make sure that your investment will prove successful. Taking the support from friends and family for granted can easily sour relationships, so try to always stay on the level with them.

SBA (Small Business Administration) loans

One of the most popular solutions for restaurants if you’re based in the US is to apply for a loan from the SBA. This government agency works with a large network of financial institutions to offer loans to small businesses, and while they have a good track record for their reliability and the terms that they offer, the application process can be relatively strict. 

According to the SBA’s website, to qualify for a loan, "Eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. [...] Even those with bad credit may qualify for startup funding.". So even if you have a bad credit history, if you’re able to put together a sound business plan, you might still have a chance.

Loans emitted by the SBA often require a large amount of collateral, and the application process can sometimes drag on for weeks and even months. If you don’t have an urgent deadline to complete your new business venture, SBA loans can be worthwhile for the reduced cost of borrowed capital that you’ll be able to access. 

Merchant cash advances

This option has also become increasingly popular in recent times, as many restaurant software companies seek to capitalize on their clients by offering loans repayable through future sales.

Instead of requiring a monthly payment to the lender, these systems automate the process through Automated Clearing House deductions taken directly from the customer’s sales.

One of the greatest disadvantages of these up-front loans is that they can carry extremely high rates of interest with them, with APRs ranging from 50% to 250%.

Credit union and bank loans

Another source of funding for a new restaurant is credit unions. They are one of a kind in terms of lending and they frequently charge interest on the outstanding balance of your loan. As a result, if you pay it off sooner, you can save money on interest.

When your business strategy and market research are thorough, this is a viable option if you expect to be profitable from the start.

Another alternative is to get a loan from a local bank. It helps if you have properties to use as collateral for your loan, and you can discuss different options with the bank, but banks are often wary of restaurants due to the high failure rates that we mentioned earlier. 

Evaluating your main options for financing

Once you’ve explored all of the different options available to you, you should compare by focusing on the following criteria

Which alternative offers the best terms?

The repayment term (if one exists for the funding option you choose) is the third factor to consider when comparing business financing options because it determines the size of your monthly payments. The repayment term refers to how long you'll have to pay back the money you've earned.

What are different rates of APR are available to you?

The annual percentage rate (APR) is a measure that views all interest, fees, and their timing on an equal footing. The annual percentage rate (APR) reflects the cost of borrowing money on a yearly basis. 

Although APR is useful for comparing financing options, it is not the be-all and end-all. Another consideration in determining the cost of a loan is the amount of money you'll have to pay back for the money you've received (inclusive of application costs, interest, late fees, origination fees, etc.,). The annual percentage rate (APR) does not always equal the total amount lent for the amount borrowed.

How easily you can obtain funds?

Consider how long it would take you to choose one restaurant financing choice over another.

will take until the funds are sufficient for the project you've envisioned. Ask your prospective lender (or other third-party funding provider) what details they need, their eligibility requirements, and when you can expect to hear back, but also consider whether you can wait for the capital for a longer-term build out, or whether you need to fix a broken oven right away.

Samuel Novoa
Content Marketing Specialist, focused on creating relevant content for the food service industry, dedicated to helping all types of business improve customer loyalty and develop their corporate image
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