Managing a restaurant is both time consuming and expensive. Unfortunately, restaurant returns are mostly seasonal. You may need extra cash to fund an emergency repair work, or train your staff, buy food items for a new recipe, or buy a new equipment. Since the cash flow is not steady when you operate a restaurant business, you may get a business loan to bridge the cash flow gap.
Restaurants need funds for several purposes. Due to this, lenders have designed several loan packages to suit cater for the several demands of restaurants. Since there are several restaurant loan options available, you should choose the one that best suits your needs. The only way to effectively make a choice is to know the available loan options.
Small business loans are also good loan options for borrowers. Several traditional banks offer this loan in partnership with the Small Business Administration (SBA). The SBA secures the loans which makes it less risky for lenders. Due to the role of the SBA in this loan type, the rate is this loan is low. Borrowers with a credit score of 650 or more have better chances of accessing this loan. However, most lenders ask for collateral before approving this loan. Unfortunately, small business loans may take longer time to gain approval.
To apply for a small business loan, you will need to apply through a participating lender. You will need the following documents to apply for the loan. You should provide the original business license, past loan applications (personal and business loans), personal and business tax returns, your resume and that of your business partner(s) if any, a copy of your business lease, your personal information and that of partners involved in the business, and a copy of your business plan that also includes an explanation on why you need the business loan.
When you submit the application, you should expect feedback within the next 30 to 60 days. The SBA and the lender will use this period to review your application. If you qualify for the loan, they will contact you and disburse the loan soon after. There are three different SBA loan options but the most common option is the 7(a) loan. You can receive up to $350,000 when you apply for this loan. with the 7(a) loan option, you will make monthly repayments for s specified term. The monthly repayments will cover the interest rate and the principal. You can use this loan to purchase a huge equipment, renovate your work space, or working capital.
The business line of credit is also a good loan option especially for restaurateurs who are sure about the amount they will need for the project they intend to undertake. With the business line of credit, you will be approved for the maximum amount but you will only pay for the amount you used. Unlike the usual loan option, where the interest begins to accumulate the loan immediately after the loan is approved. With this loan, the interest will only start accumulating after you have withdrawn the funds. This loan type works like a credit card and it is revolving as well. As your balance reduces, your credit will increase. You can get more credit for future expenses. One downside of getting a business line of credit loan is that the lending standards are high.
To apply for a line of credit, you will need to prove your business credit to the lender. Some lenders also ask you to prove your personal credit as well. You will also need to present your business plan and your expected cash flow over the next three years. The lender will review your request and when you are approved, you can draw from your line of credit.
This loan option is great for borrowers who have high credit scores. This loan option offers the lowest interest rates. You should have collateral in order to apply for this loan. This is because most traditional lenders ask for collateral. Although you will enjoy lower rates when you apply for traditional commercial loans, the loan process takes time. The process can even take up to six months. You will need to prove your business credit to the lender. The bank will also ask for your business plan and the purpose of the loan. you can opt for a long term or short term loan depending on the loan amount. The lender will also like to see your expected cash flow in the coming years. You will be notified when you qualify.
This loan is designed to help restaurateur purchase a large equipment. For instance, if you want to transform your restaurant into a modern chic restaurant, you will need to change a lot of things in the restaurant. You will need to change furniture, table cloths, floor, kitchenware, serving ware, and interior design. If your restaurant keeps growing and you need to serve more dishes due to the increased patronage, you may need to buy a bigger stove or create a bigger kitchen space. You will need funds for all these. The restaurant equipment loan can help you to do these things without disrupting your daily cash flow.
When you decide to purchase an equipment with this loan, the loan will cover the purchase of the equipment. It will, however, not cater for delivery, or installation. You should set cash aside for these things. You can plan how to repay the loan since this loan type comes with a fixed rate.
This loan is used to fund projects or purchases related to the restaurant business. This loan can be used to remodel, restock, purchase equipment, and hire staff. The loan amount will determine the interest rate and the loan term. Generally, a large loan will have low interest rates and long repayment period.
Although lenders’ requirement may vary, these requirements cut across. Preparing them beforehand will make your application process faster and easier.
Since there are several loan options, it is prudent to do careful research to narrow your options. You can also compare rates. You should also include the amount, loan term, and the restaurant type in your decision making.
Joshua is a financial lawyer who plans on writing a book about his experience on debt collection laws and lending terms and conditions. He is currently one of the senior partners at his law firm but wants to take more time off for his writing.