What you should know before you qualify for a restaurant startup loan

Running a restaurant, especially in the early stages, is no walk in the park. As a new business owner, you’re likely facing challenges that can seem overwhelming at times. Looking at restaurant startup loans is one option on your plate, as they can help turn a young restaurant business into a thriving endeavor.

“Starting a restaurant is exciting, but it comes with a fair number of costs. Anywhere from $100,000 to $2 million, to be exact, and for many, that means they need a loan for their restaurant startup.

“From keeping your kitchen stocked to covering payroll for effective marketing campaigns, these costs add up fast,” said Credibly Founder Ryan Rosett. “If you’re in the early stages of building your business, securing the right financing is a must.”

In this blog post, we will walk you through what you can use a restaurant loan for, how you can qualify, what to know before you apply, and what you can do if you don’t qualify for that funding just yet.

What could you use a loan for in your restaurant?

A restaurant loan can be a huge help, especially when you’re looking to get your new venture off the ground or prepare it for future growth. If you’re in the early stages of building your business, here are some ways you could put capital to work.

Handle seasonal fluctuations

Every restaurant faces busy and slow seasons. A loan can help you stay afloat during the quieter months by covering operational expenses. When business picks up, you can use the extra funds to stock up on inventory or bring on temporary staff to meet demand.

Launch a new location or service

Dreaming of a new location? A loan for a restaurant startup can provide the funds to open a second restaurant, whether it’s a temporary pop-up or a full-scale venue across town. If you’re thinking about adding catering services, financing can help you cover the upfront costs and get your business off the ground.

Revamp your current location

Your restaurant’s environment is just as important as the menu. Whether you’re planning a simple refresh with new paint or a full renovation like adding an outdoor seating area, a loan can cover the costs and give your space the upgrade it deserves.

Upgrade kitchen equipment

Your kitchen equipment is the backbone of your operation. When it’s time to replace outdated appliances or invest in new tech, financing can help you make those big purchases without draining your cash reserves.

How to start your journey toward a startup restaurant loan

When you’re in the early stages of getting your restaurant off the ground, securing financing can feel like a challenge. But there are steps you can take to set yourself up for success. Here’s what you need to know.

Get your finances in order.

Before you consider applying for financing, it’s important to get your finances in order. This means reviewing both your business and personal credit scores to understand how lenders might perceive your risk.

Organize your financial statements, including your cash flow and profit and loss statements. These documents are critical—they give lenders a clear picture of your business’s financial health and your ability to repay any funds you borrow.

Prepare your business plan.

If your restaurant is still new, your business plan is your blueprint for success. Take the time to review and update it, focusing on how you plan to become profitable. A solid business plan not only helps guide your business decisions but also strengthens your case when you’re ready to apply for financing.

Explore your financing options

When you’re ready to seek out funding, don’t just settle for the first offer you get. Shop around and compare different lenders.

Look for:

• Repayment terms: Consider how long you’ll have to repay the loan and whether the timeline aligns with your cash flow projections.
• Borrowing limits: Understand how much capital you can access and whether it’s enough to meet your needs.
• Collateral requirements: Some loans may require you to put up assets as collateral, which can add risk to your business.
• Personal guarantees: Be aware if you’re required to personally guarantee the loan, as this means your personal assets could be on the line if your business struggles to repay.
• Interest rates and fees: These directly impact the cost of your loan, so aim for the lowest rates and fees possible.

Options for startup restaurant funding

Looking for funding to open your restaurant? Here are some options that can help turn your vision into a reality. You need to map out exactly what you will use the funds for.

Restaurant investors

Partnering with a restaurant investor can give you more than just capital—they may also offer industry insights and valuable connections. Angel investors are a great choice for early-stage businesses, especially those looking for guidance along with financing.

To find investors, start by networking with industry peers.

Grants

While grants for restaurant startups are rare, they do exist. Organizations like the Small Business Administration (SBA) can connect you with opportunities. Grants are typically reserved for specific types of businesses, but with the right approach, they could provide non-repayable funds to help get you started.

Crowdfunding

If you’re aiming to raise smaller amounts of capital, crowdfunding through platforms like Kickstarter, GoFundMe, or Indiegogo can help. These platforms allow you to share your vision with a wider audience, often turning passionate backers into future customers.

Family and friends

Borrowing from family and friends can offer flexible terms and lower interest rates compared to traditional lenders. While this option comes with emotional stakes, it can be a solid way to secure funding if handled carefully. Plus, having your loved ones on board means you’ll also have a built-in support system to help you navigate the challenges of owning a business.

If you have more than 6 months in business these might be some options

First, learn about the types of financing available and requirements

Working capital loans

For those immediate needs, working capital loans (WCL) offer flexible terms ranging from 6 to 24 months. Funds can be approved in as few as 4 hours, making it a great option for managing cash flow, hiring staff, or launching marketing campaigns.

To qualify for a WCL with Credibly, you need to:

• Be doing business in the U.S.
• Be in business for 6+ months
• Have $15,000+ in monthly revenue**
• Have a credit score of 500+***

Equipment financing

Need to upgrade or purchase new equipment? Equipment financing provides an option specifically for machinery, vehicles, or office tech, with your new equipment serving as collateral. This option keeps your cash flow intact while ensuring your kitchen stays top-notch.

To qualify with Credibly, you need to:

• Be doing business in the U.S.
• Be in business for over a year
• Have $25,000 in monthly deposits***
• Have a credit score of 550+***

Source: Waste Advantage Magazine

Business line of credit

This is a flexible option that allows you to access funds as needed. Pay interest only on what you use, and once repaid, the credit line is available again. A line of credit is great for covering operational costs, managing inventory, or handling unexpected expenses.

With Credibly, you need to:

• Be doing business in the U.S.
• Be in business for 6+ months
• Have $20,000+ in monthly revenue**
• Have a credit score of 675+***

Merchant cash advance

Get fast access to capital with a merchant cash advance. This flexible option provides you your business an advance by leveraging future credit or debit card sales, with remittances made automatically on a daily or weekly basis.

Perfect for covering immediate needs like equipment purchases, payroll, or short-term projects, a merchant cash advance provides the quick, hassle-free funding that your business needs to keep growing. With flexible terms and minimal eligibility requirements, it’s the ideal solution for businesses looking to optimize cash flow without the wait.

For an MCA with Credibly, you need to:

• Be doing business in the U.S.
• Be in business for 6+ months
• Have $15,000+ in monthly revenue**
• Have a credit score of 500+***

Second, have a clear plan for your funds

Your restaurant can be one of those that succeeds in the long-term, and even be among the 44% that’s planning on opening multiple new locations. This starts with building on a strong business plan. Beyond that, lenders want to know exactly how much you need and how you intend to use it.

Start by outlining your total funding requirements, breaking down each component—whether it’s for purchasing equipment, covering payroll, or handling initial operating expenses. Be specific about the amount you’re requesting and the purpose behind each dollar.

Take the time to explore your options, qualify for the best terms, and map out a strategy that aligns with your business vision.

What can you do if you don’t qualify for that new restaurant business loan?

If you don’t qualify, this can actually be a positive: You’ll get a better sense of where you need to improve your business operations and cash flow before reapplying.

Understand why you were denied

Start by finding out why your loan application was rejected. Look for specific reasons in the denial notice, and if necessary, contact the lender for further details. Understanding the cause will help address any issues and improve your chances for future applications.

Explore other options

If collateral was a sticking point, consider unsecured loans or financing options that don’t require assets as security. Merchant cash advances, invoice financing, or purchase order financing are potential alternatives that rely on your future income rather than collateral.

Review your debt

Your current debt levels could be affecting your loan eligibility. Too much debt can signal overextension, while too little might show a lack of credit history. Work on balancing your debt utilization to improve your financial profile before reapplying.

Improve cash flow

Lenders closely examine your cash flow to determine if you can manage loan repayments. Focus on improving your cash flow by tightening financial controls, cutting unnecessary expenses, and improving revenue streams.

Now that you’ve identified potential barriers and explored alternative strategies, it’s time to shift your focus toward turning your restaurant dreams into reality. Securing the right financing can help you overcome challenges and position your business for long-term success. This is where financing experts can help.