Getting a Restaurant Business Loan

In order to secure a restaurant business loan, you will need to convince a lender there is a high likelihood you will be able to repay the debt on schedule. This can be done through the proper use of a business plan, equity structuring and credit information. Follow these simple steps to secure the best loan for your restaurant, and you will be rewarded with lower rates on your financing.

Step #1: Write a Business Plan

Restaurants are businesses, even though they are not traditional offices. Just because you are in the entertainment industry does not mean you do not have to apply sound financing and business sense to creating a business plan. Include the primary components used in any business plan to give your application the greatest chance of success. Those components include a business purpose, market research into the need for your new restaurant, cost projections and profit projections. Operating a restaurant is much harder than it looks. Include information on your expertise in this area in order to show the lender you can make a profit. Even if you have never owned a restaurant, display your general business and financial acumen. Consider hiring a consultant or staff member with restaurant experience if you don't have it yourself.

Step #2: Gather Equity

You will need to supply a down payment for your restaurant loan. Typically, this sum should be at least 10 percent of the total cost of your new business. Since restaurants are considered highly risky business models, a lender may ask for you to supply a much larger sum. In fact, 50 percent down payments are very common. If you cannot personally come up with this cash, you will need to bring on investors or partners who can.

Step #3: Prove Creditworthiness

You must be personally creditworthy to obtain any business loan. In addition, it is helpful if you have owned a business in the past that has an excellent credit rating. For example, if you have previously had success as a caterer and would now like to own your own restaurant, the healthy credit of your catering business can help build your credit worthiness in the eyes of the lender. If you do not have business credit, you may need to supply collateral on your new loan. Be wary of placing personal collateral on your loan. If your restaurant fails, it is important to retain your personal assets in any ensuing loan default.

Step #4: Manage Expectations

Perhaps the most important factor to consider when applying for a business loan is your expectations. Many new restaurant owners do not fully comprehend how long it may take for the business to generate consistent profits. Accepting a financing deal that requires high payments early on can substantially hinder the business's ability to grow, expand and prosper. Look for a contract that gives you the flexibility you need to get the restaurant developed and profiting prior to owing high payments back to the lender. Otherwise, you may never get out from your original mound of debt.