How to Get a Business Loan For a Restaurant
Securing loans for restaurant businesses can pose a challenge due to the perceived volatility of the industry by lenders. Nevertheless, there are numerous lending institutions that provide loans supported by the Small Business Administration (SBA). These loans are specifically designed to assist in purchasing an established restaurant, opening a new location, or acquiring working capital.
With competitive interest rates ranging from 5% to 8% and generous repayment periods of up to 25 years, SBA loans offer a viable financing option. In this article, we will outline the five essential steps required to obtain an SBA restaurant loan, along with potential alternatives for those who may not meet the qualifying criteria.
Assess Your Eligibility
In order to secure funding through an SBA loan, it is crucial to meet the qualification criteria set by both the Small Business Administration and your chosen lender. While specific lender requirements may vary, the following are the fundamental qualifications typically needed to qualify for an SBA loan:
a) Time in Business: Lenders generally prefer restaurants that have been operational for a minimum of two years. However, startups led by individuals with relevant industry experience may still qualify.
b) Personal Credit: Most lenders will seek a credit score of at least 680 for eligibility. However, if your business possesses substantial capital, there may be a possibility of qualifying with a lower score. The SBA mandates that borrowers must not have recent bankruptcies, outstanding debt delinquencies, or repossessions. Additionally, any defaults on debt obligations to the United States, including student loans, can affect eligibility.
c) Collateral: SBA loans typically do not require full collateralization. However, many lenders will expect you to provide collateral if it is available. Moreover, SBA loans often require the borrower to provide a personal guarantee, allowing the lender to pursue personal assets in the event of a loan default.
d) Down Payment: The SBA mandates a minimum down payment of 10%. However, individual lenders may request up to 30% of the total project cost as a down payment.
Develop an Effective Business Plan
Compile Essential Documentation
Locate a Suitable Lender
SBA loans, are commonly offered by a diverse range of financial institutions, including larger banks and online lenders. While these lenders must adhere to the minimum qualification standards set by the SBA, they also have their own specific criteria for financing.
It is important to understand that SBA loans, are not directly originated by the SBA itself but are financed by partnering banks. The SBA guarantees the loan and will cover the lender's losses if the restaurant fails. Given that your loan application undergoes review by both the lender and the SBA before funding, the application process can be time-consuming.
Before applying for an SBA restaurant loan, it is essential to ask potential lenders the following questions: