Type above and press Enter to search. Press Esc to cancel.


Restaurant Financing and Loans: What are the Best Options?

Restaurant Financing and Loans: What are the Best Options?

Owning a restaurant is a dream for many businesspeople. 

Yet, the day-to-day costs of opening and running a restaurant can make owners think twice about doing so. 

Whether you’re a talented chef, local entrepreneur or a foodie brimming with ideas for a new kind of dining experience, restaurant financing can be one way to help bring the dream to life.

That’s why in this article, you’re going to learn:

Let’s dive right in.

Your POS system is your restaurant's heartbeat

Run your restaurant with Lightspeed. Create custom floor plans and menus, take tableside orders, accept payments and manage your whole business from one intuitive platform.


What is restaurant financing?

Restaurant financing refers to any form of outside funding that business owners secure to support a range of business needs. This could be a bank loan, funds from family and friends, investors or other lending sources. 


What to do before you apply for restaurant financing

Write a business plan

When you’re starting or buying a restaurant, you need a business plan that outlines your objectives and how you plan to get there.

Not only will this document help you strategize your way towards paying down your loan and creating an economically viable restaurant but, in many cases, a written business plan is required when applying for funds. Get ahead of the curve and make this your first step before you even seek financing.

Determine how much financing your restaurant will need

The cost of buying or opening a restaurant can range from thousands to millions of dollars depending on the location, size, restaurant type and other factors. Even if we assume that the price is reasonable to you and you’re willing to take out financing to help pay for it, the exact amount will help dictate what kind of loan you need to apply for and what the terms will be.


Why do restaurant owners apply for financing?

There’s a host of reasons why restaurant owners and finance teams look for funding in the first place.

  1. Starting a new business
  2. Renovating an existing location
  3. Purchasing an already-established restaurant
  4. Investing in new equipment
  5. Opening another location
  6. Adding more tables to increase covers
  7. Operations, marketing or hiring advice
  8. Rebranding
  9. Diversifying through catering and packaged goods
  10. Funding operational expenses

Starting a new business

There are plenty of startup costs to plan for before a restaurant can open its doors to the public. Owners might need to refurbish premises, update old kitchen equipment, buy furniture and fittings, and invest in menus and staff uniforms. And let’s not forget the need to carefully source that all-important food, alcohol and beverage stock. 

Renovating an existing location

As successful restaurants evolve, many chefs and owners seek to hire more experienced kitchen staff or redesign their interiors. Interior design trends change rapidly, especially in metropolitan areas. What’s more, busy restaurants can quickly experience wear and tear because of the sheer number of customers coming through the doors each day. While it’s a good problem to have, it does mean regular renovations become a reality.

Purchasing an already-established restaurant

Purchasing an already-established restaurant can be a great thing—your customer base is likely already built in. However, there are a few things you should ask before deciding to purchase a business.

  • Why is this restaurant for sale? Unless you’re making the owners a ridiculous offer, they’ll have their own reasons for wanting to get out of the business. Those reasons might be personal—family obligations, burnout—or they might be related to the health of the business. If it’s the latter, decide whether you have the skills to transform the restaurant before you buy. 
  • Is the restaurant in a good location? A restaurant’s location can be the single biggest reason why it succeeds or fails. If the restaurant is doing well, do some research to see just how much of the its success are due to factors other than location. If the restaurant is coasting off of discounts, deals or recent media exposure rather than building a sustainable loyal customer base, your reign might be a short one.
  • What’s the cash flow situation? You need a true understanding of the restaurant’s finances before you buy, which means examining its cash flow. Restaurants are known for having low margins, but are those margins, at the very least, consistent? Will you eventually find yourself taking out additional financing to cover payroll if you have a slow month? The cash flow picture for a restaurant should include overhead costs, such as rent, utilities, insurance, and taxes, as well as labor costs, food costs, check averages and food and beverage sales. If the current owner is reticent to show you the books, that’s a red flag.
  • Does the restaurant have any lingering liabilities? Be sure to investigate any liabilities attached to the business, such as health code violations, lawsuits or unpaid sales tax. You don’t need to inherit any outstanding debts on top of what you’ll owe yourself.
  • Is the equipment in good condition? A restaurant’s equipment is the heart of the business. Not only are assets like refrigerators, commercial ovens and food preparation equipment vital to the success of a restaurant, they’re also typically quite expensive and difficult to replace or fix on the fly. Before agreeing to buy a restaurant, have an expert inspect the equipment. 

Investing in new equipment

Whether it’s chefs, waitstaff, or baristas—everyone needs the right tools to do their jobs. For this reason, many owners look to equipment financing to help fund the restaurant equipment they’ll need, from coffeemakers, a POS system, and premium ovens, to grills and stoves. 

Opening another location

Expansion is another common reason why owners explore their restaurant financing options. Many entrepreneurs have bold plans to grow from a single location into either a chain of city-wide or regional restaurants. Doing so comes with costs related to sourcing new commercial spaces, handling renovations or even constructing a new building.

Adding more tables to increase covers

But not all expansion plans need to be so grand. Much like their chefs who carefully add an ingredient here and there to ensure a perfect taste, restaurant owners may look to change their business more slowly. Expanding can involve something as simple as adding space to serve additional ‘covers’ on new tables.

Operations, marketing or hiring advice

Restaurant owners have to make many decisions every day, often against the backdrop of the hustle and bustle of a busy restaurant. It’s understandable that many owners choose to get some outside advice. There is an increasing number of consultants—some who own or chef in other restaurants—who have begun to provide advice to other restaurant owners. Such consultants can help with sourcing managers or sous chefs, give advice about how to position a restaurant in a crowded market or help to improve the overall running of the business.


Restaurant-owners know the industry is highly competitive. In fact, many thrive on it. 

Still, it can be a challenge for restaurants serving highly popular cuisines—in French bistros, Italian pizzerias, and Japanese ramen spots—to stand out from competitors offering similar dishes and experiences. It’s here where the value of a restaurant’s brand can become a key point of difference. Some restaurant loans are being used to create standout brands or to rebrand traditional venues for emerging culinary and dietary tastes. 

Diversifying through catering or packaged goods

One way restaurants can build a strong brand is by continuing customers’ experiences with them beyond the building. Here’s where providing catering services and take-home products can play a part. 

Many grills are famous for their steak and rib sauces. Italian restaurants have home-made pasta that’s impossible to recreate yourself. And some Asian restaurants have frozen dumplings that can—for a few fleeting moments—whisk your tastebuds back to that favorite restaurant. 

While providing these goods can provide an additional revenue stream for restaurants, they do come with the costs of product development, packaging and logistics. 

Funding operational expenses

Seeking funding is not always about growth. On other occasions, owners pursue restaurant funding options to support the day-to-day running of the business. In restaurants where revenue is seasonal—or even unpredictable—some owners may decide to secure funds to support positive cashflow.


10 restaurant financing options

Now that you’ve learned about some of the reasons for restaurant lending, here are 10 different financing options you can consider:

  1. Brick-and-mortar bank loans
  2. Alternative loans
  3. Small Business Administration loans (SBA)
  4. Merchant Cash Advances (MCA)
  5. Business line of credit (LOC)
  6. Business crowdfunding
  7. Loans from friends and family
  8. Commercial real estate loan (CRE)
  9. Equipment financing
  10. Purchase order financing

Let’s look at the pros and cons of all 10 options for sourcing funds. 

1. Brick-and-mortar bank loans

Let’s start with probably the most well-known option: your bank. Traditional banks have been lending to small to mid-sized businesses for a very long time. Their systems are established, rigorous and proven. Let’s take a quick look at the pros and cons of seeking finance through a bank.

Are bank loans right for your restaurant?

The pros and cons of brick and mortar bank loans

2. Alternative loans

Understandably, not every restaurant owner has the time or occasionally the credit history to secure funding from a brick-and-mortar lender. In these situations, loans for restaurants can be pursued with a number of alternative lenders. Here are some points you might want to consider when looking into an alternative loan option. 

Are alternative loans right for your restaurant? 

the pros and cons of alternative bank loans

3. Small Business Administration (SBA) Loans

As this video explains, SBA loans help existing small businesses when they can’t get financing from other sources or without an SBA guarantee for the lender. The SBA does not fund these loans directly. It guarantees banks it will repay a portion of the loan if a business defaults.

SBA loans may be used to buy land or equipment, buy an existing business, refinance existing debt, or purchase machinery, furniture, fixtures, supplies or materials. 

Is an SBA loan right for your restaurant? 

the pros and cons of a small business loan

4. Merchant Cash Advance (MCA)

Technically not a loan, a merchant cash advance (MCA) is a way for restaurants to receive funds against future payments that will be made through their merchant payment system. 

This can be useful for restaurants that are processing a high volume of credit card transactions while needing access to funds—fast. However, business owners need to be wary. The high rates of many MCA providers can lead to repayment amounts outstripping the original advance by as much as 40%.

Is an MCA right for your restaurant? 

the pros and cons of a merchant cash advance

5. A business line of credit (LOC)

Businesses usually seek out lines of credit through their bank. Many alternative lenders are now offering this option too. In short, a business line of credit allows restaurants to access a set additional amount of funds each, as and when needed.

Is a business line of credit (LOC) right for your restaurant? 

the pros and cons of a business line of credit

6. Crowdfunding

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture, according to Investopedia. Crowdfunding is often used to validate new product ideas or seek funding from early adopters for a new startup idea. It’s less associated with service businesses, particularly restaurants. Still interested? Here are some of the pros and cons. 

Is crowdfunding right for your restaurant? 

the pros and cons of crowdfunding

7. Friends and family

If you’ve been running a restaurant for a number of years, your friends and family are likely some of your biggest supporters. They may have backed you as a business owner and dug into their own pockets, as your earliest, and subsequently most loyal patrons. 

It makes sense then. This is why many business owners choose to ask parents, siblings, partners and friends for financing. They can help chefs and restaurant-owners get working capital through a loan without a credit check. Just remember: mixing professional and personal relationships can become complicated.

Is a loan from family and friends right for your restaurant? 

the pros and cons of loans from friends and family

8. Commercial real estate loan (CRE)

Commercial real estate isn’t getting cheaper any time soon. Restaurateurs can tap into commercial real estate (CRE) loans to improve buildings, parking lots, gardens, and more. Some lenders, particularly those participating in SBA schemes, may allow borrowers to include architectural and legal fees, appraisals and other construction costs within a loan. 

Editor’s note: We have skipped the pros and cons here. That’s because, if you’re seriously considering a commercial real estate (CRE) loan, it may be best to speak to your accountant or a trusted financial adviser. CRE loans are very different than residential real estate mortgages, for example. Speaking to an advisor may help you better understand how CRE loans are assessed and structured differently for restaurants of various sizes. 

9. Equipment financing

Restaurants often need to fund things like coffee-makers, POS technology, premium ovens, grills and stoves. This is where equipment financing can help. Here are its pros and cons. 

  Is equipment financing right for your restaurant? 

the pros and cons of equipment financing

10. Purchase order (PO) financing

As every business owner knows, orders are often received and completed long before they are paid for. You probably know this only too well, if your restaurant offers a catering service, for example. Purchase order (PO) financing can be a useful option for restaurants that don’t have enough cash flow to complete outstanding orders. 

Is PO financing right for your restaurant? 

the pros and cons of purchase order financing


6 ways to evaluate restaurant financing and loans

As you can see, the funding options we’ve looked at vary widely. Here’s what to do next, if you’ve started to hone in on some possible options from the list above. Take the following steps when assessing each option:

  1. Check how quickly you get your capital
  2. Evaluate total repayments 
  3. Compare the term of the loan
  4. Compare the benefits of fixed vs. variable rates
  5. Find out of collateral is needed
  6. Review the lender’s reputation

Your financing and loans fit

Taking a step to expand or support your restaurant business can be equal parts exciting and nervy. Ultimately, you’ll know best which is the right option for your business as you continue to look into funding sources. 

News you care about. Tips you can use.

Everything your business needs to grow, delivered straight to your inbox.

More of this topic: Finance & Operations