Restaurant financing: 8 ways owners can use a loan

Running a restaurant is a delicate operation. Most eating establishments have high overhead, which means there’s a constant stream of cash leaving the business to cover the cost of everything from fresh produce and equipment repairs to staff training and payroll.

Without healthy cash flow, many restaurant owners struggle to stay afloat, let alone plan for long-term growth. Fortunately, restaurant financing can help. Access to extra capital can give restaurant owners the time and financial stability they need to focus on expansion or ready themselves in case of a slow season.  

Keep reading to discover the different ways you can use a loan to grow your operation — and which types of loans for restaurants work best.

8 ways to use restaurant financing

1. Take out a loan for restaurant damages and repairs

The success of a restaurant depends on each moving part functioning properly — if one cog in the machine breaks, the entire establishment can shut down. Any number of accidents can happen. The restaurant bathroom could flood, for example, or the industrial freezer might break down, forcing you to throw out thousands of dollars worth of ruined food and spring for a replacement. These unexpected costs can destroy your business’ delicate cash flow balance, but restaurant financing can provide flexibility for these unplanned events.

2. Financing for new equipment

Restaurants rely on a variety of different pieces of equipment and machinery to stay operational — everything from industrial fridges and ice machines to delivery trucks and specialty equipment, like a wood-fired oven. It can be expensive to upgrade these items, but having durable, high-quality equipment is a smart investment in your restaurant’s success. Using restaurant financing to buy newer, longer-lasting pieces can help you run a smoother operation and save money on repairs.

3. Cover inventory costs with a restaurant loan

Most restaurants need to buy inventory daily, so it’s important to have enough cash to cover the cost of your purchases. After all, inventory doesn’t just include the ingredients listed in your menu items, it also includes beverages, cooking oils and spices, napkins, glassware, dishes, cleaning supplies, and tabletop decor.

Depending on your restaurant, there may be certain times of the year when you need more inventory than usual. Maybe you see more customers during the summer, for example, or run a farm-to-table restaurant that only uses seasonal ingredients. Whatever your inventory needs, financing for your restaurant can help.

4. Upgrade your restaurant technology

Investing in cutting-edge technology allows you to run your restaurant more efficiently. Using a point of sale system, for example, makes it easier to handle transactions and set up loyalty reward programs for patrons. You may also want to invest in customer relationship management software or online payroll software to help improve your business’ backend. You can use equipment financing to buy new machinery like iPads and computers, or apply for a working capital loan for your restaurant to purchase new software.

5. Loans for restaurant renovations

Renovating your restaurant, whether for improved aesthetics or function, can help you attract more customers and save money on certain recurring expenses. Depending on your current setup, you may want to upgrade to energy-efficient lighting, remodel your storefront to look more inviting, add another bathroom, or change the layout of the dining area to fit more tables. Making updates to your restaurant can be costly, though, especially if you have to temporarily shut down your business while construction takes place. Fortunately, certain types of restaurant financing, like business term loans, can give you the freedom to take on renovations.

6. Set your restaurant up for relocation

A strategic relocation can help set your business up for better success. Maybe you’re considering moving to a bigger building to accommodate more customers, or relocating to a busier part of town because you’re not getting enough foot traffic in your current spot. The cost of relocating is huge, though — not only do you have to pay for actual moving costs, you also have to account for lost business during the transition time. But a restaurant loan can put you in a better position to make the move.

7. Restaurant expansion

If business is going well, you may be ready to expand operations and open a second restaurant location. Of course, this means you’ll have to lease or buy a new space, purchase new equipment and supplies, double your inventory, and hire and train new staff, all of which can take a toll on your cash flow and profits. For a restaurant expansion project like this, a term loan is a good option to alleviate some of the financial stress.

8. Get a restaurant loan to improve your marketing efficacy

Some restaurants get by on word of mouth alone, but most establishments need to do a fair amount of marketing to survive. Creating promotional flyers, setting up online ad campaigns, paying for local billboards, maintaining and updating your restaurant’s website, and hosting occasional neighborhood events are all strategies that can lead to more customers and higher revenue. Getting a loan for your restaurants, like a business line of credit, to help supplement your marketing costs can set you up for long-term growth.

Comparing your restaurant financing options

1. Equipment financing

Equipment financing allows you to cover up to 100% of the cost of new equipment using either a loan or lease model. With a restaurant loan, you make regular payments for a set period of time, and once you repay the cost of the equipment plus interest, you own it outright. With a lease, however, you make payments to rent the equipment on a monthly basis. Interest rates vary depending on your personal and business credit scores, as well as the price of the equipment, but average APRs are between 5-30%.

2. Business line of credit

A business line of credit gives you access to rotating capital, making it a great financing option for restaurants that need financial flexibility to cover short-term or recurring costs, like utility bills, payroll taxes, or marketing. With a line of credit, you get a set amount of money that you can use repeatedly as long as you pay it down. The average APRs range anywhere from 8% to 80%, depending on which lender you choose.

3. Inventory financing

Similar to equipment financing, inventory financing lets you borrow money to cover the cost of your inventory, and your inventory then acts as collateral. Inventory financing usually comes in the form of a short-term loan or business line of credit. Keep in mind that certain short-term loans for restaurants may be easier to qualify for, but they typically come with higher rates.

4. Working capital loan

A working capital loan is one of the best types of restaurant loans you can get. It can take many forms, including a term loan, business line of credit, or merchant cash advance. The type of working capital loan that’s best for you depends on what you want to do with your funds, but in general it’s designed to free up your cash flow. Make sure you research the APRs and terms for each loan for your restaurant, since some working capital loans, like merchant cash advances, have steep interest rates and hidden fees.

To run a successful restaurant, you need access to the right resources — and financing can help. If you think a Funding Circle term loan might be right for you, learn more about us or compare your options.

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