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How to Get an SBA Loan for a Restaurant
Most banks consider restaurants to be high risk, meaning that they are far less likely to approve loans for restaurant owners. Find out how you can get the funding you need.
- Restaurant Financing Options
- Using the SBA 7(a) Loan for Your Restaurant
- Equipment
- Land and Real Estate
- Repairing Existing Capital
- Refinancing Debt
- Buying a Business
- SBA 7(a) Loan Rates and Terms
- SBA 7(a) Loan for Restaurants: Loan Amount
- SBA 7(a) Loan for Restaurants: Maturity
- SBA 7(a) Loan for Restaurants: Interest Rates
- How to Get an SBA 7(a) Loan for a Restaurant
- Eligibility Requirements
- More Information on the SBA 7(a) Loan
- Want Personalized Guidance?
- Case Study: Jack's Restaurant Revamp
- Related Questions
- Get Financing
Restaurants are often considered high-risk by banks, making it difficult to secure traditional loans for starting or buying an existing restaurant. However, there are alternative financing options, such as SBA 7(a) loans, which are designed specifically to help small businesses, including restaurants.
Restaurant Financing Options
The SBA 7(a) loan is a popular choice for restaurant owners, as it can be used for expenses like real estate, working capital, or equipment. To be eligible, restaurants must meet certain requirements.
Other loan options include the SBA 504 loan and the SBA Express loan. Depending on your needs, one of those options may be more suitable.
Using the SBA 7(a) Loan for Your Restaurant
Versatility is a good attribute to seek in a loan program, and the SBA 7(a) is full of it. You can use the loan to buy an existing restaurant, replace or repair equipment, or even cover regular material expenses.
Here’s a closer look at what you can use the SBA 7(a) for:
Equipment
This includes big, infrequent purchases like ovens, ranges, fryers, and freezers, as well as smaller, regular expenses like utensils, bar rags, and dish towels. An updated kitchen can make your restaurant more efficient and help you keep up with the latest culinary trends.
Land and Real Estate
Whether you’re renting space, buying a building, or planning new construction on vacant land, you can use the SBA 7(a) loan to help pay for the physical space your restaurant occupies. Expanding your restaurant or opening a new location can allow you to serve more customers and tap into new markets.
Repairing Existing Capital
This could include new point-of-sale systems or software upgrades to existing ones, commercial vehicle repairs, or any other operating equipment that needs updating. Keeping your restaurant's technology and infrastructure up to date is crucial for streamlining operations and ensuring a positive customer experience.
Refinancing Debt
If it’s beneficial for your business to refinance existing debt, an SBA 7(a) loan may be able to help save you some money. By consolidating your debt and reducing your interest rates, you can free up more capital to invest back into your restaurant.
Buying a Business
You can use an SBA 7(a) loan to buy or expand an existing restaurant. Acquiring a successful business can provide you with a solid foundation, established clientele, and a proven concept, making it easier to navigate the competitive restaurant industry.
SBA 7(a) Loan Rates and Terms
Loan rates for the SBA 7(a) depend on factors like the loan size, the borrower, and the lender. See the description below and the following tables to gain a quick understanding of what terms you may encounter.
SBA 7(a) Loan for Restaurants: Loan Amount
Feature | Details |
|---|---|
Minimum | No minimum |
Maximum | $5 million |
SBA 7(a) Loan for Restaurants: Maturity
Feature | Details |
|---|---|
Real estate loans | 25 years |
Equipment | 10 years |
Working capital or inventory | 10 years |
Other | No more than 10 years |
SBA 7(a) Loan for Restaurants: Interest Rates
Loan Amount | Maturity Less Than 7 Years | Maturity More Than 7 Years |
|---|---|---|
$25,000 or less | Base rate plus 4.25% | Base rate plus 4.75% |
$25,000–$50,000 | Base rate plus 3.25% | Base rate plus 3.75% |
More than $50,000 | Base rate plus 2.25% | Base rate plus 2.75% |
The SBA guarantees up to 85% for loans of up to $150,000 and 75% for loans greater than $150,000.
How to Get an SBA 7(a) Loan for a Restaurant
The eligibility requirements for an SBA 7(a) loan are straightforward, and finding a lender can be a streamlined process. Banks, credit unions, and specialized lenders can all operate as SBA 7(a) lenders, with some being designated as SBA Preferred Lenders.
Eligibility Requirements
To qualify for an SBA 7(a) loan, a restaurateur must meet certain criteria, such as having reasonable equity to invest, seeking alternative financial resources first, and operating a for-profit business in the U.S. or its territories. Individual lenders may also have specific requirements, such as minimum credit scores.
More Information on the SBA 7(a) Loan
The SBA 7(a) loan is a versatile option designed to provide necessary capital for your small business. If you're curious about what else you can do with this flexible financing option, read our comprehensive guide on its potential uses.
Want Personalized Guidance?
At SBA 7(a) Loans, we specialize in the SBA 7(a) loan process and match business owners with the best lenders for their situation. Our free educational portal and lender-matching service are designed to support your journey to success.
Get a free quote today by filling out the form below.
Case Study: Jack's Restaurant Revamp
Jack had always been passionate about southern cuisine and hospitality, and for years, he successfully operated a cozy little restaurant in the heart of Savannah, Georgia.
However, he knew that to keep up with the growing competition and changing customer preferences, it was time for a change. The building, along with its equipment, had seen better days. Jack needed financing to give the place a much-needed makeover and breathe new life into his beloved restaurant.
That's where the SBA 7(a) loan came to the rescue. With the help of this loan, Jack was able to fund the renovations that would transform his restaurant into a modern yet charming dining spot. The funds were used to refurbish the dining area, creating a fresh, inviting atmosphere with new tables, chairs, and unique lighting fixtures that perfectly blended with Savannah's historic charm.
But that wasn't all. Jack knew that having a visually stunning restaurant wouldn't be enough if the kitchen equipment couldn't keep up with the demands of his customers. The SBA 7(a) loan also enabled him to replace the old, inefficient ovens and cooking stations with state-of-the-art appliances. This investment not only increased the productivity of his kitchen staff but also improved the overall quality and consistency of the dishes served.
With the renovations complete, Jack's restaurant became the talk of the town. Locals and tourists alike flocked to the revamped eatery to experience the delicious southern cuisine, exceptional hospitality, and the warm, welcoming ambiance that Jack had always envisioned. Thanks to the SBA 7(a) loan, Jack was able to reinvent his restaurant, ensuring its continued success and making it a true Savannah gem.
This is a fictional case study provided for illustrative purposes.
Related Questions
What are the requirements for an SBA loan for a restaurant?
To get an SBA 7(a) loan for a restaurant, you must have reasonable equity to invest, like an already-profitable business. If that’s not you, you can offer other equity (like personal property) as collateral. You must have sought alternative financial resources before applying for the loan. The owner of the business cannot be on parole, the business must be operating in the U.S. or one of its territories, and it must be a for-profit business. Most lenders require the owner’s personal credit score to be at least 600, but exact requirements will vary depending on your experience in the industry and your relationship with your lender.
Certain banks are considered SBA Preferred Lenders, and have proven track records of providing small businesses with SBA-backed loans. There are other factors that could improve your chances when speaking with a lender.
What types of SBA loans are available for restaurants?
The Small Business Administration (SBA) offers two types of loans for restaurants: SBA 7(a) loans and SBA 504 loans.
SBA 7(a) loans are the most popular type of SBA loan and are available for up to $5 million. They are best for larger, more established restaurants who need lower-cost commercial real estate financing.
SBA 504 loans are available for up to $5.5 million and are best for businesses who want to purchase property, buy equipment, and get working capital for their business.
In addition, SBA Express loans are a great choice for many restaurants who need $50,000 or less and have less-than-stellar credit.
How long does it take to get an SBA loan for a restaurant?
The SBA 7(a) loan is a great option for restaurant owners because of its straightforward requirements and relatively fast approval process. The turnaround time for the SBA 7(a) loan is typically 2-3 weeks, depending on the lender. The SBA Express loan is another option that has a 36-hour turnaround, but it comes with higher maximum interest rates, lower SBA guarantees, and greater authority in the hands of the lender.
For more details about interest rates, fees, and other terms, head over to our Loan Terms page.
What documents are needed to apply for an SBA loan for a restaurant?
To apply for an SBA loan for a restaurant, you will need to provide the following documents:
- SBA Form 1919 (borrower information form)
- SBA Form 912 (statement of personal history)
- SBA Form 413 (personal financial statement)
- Financial statements, including a balance sheet, profit and loss, and income projection
- Agreement to purchase the business
- Letter of intent to buy the business
- Business tax returns for the past three years
- Any outstanding business debt
- Long-term business contracts
- Documentation of business assets
- Business lease agreement
- Incorporation documents and/or business license
- Business plan
In addition, the SBA will usually order an independent business appraisal to give lenders an idea of what the true value of the business is.
The SBA allows applicants to get help (for example, from a lawyer or a translator) filling out the application paperwork, but your lender will be required to submit information about who gave you help to the SBA, so you’ll need to document who this person is as well.
What are the advantages of an SBA loan for a restaurant?
The SBA 7a and SBA 504 loan programs are great ways to finance a restaurant business. They offer a variety of benefits, such as:
- Purchase property
- Buy equipment
- Get working capital
- Potential for lower interest rates
- Longer repayment terms
- No collateral required for some loans
Additionally, certain banks are considered SBA Preferred Lenders, and have proven track records of providing small businesses with SBA-backed loans. There are other factors that could improve your chances when speaking with a lender.
For more information, please visit www.sba7a.loans/sba-7a-loans-small-business-blog/sba-7a-loan-for-a-restaurant and www.commercialrealestate.loans/restaurant-loans.