Entrepreneurs trading in the restaurant industry often has a  requirement of working capital for either expanding the existing restaurant or just carrying out the monthly business operations. Today, there are multiple convenient restaurant financing options, besides, traditional bank loans. But, what needs to be understood is, which type of financing option is ideal for a particular business, considering the current condition of the balance sheet, total amount requirement, desired loan tenure and a few other factors. 

Tips to compare and evaluate restaurant financing options:

  • The time frame within which the loan amount can be approved and disbursed needs to be considered. 
  • The total payback needs to be evaluated. There are various types of cost structures and multiple factors to consider while determining total cost, which comprises APR(annual percentage rates), total payback amount, upfront fees, compounding interest and other penalties. One needs to keep in mind that APR and interest rates are not the same. APR is a calculation that looks at all interest, fees and the timing of those fees. It is a percentage that represents the yearly cost of borrowing funds. Therefore, APR is one of the important factors for comparing funding options. 
  • The repayment terms need to be compared. It refers to the amount of time the borrower has to repay the amount to the lender.
  • The benefits of fixed interest rates need to be compared with that of variable interest rates. The borrower needs to pay back the loan amount plus interest or a fixed cost. Interest rates can be either fixed or variable. Fixed rates do not fluctuate during the life of the loan, whereas the variable-rate can waver depending on the current economic condition of the country.
  • One needs to find out if the collateral is required. Many lenders ask for collateral so that they can recover the amount by acquiring the asset or collateral in case the borrower fails to repay the amount.
  • The reputation of the lender needs to be considered.

To compare and evaluate multiple restaurant financing options, one needs to first know about all the options available. 


      Apart from traditional stringent bank loans, the 3 most popular alternative loan options for restaurant businesses are:

      • Merchant Cash Advance
      • Business Line of Credit
      • Purchase order financing

      The locked-down phase, initiated by the COVID-19, had affected the restaurant industry, in quite a negative way. Post pandemic, owners of many small to medium restaurants felt the need to relaunch, renovate, re-market, or just ensure the basic maintenance,  for which, a generous amount of capital is necessary. The increased requirement of the working capital in the restaurant industry is, to a great extent, due to the losses made during the lockdown phase, when restaurants were compelled to stay closed for dining. Among the alternative financing options available for restaurant businesses, some are ideal for short-term projects and the others are perfect for long term business goals. Unlike traditional financiers like banks, alternative loan lenders offer leniency and flexibility on eligibility, qualifications, and the pay-back process. 

      The loan options business owners can opt for getting restaurant financing are:

      Small Business Administration (SBA) Loans

      These are approved by the U.S. Small Business Administration. However, SBA doesn’t actually lend small businesses funds. Instead, it leans on a huge network of partner lenders to provide small businesses with the approved amount. The borrower will be working with a local or nationally recognized lender. Fund disbursement takes one to three months, considering the size and type of the applied loan. SBA loans often require business or personal collateral that can prove the personal investment of the applicant in the venture. Besides, these have lengthy application processes that might take weeks or even months. The applicants need to submit financial statements of the last few years along with receipts for the major purchases the business had made over those years. SBA loans are ideal for businesses which have flexible timelines and do not require cash on an urgent basis.  

      Merchant Cash Advance(MCA)

      An MCA lender pays an up-front lump sum to a restaurant owner and buys a percentage of the restaurant’s future sales. The lender typically redeems the percentage of sales that it has bought through an automated approach, a daily ACH(Automated Clearing House) deduction directly from a bank account. The cost of a merchant cash advance is typically presented as a factor, which is a fixed percentage of the amount advanced. This is added to the amount that the restaurant needs to pay back to the MCA lender. MCA loans are ideal for businesses that accept credit or debit card purchases. 

      Business Line of Credit

      Similar to a credit card, a business line of credit offers business owners working capital, when needed, along with the flexibility to decide how much to use and how much to keep reserved for future use. Interest will be applied to only the amount used and not on the entire approved amount.

      Purchase Order financing

      It provides funds to the restaurants that have already taken orders but, due to the lack of capital, are unable to fulfil them. This kind of financing option is quite good for brands aiming to expand into catering by meeting the demand.