If you’re a restaurant owner, getting an SBA loan can provide funding with favorable rates and terms. Read our guide to learn more.
In this article, I’ll walk you through the process of how to get an SBA restaurant loan, including creating a business plan, evaluating your business needs, considering loan options and your eligibility, and preparing your application for better odds of approval.
Getting an SBA loan for restaurants can help a business secure favorable rates and low monthly payments when compared with other financing options. You can use an SBA loan to start a new restaurant, acquire an existing business, or obtain funding for other business-related expenses or equipment.
That said, restaurants can be considered a high-risk investment to lenders, so getting approved for one can sometimes be difficult.
If you’re not sure you want to go through the SBA directly, Guidant Financial offers SBA loan assistance, rollovers, and alternative funding options. Personalized guidance simplifies the buying process.
A business plan summarizes the key aspects of your business and how it intends to achieve its goals. These documents commonly cover basic company and management details, financial projections, marketing plans, sales strategies, competitor analysis, product or service details, and more.
A business plan is a typical requirement of an SBA loan application. There’s no standard format you have to follow when creating your business plan, but it can also serve as a helpful tool for yourself to ensure that no critical aspects of your business have been overlooked.
Additional items to consider that are specific to the restaurant industry can include:
When planning your application, you’ll need to consider how much funding you’ll need to request. It’s important to factor in all potential business expenses so that you can plan accordingly and cover all of your business needs, whether you’re buying a restaurant for the first time or expanding your restaurant portfolio.
Consider what the expected return on investment will be and your alternatives should it not go according to plan. Depending on your intended use of the funds, you should have an idea of what a successful outcome looks like.
Overestimating your funding needs can be detrimental, as it may make it more difficult to get approved for a business loan. Even if approved, you may not have qualified for the best interest rates, which can negatively impact your cash flow.
In turn, underestimating your funding needs can have similar challenges. Without the ability to fully fund your intended business project, you may not get a large enough return on your investment. Be sure to consider these carefully, and only request what you need. Estimating too much or too little can also damage credibility, or at least set your business back substantially on its growth timeline.
It’s important to note that the SBA doesn’t offer SBA restaurant loans specifically. Various loan programs are applicable to restaurants, each with varying terms and allowable uses. The best one for you will largely depend on your business needs and how you’ll use the loan proceeds.
Below, we’ve provided a summary of the common types of SBA loans and what they may be best used for.
Once you’ve determined which loan program is best suited for your business needs, it’s important to consider the necessary qualification requirements posed by both the SBA and the participating lender.
Such criteria will vary depending on loan type and lender, but they can generally be broken down into the various categories below.
Regardless of what type of SBA loan you are applying for, you’ll need to meet the following eligibility criteria:
Various items that are commonly requested as part of getting an SBA loan. To supplement your loan application, you’ll likely need to provide additional credit information and financial documents pertaining to your business.
By preparing this information ahead of time, you can streamline the application process and get access to funds more quickly. Lenders typically require the following:
While SBA loans are backed by the government, they’re issued by SBA-designated participating lenders. This can include banks, credit unions, loan brokers, and online lenders.
To help you choose the best SBA restaurant loan for your business, you can ask potential lenders some of the following questions:
Once you’ve found a lender, you can prepare to submit a formal loan application. Many lenders allow this to be done online. From start to finish, you should expect the underwriting and disbursement process to take one to three months.
Can offer competitive interest rates in comparison with other business loans
Can be difficult for newer businesses with limited resources to qualify
Has a variety of loan programs applicable to differing business needs
Can require a lot of paperwork as part of the application
Can provide large loan amounts and long repayment terms
Can often take longer to receive funding than other loan types
Believe it or not, it is possible to start a restaurant with no money. And, unfortunately, not all people will qualify for an SBA loan. For borrowers who don’t qualify or are simply exploring all of their financing options, there are a few alternatives you can consider.
While not specific to financing restaurants, SBA loans can be used to open a new restaurant business, provide new services, update fixtures or perform renovations, grow your team, or keep up with seasonal changes in business. Depending on your business needs, a business loan provided by the SBA can be used for various purposes.
Since the government backs SBA loans, they can have various requirements and restrictions that can make them difficult to get. It’s not necessarily hard to get one — you’ll just have to meet the minimum eligibility criteria and provide more paperwork than you would in comparison with business loans provided by other lenders.
The process of applying for an SBA can be lengthy. There’s a good amount of paperwork involved with facilitating a loan, which can delay funding in some cases. Generally, you can expect to receive funds anywhere from one to three months.
Ray Delucci is a graduate of The Culinary Institute of America with a Bachelor’s in Food Business Management. He has experience managing restaurants in New York City, Houston, and Chicago. He is also the host of the Line Cook Thoughts Podcast, where he interviews and shares the stories of foodservice workers. Ray currently works in food manufacturing and food product development.
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