How to Get an SBA Loan for a Restaurant

When it comes to taking out loans for restaurants, most banks and lenders consider them to be high risk because there is a 23% chance that restaurant start-ups will fail within their first year. Therefore, banks and lenders are less likely to approve loans for aspiring restaurant owners.

In this guide, we’ll be taking you through everything you need to know when it comes to preparing your application form for the process and give you further knowledge so you know what to expect.

If you have been rejected for a regular bank loan, there are other options available that you should know about, meaning that your dream of owning a restaurant doesn’t have to feel unreachable.

What SBA loan programs are available for restaurants?

Before you even begin to apply for an SBA loan, it’s important to run through your options and understand how each loan program works and what they can offer to your business as well as ensuring that it is the right choice for you to make and that you qualify.

The three choices for aspiring restaurateurs are the SBA 7(a), SBA 504 and the SBA Express Loan programs. Here are the important facts about each option that you need to know:

SBA 7(a) Loan Program

The first option that restaurateurs should consider is the SBA 7(a) loan program which is the most popular SBA loan that aspiring restaurateurs apply for.

The SBA 7(a) loan is a commercial loan which can contribute towards commercial real estate, capital and equipment among many things making it perfect for restaurant start-ups. When applying for an SBA 7(a) loan, there are certain requirements that applicants must meet in order to qualify and be accepted.

The great thing about SBA 7(a) loans is that they are available from banks, credit unions and other lending institutions and the money is guaranteed upfront by the government in order to promote entrepreneurship. This option is the best choice but it isn’t the only one which we will delve into later but having this loan is a great way to start up your company.

So what are the basic requirements for applying for an SBA 7(a) loan is making sure that you know how much you need to spend on equipment, real estate and capital. This will mean that you will have a thorough understanding of where and how the money will be used.

The low interest rates and fast approval process make the SBA 7(a) loan the first option for many applicants. It is a versatile option as you can put the money towards different aspects of your business. Here are the different things you can buy using your SBA 7(a) loan:

The first thing you will need to think about is the land and real estate when it comes to setting up your restaurant. Whether you want to rent the space, buy the building or are planning an entirely new construction on a piece of land, the SBA 7(a) loan can be used to pay off any costs relating to the actual restaurant property.

The second thing you will need to consider is the equipment that you plan to buy. It goes without saying that opening a restaurant will require a lot of equipment purchases.

There are smaller expenses that you will need to purchase including bar rags, dish towels and utensils as well as larger equipment such as freezers, fryers, ovens and ranges.

Whether you want basic equipment or an elaborate kitchen, you will need these pieces of equipment as a starting point to ensure that you have plenty of space for produce and versatility in your menu.

Another thing that SBA 7(a) loans can be used for is repairing existing capitals which can be used to provide upgrades to existing purchases whether it is commercial vehicle repairs as well as software upgrades or operating equipment such as point of sale systems. This will mean that your restaurant can run even more efficiently.

SBA 504 Loan Program

If you don’t want to apply for an SBA 7(a) loan then there are other options available. One such option is the SBA 504 loan which usually consists of a larger loan amount that accompanies a commercial loan from a bank or other lending institution.

This is the perfect option for those who have taken a loan out from a bank previously and need a bit extra for commercial needs such as real estate and land as the maturity is shorter meaning that the loan will mature between one to three years making it great for those who want a shorter term loan.

SBA Express Loan Program

Lastly, the SBA Express Loan program is available for those who want to take out a smaller amount of money than what is usually available with the SBA 7(a) loan or the SBA 504 loan.

The SBA Express Loan comes with a faster turnaround time than the previous two choices with a 36 hour turnaround. However, due to the nature of the loan, it does have a few drawbacks which you must consider before applying such as higher maximum interest rates, greater authority in the hands of the lender and lower SBA guarantees meaning that there isn’t as much security on your part when you take the loan out. 

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