Many people dream of opening a restaurant, only to find that it has its share of nightmares. The financial requirements — from the restaurant startup phase to needs throughout the life of the business — can be overwhelming, even for the savviest business owners.
That’s why opening a restaurant often requires funding, whether it’s from investors, small-business credit cards or small-business loans.
But not all small-business loans are created equal. Certain options are better for different restaurants, depending on the stage of growth and the need for financing. When doing your homework, be sure to check out the range of small-business loans that could work for your restaurant. Here we highlight four good small-business loan options for restaurants in varying stages of growth.
For a restaurant that needs to buy inventory: Dealstruck
- Revolving line of credit
- Designed specifically for inventory
| Dealstruck line of credit terms: | Qualifications | Apply via lender’s secure site |
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Apply via Dealstruck (Read our Dealstruck review and learn about the application process.) |
Food costs are a top challenge for restaurants, and those costs are rising, according to the National Restaurant Association’s 2015 industry forecast. If you need cash to buy ingredients or paper goods for your restaurant in bulk, Dealstruck’s revolving inventory line of credit could be a good option.
“It allows [restaurants] to stock up for their busy season and allows them to take advantage of up to 10% in discounts from their suppliers when they pay up front for their inventory,” Dealstruck Chief Strategy Officer Candace Klein says in an email.
With Dealstruck’s inventory line of credit, you’ll be able to borrow any amount below your limit when you provide Dealstruck with an inventory purchase order. Dealstruck will pay your vendors directly and you’ll repay Dealstruck weekly for six months.
For an established restaurant that wants to expand: SmartBiz
- Lowest interest rates
- SBA loan
| SmartBiz loan terms: | Qualifications | Apply via lender’s secure site: |
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Apply via SmartBiz (Read our SmartBiz review) |
*SmartBiz doesn’t specify a minimum credit score or annual revenue, but most borrowers do fit these qualifications, says Judy Balint, SmartBiz chief marketing officer.
SmartBiz quickly originates loans backed by the U.S. Small Business Administration through its automated online platform. If you qualify for a SmartBiz loan, you’re also likely to qualify for a traditional bank loan, which also has low rates. The advantage of a SmartBiz loan is speed: Traditional SBA loans funding through banks can take several months, whereas SmartBiz funds loans in as fast as seven days.
Since SmartBiz loans are SBA-guaranteed, they’re more affordable than other online loan options. They can be used for hiring employees; marketing or other operating expenses; buying inventory or equipment; acquiring another business; business debt refinancing; or purchasing real estate.
For an established franchise restaurant: Funding Circle
- Peer-to-peer lending
- Good for financing long-term business improvements
| Funding Circle loan terms | Qualifications | Apply via lender’s secure site |
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Apply via Funding Circle (Read our Funding Circle review) |
Funding Circle is a peer-to-peer online lending marketplace that specializes in franchises. It matches accredited and institutional investors with already-successful small businesses that are looking for long-term growth.
“It’s a great option for established franchise owners looking to renovate their space, purchase expensive pieces of equipment or expand to another location,” Funding Circle spokeswoman Liz Pollock says in an email.
Businesses apply for a loan through Funding Circle on the company’s website, and can get funded in as fast as five days. Repayments are due monthly and there is no penalty for prepayments.
For a restaurant startup: Prosper
- Peer-to-peer lending
- Personal loan
| Prosper loan terms: | To qualify: |
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Prosper is unique as one of the only online lenders that will lend to small-business startups. It offers unsecured personal loans that can be used for business purposes.
Prosper uses a peer-to-peer lending model, which means that the financing for its loans comes from individual investors. To apply for a Prosper loan, you’ll create a listing that includes the amount you want to borrow and why you need the loan. Then, investors will be able to see the listing and contribute an investment toward your total loan amount. Prosper will verify your application, and if enough investors contribute funding, your loan will get funded. Prosper will automatically deduct money from your bank account to collect monthly repayments.
For more details on whether to fund your startup with Prosper or with credit cards, check out this comparison.
Business loans for restaurants: the bottom line
Whether your business is a restaurant startup or one that’s growing, a small-business loan can help you finance initial costs, inventory orders and expansion costs.
Prosper, Dealstruck, SmartBiz and Funding Circle are only four of the many small-business loan options available. There are other loans available, including short-term loans to help you manage cash flow and longer-term loans to finance expansion.
Find and compare small-business loans
NerdWallet has created a comparison tool of small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged the lenders by categories that include your revenue and how long you’ve been in business.
Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.
To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.
This post was updated. The post was originally published on Aug. 24, 2015.
Image via iStock.
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