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Business Lines of Credit for Restaurants: How to Secure One
December 09, 2021
Should Your Restaurant Pursue a Business Line of Credit

Business Lines of Credit for Restaurants: How to Secure One

If you’re a restaurant owner, you may wonder whether a business line of credit makes sense. A business line of credit is a flexible financing option that can allow you to borrow money whenever you’d like up to your set credit limit, which is usually based on your credit and other factors. Let’s take a closer look at what a restaurant business line of credit is and when it might be useful.

What is a Line of Credit for a Restaurant? 

A business line of credit for a restaurant works a lot like a credit card; if you take out a business line of credit, you can borrow money up to a set credit limit. You may either carry a balance and make your minimum monthly payments or pay it off in full. Fortunately, you’ll only pay interest on the amount you withdraw.

As you repay what you’ve borrowed, you’ll be able to borrow more without having to apply for new credit. A restaurant business line of credit is more flexible than a traditional loan in which you receive a lump sum of money upfront.

How to Use a Business Line of Credit for Your Restaurant

There are a number of ways you can use a line of credit for your restaurant. Below, you’ll find a few examples of how small business owners use loans in the restaurant industry.

1. Startup Expenses

If you’re a brand new restaurant or have plans to start a restaurant from scratch, a line of credit may be ideal for the various expenses you’ll incur right off the bat. These might include equipment, initial food items, utilities, marketing, and payroll.

2. Add or Update Equipment

Equipment is essential to any restaurant. A business line of credit can help you cover the cost of a new oven or range. It may also help you fund freezers, refrigerators and smaller items like food processors and mixers. In addition, you might use a line of credit to upgrade outdated equipment that no longer works or functions optimally.

3. Meet Seasonal Demand

There’s a good chance the demand for your restaurant fluctuates based on the season. This is particularly true if you operate in a touristy area or attract guests because of your patio or other outdoor features. A restaurant line of credit can make it easier for you to handle seasonal ebbs and flows.

4. Promote Your Offerings

Even if you have a loyal customer base, it can’t hurt to market your restaurant to new patrons. With a business line of credit for a restaurant, you can build a website or improve your current one, invest in paid search or social media marketing, start a direct mail campaign, or even hire a marketing consultant to help you out.

5. Pay for Franchise Obligations

If your restaurant is a franchise, you’ll have various fees to pay throughout the year. A line of credit for a restaurant can be used to cover them when you’re experiencing cash flow shortages.

6. Expand Your Restaurant

If you’re a local restaurant with one location, you might want to expand to multiple locations or begin to offer catering options. You can use a restaurant line of credit to do so and take your venture to new heights.

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How to Apply for and Use a Line of Credit for a Restaurant

If you decide that you want to move forward with a restaurant line of credit, follow these steps.

1. Shop Around

Not all business lines of credit for restaurants are created equal. That’s why it’s in your best interest to shop around and compare all the options at your disposal. Compare their rates, terms, and fees before selecting a credit line provider.

2. Fill Out an Application

Once you decide on a line of credit, fill out the lender’s application form online or in-person. Be prepared to share details about your businesses and finances.

3. Wait for Approval

Approval times vary from lender to lender. Most online lenders, however, will notify you of a decision fairly quickly, sometimes the same day you apply or within 24 hour a few business days.

4. Review the Loan Agreement

Upon approval, carefully review the agreement for your business line of credit for a restaurant. Don’t sign the contract until you’ve read the fine print and are confident that you can pay off your credit line.

5. Withdraw Funds

You can pull money from your line of credit any time you need to as long as you don’t go over your set credit limit. Be careful not to overspend or you may steer yourself into a cycle of debt.

Other Business Financing Options for Restaurants

1. Small Business Loans

Many restaurant owners opt for a term loan, which like the name states, comes with set terms. Although you could apply for a bank loan, you may not qualify if you don’t have a strong credit score or own a startup. Even if you do qualify, you may be given a high interest rate to make up for your bad credit or lack of business experience.

Instead, applying for a working capital loan from an alternative lender may be a better option for your restaurant.

2. Equipment Loan

If you need an oven or other restaurant equipment, you may benefit from pursuing an equipment loan. However, if you also need funds for other business expenses, you won’t be able to use the equipment loan for these costs.

3. Merchant Cash Advances

Most restaurants accept frequent credit card payments, which is why restaurant owners are a good fit for cash advance programs. When you take out a merchant cash advance, you’ll receive lump sum financing in exchange for a portion of your future credit card payments. Due to this, the remittance will be based on your credit card sales at the time, so there are no set terms.

4. SBA Loans

If you can’t qualify and secure traditional funding options, you may be approved for an SBA loan. The SBA provides a variety of loan programs to small business owners based in the U.S., spanning a variety of industries. If you can’t qualify for other funding options, you may be able to get an SBA loan for your restaurant.

Conclusion: Consider a Business Line of Credit for Your Restaurant 

A restaurant line of credit may be the ultimate choice if you like the idea of being able to borrow money whenever you need to. It can give you the flexibility you need and offers higher limits and lower rates than credit cards. But if you’re worried you’ll overborrow or prefer a lump sum of money upfront, you may want to explore other options, such as a restaurant business loan.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].