Restaurant Loans

How to Get a Restaurant Franchise Loan or Standalone Restaurant Financing

The world of food service is dynamic and rewarding, yet it demands substantial capital for success. Restaurant financing through SBA loans provides a reliable path forward, offering terms that align with the unique cash flow patterns of restaurants. We will focus on two primary scenarios in this article – securing funding to buy a restaurant franchise with its proven systems and support or buying a restaurant that is independent. Both approaches can leverage SBA 7(a) and 504 loans, which we specialize in delivering to help you achieve your goals.

The restaurant sector continues to evolve, with consumers seeking a wide range of dining experiences from quick service to fine dining. Startup costs often exceed $300,000 for modest operations, covering leasehold improvements, kitchen equipment, inventory, licensing, and initial marketing. Ongoing needs like payroll and seasonal fluctuations make flexible restaurant funding essential.

SBA loans stand out for their government guarantees, which reduce lender risk and enable more favorable conditions than conventional options. The 7(a) loan program offers versatility for working capital, franchise fees, or acquisitions, whereas 504 loans targets long-term assets like real estate. Understanding how to get a restaurant loan in these contexts empowers you to make informed choices.

How to Get a Restaurant Loan for a Franchise Opportunity

Entering the restaurant industry through a franchise model provides a structured foundation that can significantly lower the risk of your venture. When you buy a restaurant franchise, you gain access to an established brand, supply chain efficiencies, marketing campaigns, and operational playbooks developed over years of refinement. Popular examples include Subway, known for its low overhead and customizable menu; McDonald’s, with its global recognition and drive-thru efficiency; Dunkin’ Donuts, focusing on coffee and quick breakfast items; or Chick-fil-A, renowned for customer service and limited operating hours. Each franchise has specific investment levels, for example a Subway franchise location typically ranges from $116,000 to $263,000, including a $15,000 franchise fee, while McDonald’s requires $1 million to $2.2 million with a $45,000 franchise fee.

The appeal of buying a restaurant franchise lies in the franchisor’s support, which lenders view favorably when evaluating restaurant funding applications. Franchisors often provide detailed financial performance representations in their Franchise Disclosure Document (FDD), showing average unit volumes. For instance, a typical Subway location might generate $400,000–$600,000 annually, or a Dunkin’ Donuts store $1 million or more in high-traffic areas. This data strengthens your business plan, demonstrating projected cash flow to service debt.

SBA 7(a) Loans for Restaurant Franchise Financing

The SBA 7(a) loan is the cornerstone for restaurant franchise financing. This program allows up to $5 million to cover franchise fees, build-out costs, equipment, inventory, and working capital. Terms extend to 10 years for general purposes or up to 25 years when real estate is involved, with interest rates based on the prime rate plus a margin, typically resulting in effective rates of 8-11% as of 2025. The SBA guarantees 75% to 85% of the loan, which reduces risk for lenders and makes it easier for restaurants to get approved, even in a challenging industry.

For franchises requiring significant property investment, the SBA 504 loan program offers an excellent complement. Structured with a minimum of 50% from a conventional lender, up to 40% from a Certified Development Company (CDC) at a fixed rate, and a minimum of 10% borrower equity (higher for startups or larger projects), it finances land, buildings, or major renovations with terms up to 25 years. Imagine buying a restaurant franchise like Chick-fil-A, where build-out costs can exceed $1 million—the 504 loan locks in predictable payments for the facility, freeing cash for operations.

Steps to Buy a Restaurant Franchise with SBA Funding

Eligibility for an SBA 7(a) or 504 loan when buying a restaurant franchise includes the brand being listed in the SBA Franchise Directory, confirming it meets independence standards. Personal credit of 680 or higher is preferred, along with relevant experience (hospitality management or business ownership) and a minimum of 10% equity injection from verifiable sources. The business plan must incorporate the FDD’s Item 19 earnings claims, location analysis, and how franchisor support will drive profitability.

How to buy a restaurant franchise with SBA financing involves several key steps.

First, research franchises via the International Franchise Association or SBA Directory to ensure eligibility. Review the FDD thoroughly, noting fees, territory rights, and required investments. Next, develop a detailed business plan, projecting revenue based on franchisor averages adjusted for your market, like a Subway in a busy urban area aiming for $500,000 year-one sales.

Prepare documentation: Personal financial statements, tax returns for three years, resumes highlighting relevant experience, the franchise agreement, and lease or purchase details for the location. For a restaurant equipment loan component within the 7(a), include quotes for ovens, refrigeration, or POS systems.

Submit through an SBA Preferred Lender for expedited processing—expect 45-90 days from application to funding. Underwriting focuses on the franchise’s track record to mitigate restaurant risks like seasonal dips or competition. Upon approval, funds are disbursed for franchise fee payment, build-out, and opening inventory.

Pros of this path include reduced startup risk through franchisor training, for example, McDonald’s comprehensive operator program, and national marketing that drives traffic from day one. Challenges involve ongoing royalty fees (4-8% of sales) and adherence to brand standards, which limit menu creativity but ensure consistency.

Restaurant franchise financing with SBA loans also supports multi-unit development. Experienced operators can use 7(a) funds for additional locations, leveraging existing performance to qualify for larger amounts.

How to Get a Restaurant Loan for Non-Franchise Acquisitions

For those seeking complete creative freedom, buying a non-franchise restaurant, often called an independent or “mom-and-pop” operation, allows you to craft a unique concept, menu, and atmosphere. Examples include local bistros, ethnic eateries, farm-to-table spots, or neighborhood cafes with signature dishes. To buy an existing restaurant of this type, you acquire an established operation with its customer base, equipment, and location, potentially accelerating profitability compared to ground-up builds.

Costs to buy a restaurant vary widely: A small cafe might range from $100,000–$300,000, including goodwill and inventory, while a full-service establishment with real estate could exceed $1 million. SBA restaurant loans help bridge this gap by evaluating the business’s historical performance and cash flow, rather than relying solely on franchisor support.

SBA Loans for Buying a Non-Franchise Restaurant

The SBA 7(a) loan excels for non-franchise acquisitions. It finances up to $5 million for the purchase price, goodwill (intangible value like customer loyalty), equipment upgrades, inventory, and working capital. Terms of 10 years for soft costs or up to 25 years for real estate provide breathing room as you implement changes. For instance, buying a restaurant with $800,000 annual sales but outdated kitchen could use 7(a) funds for renovations, boosting efficiency and revenue.

The SBA 504 loan is optimal when the deal includes owned property. With its fixed-rate structure and low equity requirement, it finances the building while a companion 7(a) loan covers operations. This dual approach minimizes cash outlay when you buy a restaurant with prime location value.

Key Steps to Secure Restaurant Funding for Independents

Eligibility mirrors franchise requirements but emphasizes the target’s financials including tax returns showing profitability, profit/loss statements, balance sheets, and a professional valuation. Credit 680+, management experience, and 10-20% down payment are standard. The business plan details your vision, perhaps rebranding a tired diner into a modern gastropub with projected 20% sales growth through menu refresh and marketing.

How to get a restaurant loan for a non-franchise purchase starts with sourcing opportunities via brokers or listings. Conduct thorough due diligence: Review leases, equipment condition, vendor contracts, health inspections, and customer reviews. Negotiate the purchase agreement with financing contingencies.

Prepare extensive documentation: Historical financials for three years, lease or property details, inventory lists, and your improvement plan. A restaurant equipment loan can target specific upgrades like new fryers or HVAC. Application follows similar steps as franchises but with heightened scrutiny on transition risks. Underwriting assesses your ability to maintain or grow revenue post-purchase. Pros of non-franchise include no royalty fees and full menu/decor control, allowing niche concepts like vegan or fusion cuisine. Cons involve building a brand from existing reputation, which may require re-marketing.

Restaurant financing for independent operators is often most successful when the location has strong fundamentals, such as foot traffic, parking, and visibility. SBA loans can help bridge valuation gaps, making it possible to purchase and preserve well-established community restaurants.

Comparing Franchise and Non-Franchise Restaurant Loan Considerations

In both paths, restaurant funding via SBA programs offers accessibility. The 7(a) provides broad coverage, while the 504 secures fixed assets. Restaurant franchise models benefit from franchisor data, but existing non-franchise restaurants leverage existing revenue.

Additional considerations: Insurance for liability and property, permits for alcohol or outdoor seating, and technology for POS/reservations. Restaurant franchise paths include franchisor approval timelines; non-franchise focus on seller negotiations.

Risk is common to both: both franchise and non-franchise restaurants are subject to economic downturns affecting dining out, labor shortages, or supply chain issues. Successful restaurant owners mitigate this with diversified menus, loyalty programs, and contingency reserves. Costs for restaurant financing include SBA guarantee fees (2-3.75%), origination (1-3%), and appraisals ($2,000+), often financed in. As of 2025, interest rates for restaurant loans hover between 8-11% for variable 7(a) loans.

At First Bank of the Lake, we guide clients through these details daily. Whether pursuing a restaurant franchise or independent vision, SBA loans remain our recommended starting point for restaurant funding.

Choosing Your Path to Restaurant Ownership

The journey to own a restaurant, franchise or independent, begins with solid financing. How to buy a restaurant franchise or non-franchise hinges on preparation and the right loan structure. Reach out to discuss your specific plans, we’re here to help turn them into reality.

About First Bank of the Lake

The friendly financial experts at First Bank of the Lake offer SBA loans designed with the needs of our customers in mind. We financed more than $600 million in SBA loans over the past 12 months and are ranked as the 15th largest SBA lender in the United States in 2024. Since our founding in October 1985, we have offered outstanding customer service and the best financial options for their needs. Today, First Bank of the Lake offers loans for business enterprises across the United States. To learn more about our bank or about SBA loans, visit our website or check us out on Facebook or LinkedIn. Our friendly and knowledgeable staff members will be happy to discuss your loan options with you and to help you achieve the highest degree of success in your chosen industry. Please contact us at (888) 828-5689 to get your business loan questions answered today!

Understanding Restaurant Business Loans and How Funding Works

The restaurant industry is more than just a source of delicious meals – it’s a driving force behind global economic growth and cultural exchange. Over the last decade, restaurants have seen immense growth, with U.S. restaurant sales reaching nearly $899 billion according to the National Restaurant Association. This boom is driven by shifting consumer habits, technological advancements, and a stronger focus on convenience and experience. From fast-casual eateries to fine dining establishments, restaurants have become hubs for connection, innovation, and economic opportunity. This growth extends beyond profits, as the industry employs millions of workers worldwide and fosters creativity within food culture.

Running a restaurant successfully demands innovation, hard work, and, above all, financial resources. Whether opening a small café, growing a franchise or expanding an established eatery, most restaurant owners will eventually need additional funds. This is where a restaurant loan can help. From managing daily operations to making major investments in equipment or renovations, restaurant loans give owners the financial flexibility they need to thrive. We will break down what restaurant business loans are, how they work, and tips for obtaining restaurant financing tailored to your unique goals. If you’re considering an SBA restaurant loan or exploring other government financing options, read on to learn how the right financing can support your restaurant’s growth.

What Is a Restaurant Business Loan?

A restaurant business loan is a type of financing designed to meet the specific needs of restaurant owners. These loans ensure you have the financial tools necessary to address operational challenges and increase growth opportunities. Common uses for restaurant financing include:

• Purchasing kitchen equipment like ovens, refrigerators, or grills
• Renovating interiors to enhance guest experiences
• Covering payroll during slower periods
• Advertising and marketing campaigns to attract diners
• Managing daily operational expenses like utilities and inventory replenishment

Restaurants face specific challenges, from fluctuating revenues due to seasonality to high upfront costs for equipment and property. The good news is there are tailored lending options, including SBA restaurant loans and working capital loans, offering financial solutions to meet these challenges.

Why the Best Restaurant Financing Matters

Restaurant financing is more than just a safety net, it’s a requirement for success. Here’s why a loan might work for your restaurant business:

1. Stability Through Seasonality – Restaurants often experience seasonal highs and lows. A well-timed loan can help you cover expenses during slower months while preparing for peak seasons.
2. Enable Growth – A restaurant business loan gives you the ability to expand into new markets, purchase advanced equipment, or invest in additional staff, thus driving growth.
3. Upgrading Amenities – Bank or SBA restaurant loans can provide funds for upgrades that enhance customer experiences, such as extending outdoor seating or integrating the latest payment technologies.
4. Crisis Management – Unexpected repairs, equipment breakdowns, or economic downturns can wreak havoc without emergency funds. Restaurant loans ensure you’re prepared for the unexpected.

How to Secure Restaurant Financing

Obtaining a restaurant business loan doesn’t have to be overwhelming. By preparing thoroughly and researching options, you will improve your chances of approval. Here’s how to secure restaurant funding efficiently.

1. Identify Why You Need a Loan

Start by clarifying your reasons for seeking a restaurant loan. Are you launching a second location? Upgrading your kitchen? Covering short-term payroll expenses? Painting a clear picture of your goals will guide you toward the right loan type while helping lenders understand your vision and business needs.

For example, a restaurant owner in Chicago who aimed to open a summer patio secured a $25,000 restaurant business loan for furniture and landscaping costs. Their clear loan purpose stood out to the lender.

2. Compare Loan Options

Not every financing option will align with your business needs. Explore the wide range of restaurant loans available, including traditional bank loans, SBA restaurant loans, and alternative financing options like merchant cash advances.

Types of Restaurant Financing

• SBA Restaurant Loans – These are government-backed loans offering favorable terms, often ideal for restaurant operators seeking long-term growth.
• Equipment Financing – Leverage this type of loan for purchasing or replacing costly restaurant machinery.
• Lines of Credit – Flexible restaurant financing option, enabling restaurant owners to cover short-term costs as needed.

3. Get Your Documents in Order

Lenders often require substantial documentation to process a restaurant business loan application. Before applying for restaurant funding, prepare these essential documents:

• A detailed business plan, outlining how funds will be utilized
• Recent profit and loss (P&L) statements
• Tax filings for no less than three years
• Personal and business credit scores

Having your paperwork ready signals professionalism and ensures your loan application process goes smoothly.

4. Submit and Follow Up on Your Application

When applying for your restaurant business loan, accuracy and communication is key. Provide complete, consistent financial documentation to avoid delays. Stay in close contact with the lender, promptly answering their inquiries.

SBA Restaurant Loans in Depth

Among the many restaurant financing options out there, SBA restaurant loans are particularly sought after by small business owners. Backed by the U.S. Small Business Administration, these loans offer favorable terms that appeal to restaurants of all sizes.

Types of SBA Restaurant Loans

SBA 7(a) Loan – This is the most versatile type of SBA loan, allowing restaurant owners to cover a broad range of expenses including working capital, inventory, and equipment.

• Loan amounts up to $5 million
• Repayment terms of up to 10 years for working capital or equipment
• Widely used among independent restaurants

SBA 504 Loan – The loan is suited for larger investments like real estate or large fixed assets.

• Loan amounts up to $15 million, with 50% from a lender, 40% (up to $5.5 million) from a Certified Development Company (CDC), and at least 10% from the borrower.
• Repayment terms are up to 25 years for real estate and 10 years for equipment.
• Fixed interest rates for long-term financing
• Ideal for opening multiple franchise locations or renovating a flagship property

To qualify for an SBA restaurant loan, you’ll generally need solid credit, a detailed business plan, and proof of ability to repay the loan. These loans can take time to process, but the competitive interest rates and extended repayment schedules make them a top choice for restaurant owners.

How to Use Restaurant Financing Effectively

Once approved for a restaurant business loan, setting a clear budget ensures the funds are used wisely. Below are some impactful ways to use the loan proceeds effectively.

• Expand Seating Areas – Outdoor dining is increasingly popular. Use your restaurant funding to build comfortable patios or invest in weatherproof canopies and heat lamps.
• Upgrade Kitchen Equipment – Equipment financing often accompanies restaurant business loans, ensuring chefs have the latest tools to maintain efficiency and consistency.
• Marketing and Promotions – Bring in more diners by utilizing loan proceeds for strategic campaigns, such as social media promotions or local sponsorships.

Tips to Improve Your Loan Application

Follow these proven strategies to boost your chances of securing restaurant funding.

1. Monitor Credit Scores – Strong personal and business credit is critical when applying for restaurant loans. If necessary, work to raise your score before submitting an application.
2. Provide Detailed Projections – Show lenders how their funds will help your restaurant thrive; use financial projections to demonstrate improved profitability.
3. Explore Alternatives – If denied a traditional restaurant business loan, research lending marketplaces or community banks that may offer flexible terms.
4. Highlight Experience – Showcase your expertise as an operator. Lenders are more likely to approve financing for experienced restaurateurs with a track record of success.

Get Your Questions Answered Today

Navigating restaurant financing alone can feel overwhelming at times. Don’t hesitate to reach out to accountants, financial advisors, or lending consultants who specialize in restaurant business loans. Their expertise can uncover loan options best-suited to your business, ensuring that you secure financing aligned to your vision.

Securing funding is pivotal for any restaurant aiming to grow or stabilize operations. Whether you tap into SBA restaurant financing or alternative lending options, a carefully chosen restaurant business loan can provide the capital needed to achieve your goals. Stay prepared, explore multiple sources of restaurant funding, and build strong relationships with lenders. With the right plan, your restaurant will be poised for long-term success.

Whenever you’re ready to take the next step, consult with financial professionals or experienced lenders to pinpoint the best options for your business. Together, you can craft a strategy that helps your restaurant thrive in both good times and challenging seasons.

The friendly financial experts at First Bank of the Lake offer SBA loans designed with the needs of our customers in mind. We financed more than $600 million in SBA loans over the past 12 months and are ranked as the 14th largest SBA lender in the United States. Since our founding in October 1985, we have offered outstanding customer service and the best financial options for their needs. Today, First Bank of the Lake offers loans for business enterprises across the United States. To learn more about our bank or to apply for an SBA loan, visit our website or check us out on Facebook or LinkedIn. Our friendly and knowledgeable staff members will be happy to discuss your loan options with you and to help you achieve the highest degree of success in your chosen industry.

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Restaurant Loan FAQ: Franchise and Non-Franchise Restaurants

1. What is a restaurant loan?

A restaurant loan is financing designed to support starting, expanding, or acquiring a restaurant, covering costs like equipment, real estate, inventory, or working capital. For franchise restaurants, it often includes franchise fees, while non-franchise options focus on unique buildouts or renovations, with SBA programs like 7(a) and 504 offering government-backed terms up to $5 million.

2. How do SBA 7(a) loans work for restaurant franchises?

SBA 7(a) loans provide up to $5 million for restaurant franchises, financing fees, buildouts, equipment, and real estate with terms up to 25 years. Franchises must be in the SBA Directory; eligibility requires 680+ credit and 10-20% equity, making it ideal for brands like Subway or McDonald’s due to their proven models.

3. What are the eligibility requirements for restaurant financing?

Eligibility typically includes a credit score of 680 or higher, a solid business plan with projections, personal guarantees, and 10-20% down payment. For franchises, the brand must qualify via SBA; non-franchise needs historical financials showing viability, with SBA loans favoring cash flow over perfect credit.

4. Can I use restaurant funding to buy a non-franchise restaurant?

Yes, SBA 7(a) loans finance non-franchise acquisitions up to $5 million, covering purchase price, goodwill, equipment upgrades, and working capital. Due diligence on financials and valuations is key, with terms up to 10 years for operations or 25 years for property, allowing creative menu and branding freedom.

5. What is the difference between financing for franchise and non-franchise restaurants?

Franchise loans often leverage the franchisor’s track record and SBA Directory status for easier approval, covering fees and standardized buildouts. Non-franchise loans emphasize the target’s historical performance and custom plans, with both using SBA 7a and 504 loans but franchises benefiting from lower perceived risk.

6. How much down payment is needed for restaurant funding?

SBA loans require 10-20% equity for established restaurants and up to 20-30% for startups. Franchises may qualify for lower due to brand strength, while non-franchises need verifiable sources to demonstrate commitment, reducing lender risk in this high-volatility sector.

7. What documents are required for a restaurant funding application?

Key documents include personal financial statements, three years of tax returns, a detailed business plan with projections, resumes, and credit reports. For franchises, add the Franchise Disclosure Document; non-franchises need target financials, valuations, and purchase agreements to prove repayment ability.

8. How long does it take to get approved for restaurant financing?

SBA restaurant loan approval typically takes 45-90 days, including underwriting for cash flow and risks. Franchises may process faster with franchisor data; non-franchises involve more due diligence on operations, but Preferred Lenders can expedite for both models.

9. Are personal guarantees required for restaurant funding?

Yes, owners with 20% or more stake provide unconditional personal guarantees for SBA restaurant loans, pledging assets if the business defaults. This applies to both franchises and non-franchises, ensuring accountability in an industry with variable cash flow from seasonality.

10. Can startups get restaurant loans?

Restaurant startups can qualify for SBA 7(a) loans with strong plans, 20-30% equity, and relevant experience. Franchises like Dunkin’ Donuts benefit from brand data; non-franchises need market analysis showing demand, though higher risk may require co-signers or collateral.

11. What fees are associated with restaurant financing?

SBA restaurant loans include guarantee fees (2-3.75% of the guaranteed portion), origination fees (1-3%), appraisals, and closing costs, often financed in. Franchises may incur additional franchisor fees; non-franchises focus on valuation expenses, totaling 3-5% of the loan amount.

12. How do SBA 504 loans work for restaurant real estate?

SBA 504 loans finance owner-occupied real estate for restaurants with fixed rates, requiring a minimum 10% equity injection. Ideal for franchises or non-franchises buying property, these loans can support projects up to $15 million in total costs and offer terms of up to 25 years, helping preserve working capital for operations such as menu development and staffing.

13. What risks do lenders consider for restaurant funding?

Lenders assess seasonality, high failure rates (60% in first year), competition, and cash flow volatility. Franchises mitigate with brand strength; non-franchises need proven revenue; SBA loans reduce the risk to the lender through guarantees, but strong plans are essential for approval.

14. Can a restaurant loan cover equipment purchases?

Yes, SBA 7(a) loans include restaurant equipment loans up to $5 million for ovens, refrigerators, or POS systems, with 10-year terms. SBA 504 loans can also be used to finance eligible long-term fixed assets, such as heavy equipment, either as part of a real estate project or as a standalone purchase. Both franchises and non-franchises benefit, allowing upgrades that enhance efficiency and customer experience without depleting reserves.

15. How does seller financing complement restaurant loans?

Seller financing may cover 10-30% of the purchase price for non-franchise buys, reducing equity needs and pairing with SBA loans for complete funding. For franchises, it’s less common but can bridge gaps, signaling seller confidence in the operation’s future.