Restaurant Business Funding

Why lenders say no to restaurants, food trucks & food service businesses

• Restaurants carry a reputation for early closures, and a bank's credit policy prices that reputation into every hospitality file regardless of the numbers in front of it.
• Margins are thin and seasonal, so the cash left to service debt in a slow month is often less than a bank's model requires.
• Inventory is perishable and used kitchen equipment liquidates for a fraction of its installed cost, so there is little a bank can lend against.
• Most restaurants rent, and the buildout belongs to the landlord when the lease ends, which leaves a bank with leasehold-only collateral and a personal guaranty.
• Labor is the largest controllable cost and the least predictable, and turnover shows up in the numbers an underwriter reads.
• Many banks cap their hospitality exposure as a share of the portfolio, so a good restaurant file can be declined simply because the cap is full.

What actually gets funded

• Equipment financing and leasing: Funds hoods, cook lines, refrigeration, dish machines and POS against the equipment itself. The most available restaurant capital, written for start-ups with a down payment and for operating restaurants on a vendor quote and recent statements.
• SBA 7(a) through hospitality-minded lenders: Restaurants are eligible under 13 CFR 120.110. The SBA guaranty absorbs much of the category risk a bank will not, which makes 7(a) the main route to a start-up, a purchase, a buildout or a second location at a long term.
• Revenue-based and bank-statement financing: Underwrites an operating restaurant on deposits and card settlements rather than collateral or returns. Funds in days, costs the most, and is sized to remittances the restaurant must be able to carry in its slowest month.
• Private working-capital lines and unsecured term loans: Written on owner credit and deposit history for pre-opening payroll, a menu change, a slow quarter or the losses before a second unit ramps. Faster than a bank and cheaper than an advance.
• Food truck and trailer financing: The truck is titled collateral, so equipment lenders fund a finished truck or a custom build with a down payment and the owner's credit. The first season's permits, commissary and cash come from somewhere else.
• Real estate loans when the restaurant owns its building: SBA 504 and commercial real estate lenders change the conversation entirely, because the collateral finally exists. Rare for independents, but the strongest file in the industry when it applies.

Restaurants, Food Trucks & Food Service funding guides

• Financing a Second Restaurant Location: Buildout, Working Capital and Timing — Financing a second restaurant location is easier than the first because the first location's P&L is the underwriting. Lenders fund the buildout, the kitchen and the pre-opening months on proven unit economics, timed to the lease.
• Restaurant Equipment Financing: Kitchens, Hoods, Refrigeration and POS — Restaurant equipment financing is the most available capital in the industry because the hood, the line and the walk-in secure the loan. What lenders fund, lease versus loan, soft costs and what a start-up needs.
• Food Truck Financing: Buying, Building and Operating a Truck — Food truck financing is equipment financing on a titled vehicle. Lenders fund a finished truck or a custom build against the truck itself, and the first season's permits, commissary and working capital come from somewhere else.
• Why Banks Decline Restaurants, and the Lenders That Don't — Banks won't lend to most restaurants because the industry's reputation, thin margins, perishable inventory and leasehold-only collateral fail a bank's credit model. Specialty lenders underwrite restaurants differently.
• Restaurant Business Loans: Financing Options When Banks Say Restaurants Are Too Risky — Restaurant business loans exist, but rarely from the bank that holds your operating account. SBA 7(a) lenders, equipment lenders, revenue-based funders and private lines each underwrite a different part of the business.

How MercFinancial places restaurants, food trucks & food service requests

MercFinancial is a commercial funding brokerage in Houston, not a lender, and it does not have a restaurant program or a promise of approval. A restaurant request starts with the file: the lease and its term, the statements and P&L, prime cost, the owners' experience and credit, and what the money is for, whether that is a kitchen, a buildout, a food truck or the cash to carry a slow season. From there, the funding sources among MercFinancial's more than 160 whose credit policy allows hospitality and the structure in question are identified, one file is placed with all of them, and the offers are compared side by side.

Whether any product is available depends on the funding source, and when nothing fits yet, you are told that plainly along with what would change the answer. Stephanie, the lending assistant, pre-qualifies a request in a few minutes with a soft credit pull that does not affect your score, and a free call with a funding specialist is booked at the contact page.

Frequently asked questions

Can a restaurant get a business loan?

Yes, though rarely a conventional one from a bank. Restaurants are eligible for SBA 7(a) loans, equipment lenders fund kitchens against the equipment, revenue-based funders and bank-statement lenders advance against card sales and deposits, and private lenders write unsecured loans and lines on owner credit. Which of these is available depends on the restaurant's stage, its lease, its numbers and the funding source's policy.

Why do banks consider restaurants high-risk?

Because the category fails a bank's model before the file is read: a reputation for early closures, thin seasonal margins, perishable inventory, volatile labor cost and a leased location whose buildout belongs to the landlord. Many banks also cap hospitality exposure in their portfolio. None of that makes restaurants ineligible. It means a bank's conventional loan desk is usually the wrong door.

Can I get an SBA loan to open a restaurant?

Yes. Restaurants are not on the SBA's list of ineligible businesses, so a 7(a) loan is available through any SBA lender whose own credit policy accepts hospitality. A start-up will need an owner equity injection, documented food-service experience, a lease at least as long as the loan, personal guaranties and an opening budget with working capital. Approval and terms are the lender's decision.

How do I finance a food truck?

As equipment. A lender funds a finished truck or a custom build against the truck itself, holds a lien on the title and asks a start-up for a down payment, the owner's credit, food-service experience, a commissary agreement and a plan for where the truck will sell. Permits, insurance, inventory and the first season's payroll are funded from owner cash or a small unsecured loan.

Can I get restaurant funding with bad credit?

Often, at a cost. Equipment lenders lean on the collateral, revenue-based funders on card volume, and some private lenders write bank-statement loans for owners with challenged credit at higher pricing. A recent bankruptcy, an open tax lien or stacked cash advances narrow the field more than a low score itself does. A specialist can say which sources will read a given file before any application is made.

Financing for this industry

• Business Funding — Eight programs, one file, 160+ lenders.
• Unsecured Business Loans — Term loans and lines without specific collateral, for businesses with steady deposits.
• Real Estate Funding — DSCR, fix and flip, construction, bridge and portfolio loans for investors.

Related industries

• Bars, Nightclubs & Liquor Stores
• Gyms, Salons, Spas & Membership Businesses
• Seasonal Businesses