How to Get Working Capital for Restaurants

Business Management

Jacques Famy Jr
Review By Todd Millman

Small business owners nationwide look at a business as an extension of themselves. For restaurant owners, a restaurant is not just a business that generates profit. The restaurant is a restaurateur's passion, inspiration, and desire to create a place where food pleases the palate and an establishment that makes for a great experience. But with that passion come’s a constant need for innovation and change to maintain relevancy in a competitive industry.

For many restaurants, whether it’s revamping the menu, an enhancement to the experience of the restaurant itself, the need for an unexpected business expense, or an emergency, the restaurant owner must be prepared and have a plan for business funding, like working capital loans. There is little doubt that capital is needed to avoid negative working capital and ensure the financial safety net stays afloat.

Let’s walk through what to consider as a restaurant owner needing working capital so you will be knowledgeable and ready to execute that plan when the need to access enough capital arises.

Identifying the Need For Financing Your Restaurant

Let’s start with the working capital needed. What is going to be enough capital? Believe it or not, your goals and/or “need” will often drive what business funding products will work best for your working capital needs. Why do many restaurants have negative working Capital? how much working capital? Because restaurants are complex businesses that have to address many different needs. Identifying the "need" will lead you to what is enough working capital.

Top 6 Reasons Why You Need Working Capital For A Restaurant:

  1. Operating Expenses for a Restaurant. Restaurants are capital-intensive. Working capital is one of the most popular reasons for the need for money for a restaurant. It is by far the biggest request because restaurants fluctuate due to issues like seasonality and special events. Some months are stronger than others, and sometimes additional capital is needed to get through without going negative in cash flow due to business operating expenses, liabilities, and/or bills.
  2. Marketing Campaign Strategy (Business Growth and Expansion) for a Restaurant. Advertising is always a cost and necessity, so you can get your message out there and keep the customers coming in, build a customer base, and increase traffic. Without customers, no restaurant exists, no matter how good the food is, because competition is fierce. Internet marketing has become essential with mobile smartphones playing such an influence on advertising, there’s always a need for search engine optimization, google pay per click, yelp, open table, and other internet strategies to gain an advantage.Your website must be fully functional and up to date to accept reservations, take an order, or advertise a special offer for customers not to mention the old-school advertising methods that may work, like door flyers, paper ads, mailers, or radio advertising, to name a few. Working capital loans can pay for this need for money to maintain and/or increase the restaurant's customer base.
  3. Construction, Building, Remodeling, and/or Decoration for a Restaurant. Restaurants are always trying to remain relevant in the eyes of the customers, so the experience at the restaurant itself will always need tweaking or, in some cases, a full re-design, redecorate, renovation, capital improvement, or expansion. This indeed requires capital. I don’t think I need to educate you about the costs of redesign, redecorating, construction, or remodeling; that’s another topic. Access to working capital money is usually necessary for most construction projects.
  4. Repair and/or Replace Equipment for a Restaurant. Maintaining and, in some cases replacing kitchen equipment is one of those expected or unexpected unavoidable repairs. As you may know, this can be costly and run in the tens of thousands of dollars. For a restaurant, there’s little doubt that working capital is required to meet this need.
  5. Point of Service or technology upgrades for a Restaurant. In the last couple of years, this area has really had a lot of innovation in the restaurant industry. There are many new technology systems and point-of-sales terminals that are improving service levels and working efficiencies within the restaurant. Although they can make a difference, the costs can be hefty price tag and cost tens of thousands of dollars, requiring significant capital. These types of expenses are not the ones you want to take shortcuts with, as they can be the lifeblood of any restaurant operation and a key to a successful restaurant.
  6. Inventory. A restaurant may need additional Inventory for special occasions, special events, and/or seasonal business activities.

Funding for Working Capital

Here are the Top 6 Restaurant Working Capital Loan Options:

1. SBA Loans for Your Restaurant

SBA Loans (Small Business Administration Loans) are made through banks, credit unions, and other lenders who partner with SBA by originating those loans and then backed by SBA, which provides a government-back guarantee on part of the loan to reduce the risk on the part of the partner.

SBA loans are the best all-around, with multi-year terms, low-interest rates, and monthly payments. Also, due to the long-term nature of the products, more capital is available than other funding options.

Unfortunately, they are also very hard to get approval for, with a lengthy process, multiple steps that can take months, high credit requirements, stringent working capital ratio, strong financial statement requirements, and collateral standards. If you fit into the box, then this product has no equal when it comes to a multi-year loan when in need of capital.

2. Business Line of Credit for Your Restaurant

Business Lines of Credit provide flexibility, with access to working capital as needed, unlike a business loan with a fixed term with a fixed amount that you accept. This product provides a credit limit but an ability to draw as little as you want at a time, when you want, up to that limit, and only pay interest on the outstanding principal.

Great for short-term working capital needs. The bank offers most business lines of Credit the owner uses for their banking, but again, like SBA loans, banks have high credit standards, lengthy processes, and high financial statement requirements. What you did last year will matter to the bank.

3. Small Business Loan for Your Restaurant

Working capital loans with a fixed term are called small business loans with long- and short-term options. Short-term loans in business funding refer to loans with fewer than 18 months. SBA does not back these loans, maybe another working capital option, and tend to have higher costs than SBA but are easier to approve.

Business term loans are based on principal and interest, with term lengths ranging from 6 months to 5 years. Due to the longer terms of term loans, more capital is available than other options. Usually, this product is used as an alternative to SBA Loans.

Expect high credit standards and financial statement paperwork to include business tax returns but answers in 1 business day instead of weeks or months. Rates and terms vary greatly, so you need to shop. This option is a great way to access a working capital financing alternative.

4. Equipment Financing for Restaurants

Equipment financing is typically available for new equipment and uses the equipment as collateral to offer multi-year financing with typical terms of up to 60 months. Strong personal and business credit will be required for this product, but they can be obtained very quickly, in some cases the same day.

5. Business Credit Cards for Restaurants

Business Credit Cards are probably the most popular product on this list. As you may know, the product is essentially the same as a personal credit card in that it is revolving, but there may be more features and benefits for the business. Although not considered a working capital loan but a revolving line, this working capital funding solution no doubt fulfills similar needs. It’s an easy process when selecting options, and you only pay interest on principle and offer instant access to the money when needed. You may be able to have more than one credit card at a time for your restaurant as well, depending on how much working capital you need. Whatever it takes to keep your restaurant working.

Everyone should have one for their working capital needs but do your homework to find the best terms and options. I suggest the following comparison sites to check out what’s the best credit card for your needs:

Alternative Business Funding Options for Restaurant Working Capital

Although around since the 90s, alternative business funding is a relatively new product to businesses in need of money, sprung from the financial crisis of 2008. Basically, these products serve the underserved small businesses market, which needs capital but can’t get approved with banks due to credit and financial statements that don’t show enough gross sales, debt to income, or profits in general.

1. Business Cash Advances, aka Merchant Cash Advance

Merchant cash advances are not small business loans but an advance by selling a portion of the business's future sales (credit card sales) at a discount to a funder in exchange for cash for the business owner now. Offering flexible time frames to repay with estimated times of 4 to 18 months. Weekly or, in some cases, daily payments if businesses have low bank account balances, a percentage of the monthly deposits.

These products charge a factor or fixed cost, unlike principal and interest, and cost more than traditional financing. But the good news is it allows for low credit scores and limited and poor financial statements. If you need working capital to pay expenses and can’t get approved with other options, this may be a great choice when searching for money.

2. Alternative Term Business Loans

Some loans out there have similar loose standards of Business Cash Advance but also come with higher costs than traditional business funding. They are loans but have terms from 4 to 18 months, with weekly or daily payments, and charge a factor cost or fixed cost instead of principal and interest.

Unlike Business Cash Advance, these products often come with early pay discounts, which are a nice feature. Also, unlike traditional loans, the good news is it allows for lower credit scores,  no capital, and below-average financial statements. They also have much higher approval rates than SBA loans or traditional loans providing greater access to money. Great for working capital needs.

Although alternative business funding has higher costs than that traditional lending which requires, as a business owner, to look closer at the cost versus benefit/value of the money, I see a lot of value in these products for a restaurant if used for the right reasons.

Alternative business funding has really improved access to business working capital for restaurant business owners often turned away by banks, credit unions, and SBA Lenders/Brokers when they need money most. Without this product, most small business owners wouldn’t have access to capital.

Just remember to do a cost versus benefit analysis before deciding to raise capital with this type of funding.

How To Qualify For A Restaurant Working Capital 


1. Personal Credit

Credit is the best indicator of risk. Personal credit scores do matter greatly for business funding products. When someone says high credit standards, generally, your credit score needs to be 720 FICO and Up. Once you get into the 600s, alternative business funding may be your option. If you have a poor rating, getting financing may pose an issue for you and your business. You can find ways to improve your score and understand how it works. ( )

2. Business Credit

All business funding products look at business credit and focus on how you pay vendors, other loans, the number of business trade lines and judgments, liens, bankruptcies, etc. Your company's credit does play a role, but personal credit is a heavier-weighted factor.

3. Time in business

Typically traditional funding products are available at 3 years plus in business with a minimum of 2 tax return years completed. Alternative funding is available within only a few months in business and starts around 6 months in business, depending on the lender or funder.

4. Financial Statements

Company financial statements include tax returns, profit and loss statements, balance sheets, assets and liabilities, debt to income ratio, cash on hand, capital reserves(negative working or working capital ratio), and accounts receivable/accounts payable reports. SBA and Traditional loans will examine these statements and weigh them heavily in decision-making. Alternative business funding generally does NOT require company financials unless it is a large request for capital, such as $150,000 or more.

5. Cash Flow Health

All business lending and Funding have monthly/annual revenue requirements, and look at how much revenue is deposited per month in your bank account and your annual gross sales. Traditional Lending typically likes to see $750,000 and up in gross annual sales, while alternative financing will evaluate starting at $120,000 per year.

Ask yourself the following health check questions. Is the deposit consistent month over month? Where are those deposits coming from? What is the average daily balance in the bank account? Any overdrafts, NSFs (non-sufficient funds), or negative balance days? When Underwriters talk about bank statement health, the above is what they're looking at.

The bottom line, as an owner, you must be aware of all the above qualifications. Many restaurant owners don’t know what the Bank, Credit Union, Lender, Funder, Broker, angel investors, or whoever is offering your financing is looking for or at. Ignorance is NOT bliss! Trust me on this one. You can’t solve your business's working capital needs without finding or getting approved for the funding product.

Frequently Asked Questions by Restaurant Owners

a. Are restaurants capital-intensive?

A restaurant is a capital-intensive endeavor and requires a lot of money to stay afloat and maintain a successful restaurant.

b. How much working capital do I need?

This is an important question to ask yourself before searching for working capital. You can make big mistakes if you don't get your numbers in order first. Calculate your need and predict future sales, don't overestimate.

c. What are the major sources of capital for a restaurant business?

A restaurant's major source of capital comes from real estate or investors. Getting a loan to start a restaurant is a daunting task. Raising capital from angel investors may be your only solution.

d. In California, is a licensed California finance lender the only entity I can borrow money from for my restaurant?

A licensed California finance lender is not required for all products and/or entities. Check with your originator and CFL about the legal issues surrounding business financing.

e. Here’s a Secret. Get Pre-Approved for Financing for Your Restaurant before you need it! Why Would I, as a Business Owner Want to Get a Quote Now?

Here’s a simple answer. Restaurant working capital needs cannot be realized without access to capital! Wouldn’t it be better to know where to get the capital before you need it? Won’t you sleep better knowing you have a business financing contingency plan for any need arising in a few months?

Businesses need to find out about product financing options, costs and terms of restaurant financing, and what is required to get approved for your restaurant. Why would you not get pre-qualified for capital? Don’t you want to know how much capital you would qualify for? Don’t you see the importance of getting the answers to these important questions?

Wouldn’t it be great to actually know how the process works for all the different types of business working capital financing products you may or will need in the future?

Doing your homework for informational purposes now versus waiting until you really are in need can make all the difference in the world when finding the best terms, best costs, and best loan when searching for working capital, but I guess you already know that since your reading this article!

Knowledge plus preparedness equal choice and better decisions. Information is king.

Jacques Famy Jr
author social link
Jacques Famy Jr

Small Business Loan Calculators

Calculate your financing costs using our nifty calculators now.

advancepoint get quote now
advancepoint get quote now