Business Management

How to Get Working Capital for a Restaurant Business

Last updated on May 26, 2020

Jacques Famy Jr

For restaurant owners, a restaurant is not just a business that generates profit; it’s about the love of food and the restaurant experience. It’s a passion, inspiration, and desire to create food that pleases the palate and an experience that wow’s the customer. But with that passion come’s a constant need for innovation and change to maintain the restaurants relevancy in a very competitive industry. Whether it’s revamping of the menu or enhancement to the experience of the restaurant itself or the need for emergency working capital, the restaurant owner must be prepared and have a plan for business funding.

So let’s walk through what to consider, so that as a restaurant owner in need or working capital, you will be knowledgeable and ready to execute on that plan when the need arises.

Identifying the Need for the Restaurant Financing

Let’s start with need. Believe it or not your “need”, a lot of times, will drive what type of business financing product will work best.

So let’s look at the Top 5 Reasons for the need for a business loan for a Restaurant;

  1. Working Capital. Working Capital is by far the biggest request because restaurants have a lot of fluctuation due to issues like seasonality and special events. Some months are stronger than other months and sometimes extra capital is needed to get through without going negative in cash flow. Also, new opportunities may arise such as catering, where capital is necessary to front for product and or payroll before the revenue comes in from the new opportunities. Not to forget to mention good old general emergencies that arise that can only be solved with money.
  2. Always a cost and necessity for a restaurant to advertise so you can get your message out there and keep the business coming in. Internet marketing has become essential with mobile smart phones 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. Not to mention, the old school advertising methods that may work like door flyers, paper ads, mailers, or radio advertising, to name a few.
  3. Construction, Remodeling, and/or Decoration. 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 case a full re-design, redecorate, renovation or expansion. I don’t think I need to educate you about the costs of redesign, redecorate, construction or remodeling, that’s a whole other topic in of itself.
  4. Always a need to maintain and in some cases replace kitchen equipment and as you know, that can cost in the tens of thousands of dollars.
  5. Point of Service or technology upgrades. In the last couple 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 out there that are really improving services levels and working efficiencies with the restaurant. Although they can really make a difference, the costs that can be in the tens of thousands of dollars with hefty price tags.   

Choosing the Best Option for Restaurant Financing Based on your needs

Once you have identified your need, the next step is identifying the best business financing product that meets that need and which product works best for that need.

Here are the Top 6 Business Finance products;

SBA Loans (

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 terms with multi-year terms, low interest rates and monthly payments. Unfortunately, they are also very hard to get an approval for, with a lengthy process, multiple steps that can take months, high credit requirements, high 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 term business loan.

Business Line of Credit 

Business Lines of Credit provides flexibility, with access to capital as you need it, unlike a business loan which has a fixed term with a fixed amount that you accept at time of funding. 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 credit limit and only pay interest on the principal that’s outstanding. Great for short term needs. Most business lines of Credit are offered by the bank the restaurant owner is using for their banking, but again, like SBA loans have high credit standards, lengthy process and high financial statement requirements.

Business Term Loans 

Business Term Loans that are not backed by SBA, so tend to have higher costs than SBA, but are easier to get approved. Business term loans are based on principal and interest with term lengths that can range from 6 months to 5 years. Usually this product is used as an alternative to SBA Loans. Expect high credit standards, financial statement paperwork to include business tax returns, but answers in days instead of weeks or months. Rates and terms vary greatly so you do need to do some shopping. 

Equipment Financing

Equipment financing is available typically for new equipment only and uses the equipment as collateral to offer multi-year financing with typical terms 12 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 same day.   

Business Credit Cards

Business Credit Cards are probably the most popular product on this list. The product as you may know is essentially the same as a personal credit card in that is revolving but there may be more features and benefits for the business. Easy process, a lot of options and competition when selecting options and you only pay interest on principle, accepted as a payment option with most venders, and instant access to the money when needed.

I recommend everyone should have one, but do your homework to find the best terms and options for you. I suggest the following comparison sites to check out what’s the best credit card for your needs;


Credit Karma    


Alternative Business Funding 

Although around since the 90’s, Alternative Business Funding is a relatively new product to businesses, sprung from the financial crisis of 2008. Basically, these products serves the underserved small businesses market which are business that can’t get approved with banks not only due to credit, but also Financial statements that don’t show enough gross sales, debt to income or profits in general.

  • Business Cash Advance (Future Receivables Purchase and Sale) This is not a loan, but an advance by selling a portion of the businesses future 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 business have low cash flow balances, which are a percentage of the monthly deposits of the business. These products charge a factor cost or fixed cost unlike principal and interest and cost more than traditional financing. But the good news is it allows for low credit scores, marginal cash flow, and poor financial statements. If you need money and you can’t get approved with other options, this may be a great option.
  • Alternative Term Business Loans There are term loans out there that have similar lose standards of Business Cash Advance but also come with higher costs than that of traditional business financing. They are business loans, but have terms that are from 4 to 18 months, with weekly or daily payments and charge a factor cost or fixed cost, instead of principal and interest. These products, unlike Business Cash Advance, often come with early pay discounts which are a nice feature. Also, unlike traditional business loans, the good news is it allows for low credit scores, marginal cash flow, and below average financial statements. They also have much higher approval rates than SBA loans or Traditional business loans.

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

Alternative Business Funding has really improved access to capital for restaurant business owners that, all too often, are turned away by banks, credit unions, and SBA Lenders/Brokers. Without this product, a vast majority of small business owners wouldn’t have access to capital at all.

Just remember to do a cost verses benefit analysis before making any decision on business funding.

How your Qualifications will result in what choices you have for financing you Restaurant


Personal Credit-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 600’s Alternative business funding may very well be your option. You can find ways to improve your score and understand more how it works at ( )

Business Credit-Business credit is looked at by all business funding products and focuses on how you pay vendors, other business loans, and judgements, liens, bankruptcies, etc…

Time in business– Typically traditional business funding products are available at 3 years plus in business with a minimum of 2 tax return years completed.  Alternative Business Funding starts around 6 months in business.

Financial Statements– Financial statements are tax returns, profit and loss statements, balance sheets, and accounts receivable/accounts payable reports. SBA and Traditional Business Loans will look at these statements and will weigh them heavily in their decision making. Alternative Business Funding generally does not unless it is large amounts between $100,000 to $1,000,000

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 business bank account as well as your annual gross sales. Traditional Lending typically like to see $750,000 and up in gross annual sales while Alternative Business Financing will evaluate starting at $120,000 per year. Keep in mind steady cash flow matters greatly as well. Cash flow answers the following questions. Is the deposit’s consistent month over month? Where are those deposits coming from? What is the average daily balance in the business bank account? Any overdrafts, NSF’s (non-sufficient funds), negative balance days? When Underwriters talk about cash flow or business bank statement health the above is what there looking at. Keeping any eye on your cash flow can make all the difference in the world.

Bottom line, as a restaurant owner, you need to be aware of all of the above qualifications. All too often, many restaurant owners just don’t know what the Bank, Credit Union, Lender, Funder, Broker or whomever is offering your business financing is looking for or at. Ignorance is NOT bliss! Trust me on this one.

Here’s a Secret. Get pre-approved for business loan financing whether you need it now or not! Why would I, as a business owner do that?

Here’s a simple answer. Many needs cannot be made into a reality without money! Wouldn’t it be better to know where to get the money before you need it? Won’t you sleep better, as restaurant owner, knowing that you have a business financing contingency plan for any need that may arise?

There is a difference between what is available for business financing in the marketplace and what YOU can be approved for! All of the suggestions for business financing that I mention don’t matter squat if you don’t qualify for them!

If finding out about terms and costs of business finance products do not require any upfront money to get approved why would you not get pre-qualified? Don’t you want to answer the questions, What are the terms? What’s it going to cost me as a business owner?

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

Doing your homework now versus waiting until you really are in need can make all the difference in the world, but I guess you already know that since your reading this article!

Knowledge plus preparedness equals choice and better decisions. 

* All loans made by either WebBank, an FDIC-insured Utah industrial bank, or Bank of the Internet Federal Bank, an FDIC-insured federally chartered thrift located in California. In connection with the loans, the Banks' underwriting conditions and terms apply.