Business Expansion

Can I Get a Restaurant Loan With Bad Credit?

Last updated on March 10, 2020

Jacques Famy Jr

The short answer is yes, you can get a business loan for a restaurant even if you have bad credit, but it does depend on who you ask. If you contact the bank you do your banking with it may be “no,” as they deem restaurants as higher risk than other businesses. The good news is, there are a lot of other options other than banks to find the restaurant business funding that you need.

Why Do the Banks Say No, and Other Business Funding Options Say Yes?

Banks are risk-averse because they must protect all of their customers, whether business or non-business bank accounts. Under a State or Federal charter, banks must adhere to strict credit guidelines. Due to the high default rates of business loans and business lines of credit versus other lending products like mortgages, personal loans, auto loans, and credit cards, banks take a conservative approach to business lending.

So, Who Can Help Me Get a Business Loan When the Bank Says No?

The good news is that in the last 10 years, alternative business funding products have grown exponentially and a business owner with bad credit has a lot more options today than they used to. Alternative business lenders and alternative business lending marketplaces are great resources to find products that can help a restaurant owner with bad credit get financing for their business.

4 Top Business Loan Options for Restaurant Owners With Poor Credit:

  1. Short-Term Business Loans
  2. Business Line of Credit
  3. Business Cash Advance
  4. Merchant Cash Advance

Short-Term Business Loans for Restaurants

Short-term business loans are business loans that are shorter in duration than that of traditional business loans. The terms range between three to eighteen-month terms in duration. Because of this shorter term, the risk is minimized and allows the business lender to lower credit standards from that of a bank. The rates and costs are higher than those of traditional business loans as well to cover delinquency and default risk so they cost more than bank business loans and lines of credit.

Qualifications:

  • Annual revenue of the business must be in excess of $180,000
  • A minimum credit score of 500 and above
  • Over 6 months in business
  • No tax returns or financial statements typically required

Requirements:

  • One page application
  • 3 months of bank statements

Terms:

  • Terms range from 3 months to 18 months in duration
  • Charge a factor rate, not principal and interest which ranges from 1.10 to 1.45 of the loan amount
  • Payments are either weekly or daily (Monday-Friday) depending on the business lender
  • Origination or closing Fees deducted at funding

Availability Approval to Funding:

  • Same day to 24 to 48 hours

Pros and Cons:

Short term business loans are a great option once traditional financing is not available. The terms are predictable and fixed and there are no surprises but it is very important to way what you are using the money for in your business against the costs of the funding as well as the payments that are going to cut into your bottom line cash flows.

 

Business Line of Credit for Restaurants

 

There are now business lines of credit that are not issued by banks but alternative lenders which are great news but these products have different features and function differently than bank business lines of credit. Rates may be either factor rates or principal and interest rates which function differently so it’s important to get full disclosures from the business lender. They can be revolving lines of credit like credit cards and traditional lines of credit where a business can draw off of the line at any time as long as you are below the credit limit but there can be conditions to that so check the features of how the business line of credit works from the business lender offering you the terms.

Qualifications:

  • Annual revenue of the business must be in excess of $180,000
  • A minimum credit score of 500 and above
  • Over 6 months in business
  • No tax returns or financial statements typically required

Requirements:

  • One page application
  • 3 months of bank statements

Terms:

  • Terms range from 3 months to 12 months in duration
  • Revolving credit line operates similarly to that of a credit card which allows for draws at any time given you don’t exceed the credit limit.
  • Charges a Factor Rate 1.10 to 1.45 of the loan amount or principal & interest which ranges from 4.99% to 18.99%
  • Payments are either Monthly, Bi-Monthly, Weekly or Daily (Monday-Friday) depending on the business lender
  • Origination or closing Fees deducted at funding

Availability Approval to Funding:

  • Same day to 24 to 48 hours

Pros and Cons:

Business lines of credit are very flexible in that you can draw funds at any time as long as you don’t exceed your credit limit. They tend to have lower credit limits than that of term loans but can be affordable and have reasonable payments. It’s important to understand all the features and functions of the business line of credit that you are being offered. Make sure you ask about monthly service fees, number of draw limits within a time frame, is the line a factor rate or principal & Interest Rate, does it expire and when, and how to renew.

 

Business Cash Advance for Restaurants

 

A business cash advance, also known as a future purchase sales receivables agreement, is a purchase of future sales receivables at a discount for the ability to receive a lump sum (or specified amount) of money now. Small business owners can raise money quickly by selling a portion of their future sales at a discount to a funder in exchange for immediate cash for the business. It’s a great way to receive the cash advances you need to keep your company running smoothly. The costs of the business funding are based on a fixed cost or “factor rate” which is not principal and interest, so there is no benefit to paying off early unless the funder adds an early payment discount feature. This is unlike principal and interest which is calculated by principal balance daily.

The repayment method is a fixed monthly percentage of future sales deposits in your business bank account so the payments can be flexible as the fixed repayment percentage is connected to your future sales deposits. Typically these agreements have an established, fixed, daily (Monday through Friday), or weekly payment auto ACH out of business bank account based on current sales volume. But what is different is you can submit your bank statement from the prior month within a certain time frame after the month has ended for an “adjustment” or refund if the ACH payments taken exceed the monthly fixed-rate (specified rate) of total deposits. The payback amount, also known as the specified percentage is the amount the business owner will have to pay back.

Example of a Business Cash Advance Quote:

Advance Amount (Purchase Price): $25,000

Payback Amount (Specified Amount): $29,000

Future sales withheld (Specified Percentage): 9%

Fixed Payment ACH Weekly: $450

Qualifications:

  • Annual revenue in excess of $180,000
  • A minimum credit score of 500 and above
  • Over 6 months in business
  • No tax returns or financial statements typically required

Requirements:

  • One page application
  • 3 months of bank statements

Terms:

  • Terms from 6 to 18 months
  • Factor rates from 1.18 to 1.45
  • Weekly or daily (M-F) payments
  • Origination Fees

Availability Approval to Funding:

  • Same day to 24 to 48 hours

Pros and Cons:

A business cash advance is more lenient with credit and bank statement health than that of short-term business loans or business lines of credit, but it comes at a price, as it is more costly than traditional financing. The terms can be more flexible in repayment, but you need to do a cost/benefit analysis before making the decision to move forward with this type of business financing. Clearly this is a very popular business loan product when used properly for the business.

 

Merchant Cash Advance for Restaurants

 

A merchant cash advance, also known as a future purchase sales receivables agreement, like a business cash advance is also a purchase of future sales receivables at a discount for the ability to receive a lump sum (or purchase amount) of money now. Small business owners can raise money quickly by selling a portion of their future sales at a discount to a funder in exchange for immediate cash for the business. Like a business cash advance, a merchant cash advance’s costs are based on a fixed cost or “factor rate” which is not principal and interest, so there is no benefit to paying off early unless the funder adds an early payment discount feature, unlike principal and interest which is calculated by principal balance daily. The payback amount, also known as the specified percentage is the amount the business owner will have to pay back.

The repayment method of a merchant cash advance is also a fixed monthly percentage of future sales but based on credit card sales. The payments are flexible because the repayment is based on a fixed percentage of future credit card batches. There is no fixed daily Monday through Friday or weekly payment auto ACH out of business bank account based on current sales volumes like a business cash advance would have. There is no need for an “adjustment” or refund monthly like a business cash advance because the payments are connected to the future credit card sales directly so the amount a business owner pays fluctuates to the flow of future credit card batch volumes as the agreement states a fixed percentage (specified percentage) is deducted to repay the advance upon every credit card batch

Example of a Merchant Cash Advance Quote:

Advance Amount (Purchase Price): $25,000

Payback Amount (Specified Amount): $29,000

Future Credit Card Batches withheld (Specified Percentage): 9%

Qualifications:

  • Annual revenue in excess of $180,000
  • Credit card sales of $10,000 plus per month
  • A minimum credit score of 500 or above
  • Over 6 months in business
  • No tax returns or financial statements typically required

Requirements:

  • One page application
  • 3 months bank statements
  • 3 months of merchant processing statements

Terms:

  • No set length of term, but estimated times to pay are between 6 to 18 months
  • Factor rates from 1.18 to 1.45
  • Daily (M-F) payments through holdback percentage of credit card batches
  • Origination fees

Pros and Cons:

Merchant cash advances have higher approval rates and are easier to obtain than any other business funding product. Obviously you need to be a business that accepts credit cards from customers on a daily basis to qualify but the credit and bank statement tolerances are more lenient than any other.

So, Who Can Help Me Get a Business Loan When the Bank Says No to a Restaurant Owner Because of Bad Credit?

Marketplace business funders, as well as online business lenders, are greater sources to find alternatives when a bank says no to a restaurant owner because of bad credit. These funders and lenders can be found easily with a quick google search and can provide the business loan products mentioned in this article.

If you found this article helpful, AdvancePoint Capital offers all of the products mentioned in this article and can help your restaurant get business funding regardless of bad credit.

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* 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.