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 restaurateurs 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 the relevancy in a very competitive industry.

For many restaurants, whether it’s revamping of 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 provide that financial safety net to stay afloat.

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

Identifying the Need and Purposes for Your Restaurants Financing

Let’s start with the working capital need. What is going to be enough capital? Believe it or not your goals and or “need”, a lot of times, will drive what business funding products that 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.

So let’s look at the Top 6 Reasons for the need for working capital for a Restaurant;

  1. Operating Expenses for a Restaurant. Restaurants are capital intensive. One of the most popular reasons for the need of money for a restaurant is working capital and it 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 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 there is no restaurant, no matter how good the food is, because competition is fierce. 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 to gain an advantage. Your website must be fully functional and up to date to be able to accept reservations, take an order or to 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. Customers change behavior. What worked the past year, may not be effective now. Working capital loans can pay for this need for money to maintain and/or increase the customer base of the restaurant.
  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 case 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, redecorate, construction or remodeling, that’s a whole other topic in of itself. Having access to money for working capital 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 repairs that is unavoidable, and 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 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 within the restaurant. Although they can really make a difference, the costs that can be a hefty price tag and cost tens of thousands of dollars requiring significant capital. These type of expenses are not the ones you want to take short cuts with as it can be the life blood 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.


Choosing the Best Financing Options for your restaurant based on Your Needs

Once you have identified your need for capital for the restaurant, the next step is identifying the best way to find business funding for a restaurant that best suits working capital loans. There is no one business funding product that fits all needs or use of funds and most restaurant owners don’t have the resources like angel investors or a lender available to provide access to working capital loans to fund operations.

Funding for Working Capital: Here are the Top 6 Restaurant Working Capital Loan Options

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 terms 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 an 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.

Business Line of Credit for Your Restaurant

Business Lines of Credit provides flexibility, with access to working capital as you need it, unlike a business loan which has 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 principal that’s outstanding. Great for short term working capital needs. Most business lines of Credit are offered by the bank the owner is using for their banking, but again, like SBA loans, banks have high credit standards, lengthy process and high financial statement requirements. What you did last year will matter to the bank.

Small Business Loan for Your Restaurant

Working capital loans with a fixed term are called small business loans that have both long and short term options. Short term loans in business funding refers to loans with a duration of less than 18 months. These types of loans are not backed by SBA, may be another working capital option, 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. 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, 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 do need to do some shopping. This option is a great way to access a working capital financing alternative.

Equipment Financing for Restaurants

Equipment financing is available typically for new equipment and uses the equipment as collateral to offer multi-year financing with typical terms 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 for Restaurants

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. 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 offers 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. What ever it takes to keep your restaurant working.

I recommend everyone should have one for your working capital needs, 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 Options for Restaurant Working Capital Needs

Although around since the 90’s, alternative business funding is a relatively new product to businesses in need of money, sprung from the financial crisis of 2008. Basically, these products serves the under served small businesses market which are in need of capital, but 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 Advances aka Merchant Cash Advance

 (Future Receivables Purchase and Sale) Merchant cash advances are not a small business loan, but an advance by selling a portion of the businesses 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 business have low bank account balances, which are a percentage of the monthly deposits.

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, limited , and poor financial statements. If you need working capital to pay expenses and you can’t get approved with other options, this may be a great choice when in search for money.

Alternative Term Business Loans

There are loans out there that have similar loose standards of Business Cash Advance but also come with higher costs than that of traditional business funding. They are 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 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 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 for a restaurant if used for the right reasons.

Alternative business funding has really improved access to business working capital for restaurant business owners that, all too often, are turned away by banks, credit unions, and SBA Lenders/Brokers when they need money most. 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 raising capital with this type of funding.

What your qualifications are will result in what choices you will have financing restaurant working capital needs and business expenses.


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 600’s Alternative business funding may very well be your option. If you have a poor rating it may pose an issue for you and your business to get financing. 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 loans, number of business trade lines and judgement’s, liens, bankruptcies, etc…Credit of your company does play a role but personal credit is a heavier weighed factor.

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.

Financial Statements

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

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 as well as your annual gross sales. Traditional Lending typically like to see $750,000 and up in gross annual sales while alternative financing will evaluate starting at $120,000 per year.

Ask your yourself the following health check questions. Are the deposit’s consistent month over month? Where are those deposits coming from? What is the average daily balance in the bank account? Any overdrafts, NSF’s (non-sufficient funds), negative balance days? When Underwriters talk about bank statement health the above is what there looking at.

Bottom line, as an 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, angel investors or whomever is offering your financing is looking for or at. Ignorance is NOT bliss! Trust me on this one. You can’t solve your business working capital needs if you can’t find or get approved for the funding product.

Frequently Asked Questions by Restaurant Owners

Are restaurants capital intensive?

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

How much working capital do I need?

This is a very important question to ask yourself first, before searching for working capital. If you don't get your numbers in order first you can make some big mistakes. Calculate your need and predict future sales, don't over estimate.

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

The major source of capital for a restaurant 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.

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

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

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 made into a reality 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 that you have a business financing contingency plan for any need that may arise 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 is? 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 equals choice and better decisions. Information is king.

Jacques Famy Jr
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Jacques Famy Jr

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