Why lenders are nervous about restaurants, and how to use that
Banks have a long memory and restaurants are in it. Thin margins, high failure rates in the first three years, cash businesses that are hard to verify. A bank will lend to a restaurant with three years of tax returns, a strong balance sheet and an owner who has done it before. That describes a minority of the operators who need capital this quarter.
The rest are served by lenders who read bank statements instead of tax returns and who understand that a Friday night deposit of $9,000 and a Tuesday deposit of $1,100 are the same healthy restaurant. Knowing which lender reads a restaurant which way is most of what a broker is for.
Equipment: the walk in, the hood, the oven
A commercial kitchen is a collection of expensive, resalable assets, which makes it financeable. A six burner range with a convection oven, a walk in cooler, a hood system, a dishwasher and a POS install run $60,000 to $150,000 for a modest build out. Equipment lenders finance the lot over three to seven years, often with nothing down for an operator with two years of history and credit above 650. The equipment is the collateral; your cash stays in the business for the things that are not collateral, such as the first month's payroll.
Leasing is common in kitchens because the technology and the health code both move. A lease with a one dollar buyout is a loan by another name; a fair market value lease keeps the payment lower and hands the equipment back at the end. Your accountant will have a view on which suits the tax position.
The slow season and the renovation
A seafood restaurant on the Jersey Shore makes its year between Memorial Day and Labor Day. A ski town bistro makes it between December and March. The off season is predictable to the week and still catches operators short every year. A line of credit of $25,000 to $100,000, arranged during the good months, covers rent and a skeleton staff through the quiet ones and is repaid when the crowds return. Arranging it in October, when the statements look thin, is harder and costs more. Arrange it in July.
Renovations are different. A dining room refresh that closes the restaurant for three weeks is both a cost and a loss of revenue. A term loan sized to the full project, including the weeks of lost sales, is the right instrument. Taking a short term advance against a closed restaurant's receipts is the wrong one, and a surprising number of operators are sold exactly that.
The second location
The second location is where restaurant financing gets serious, and where SBA loans earn their paperwork. A 7(a) loan will fund the build out, the equipment, the lease deposit and working capital for the opening months in one ten year loan at a rate in the high single digits to low teens. The condition is that the first location is profitable on its tax returns and the owner can show a plan for the second. Four to eight weeks from a complete package to funding.
An operator who cannot wait that long can open the second location on equipment financing plus a term loan, at a higher cost, and refinance into an SBA loan once it is open and trading. We lay out both paths with their numbers and let the owner choose.
What a restaurant file needs to show
Three months of business bank statements with card settlements visible. Merchant processing statements if the lender asks; they show gross sales before chargebacks and fees. A current lease with at least as many years remaining as the loan term. For equipment, vendor quotes. For SBA, three years of returns and a profit and loss that reconciles to the bank.
Lenders mark down: negative days on the statements, a lease with under two years left, delivery platform fees eating more than 20 percent of revenue, and a cash heavy operation where deposits do not match the stated sales. They mark up: a steady same day pattern of card deposits, an owner with a previous successful restaurant, and a landlord willing to sign a waiver on the equipment.
The plain recommendation
Equipment on equipment financing, every time; never pay cash for a walk in cooler when a lender will carry it at 9 percent over five years. A line of credit arranged in the good season for the bad one. Renovations on a term loan that includes the closed weeks. The second location on an SBA loan if the first one's returns allow it, and a bridge structure if they do not yet. Advances only for a short, specific, profitable purpose, never for the slow season, and never stacked.