SBA Loan for a Restaurant - Ultimate Guide

August 26, 2023

Adam Hoeksema

There are roughly 750,000 restaurants in the United States and roughly 487,000 of those restaurants are operating as a sole proprietorship.  These are the small, independent restaurants that are scattered across the country that truly represent small business in America.  If you are looking to start or purchase your own restaurant, an SBA loan can be an excellent option.  

I spent 10+ years as an SBA Lender in the Midwest where we approved nearly 2,000 loans during my time there, many of which were restaurants.  Based on my experience in SBA lending and all of the clients that we help create financial projections for their restaurant here at ProjectionHub, I wanted to write a comprehensive guide to SBA loans for restaurants.  

Here is what I plan to cover:

With that as our guide, let’s dive in!

Top SBA Lenders for Restaurant Businesses

The Huntington National Bank is the top SBA lender for restaurants. They approved 1,570 SBA loans in the last six years, and the average loan amount was $234,528. Here are the top 10 SBA lenders for restaurants from 2018 to 2023.

Lender # of Loans Approved Average Loan Amount
The Huntington National Bank 1570 $234,528
U.S. Bank, National Association 458 $164,443
Manufacturers and Traders Trust Company 453 $144,242
TD Bank, National Association 408 $175,405
Bank of Hope 400 $333,924
KeyBank National Association 335 $397,281
Stearns Bank National Association 285 $333,235
Newtek Small Business Finance, Inc. 263 $659,859
BayFirst National Bank 238 $357,453
JPMorgan Chase Bank, National Association 238 $238,847

Top SBA Lenders to Finance a Restaurant Acquisition

If you're considering an SBA loan for a restaurant acquisition, Bank of Hope emerges as a leading choice. They've approved 141 loans in this category, with an average loan amount of $316,178. Here are the top 10 SBA lenders for financing restaurant acquisitions based on 2018-2023 data.

Lender # of Loans Approved Average Loan Amount
Bank of Hope 141 $316,178
Hanmi Bank 132 $440,319
Stearns Bank National Association 99 $276,875
The Huntington National Bank 91 $535,152
Live Oak Banking Company 57 $1,570,270
Pacific Western Bank 51 $1,035,384
United Business Bank 45 $529,018
Manufacturers and Traders Trust Company 44 $248,293
Plumas Bank 41 $541,688
Open Bank 37 $331,189

Top SBA Lenders for a Restaurant Startup

For those venturing into restaurant startup endeavors, The Huntington National Bank stands out as the top SBA lender. They've approved 614 loans for restaurant startups, with an average loan amount of $309,205. Here are the top 10 SBA lenders for financing restaurant startups.

Lender # of Loans Approved Average Loan Amount
The Huntington National Bank 614 $309,205
Manufacturers and Traders Trust Company 164 $199,098
Stearns Bank National Association 148 $361,107
KeyBank National Association 144 $484,323
Cadence Bank 104 $521,698
Citizens Bank 96 $485,814
PNC Bank, National Association 86 $771,287
United Community Bank 78 $595,044
SouthState Bank, National Association 77 $618,397
Wells Fargo Bank, National Association 75 $1,267,104

Resource: Find an SBA Lender that is the perfect fit for your situation

What is an SBA Loan?

In the context of a restaurant, an SBA loan refers to a loan provided with the backing of the U.S. Small Business Administration (SBA). The SBA itself doesn't lend money directly to businesses. Instead, it provides a guarantee to banks and lenders for the money they lend to small businesses, including restaurants. This guarantee reduces the risk for lenders, making it more likely for businesses to receive financing.

Here's a brief overview of how SBA loans can be pertinent to restaurants:

  • Startup Costs: Opening a restaurant can be capital-intensive, with costs related to leasing or buying space, renovating, purchasing equipment, stocking inventory, and other initial expenses. An SBA loan can provide the necessary funds to cover these startup costs.
  • Expansion: If a restaurant owner wishes to open a second location, renovate their existing space, or expand their operations, they might consider an SBA loan to finance these endeavors.
  • Working Capital: Restaurants can face seasonal fluctuations or unexpected downturns. An SBA loan can provide the necessary working capital to bridge cash flow gaps during these times.
  • Equipment Financing: Restaurants often need to purchase or replace expensive kitchen equipment, furniture, or point-of-sale systems. An SBA loan can help with these capital expenditures.
  • Refinancing Existing Debt: If a restaurant has high-interest debt, they might consider an SBA loan to refinance and get more favorable terms.

Some popular SBA loan programs that restaurants might consider include:

  • 7(a) Loan Program: This is the SBA's primary program for providing financial assistance to small businesses. The terms and conditions, like the guarantee percentage and loan amount, might vary by the type of loan.
  • CDC/504 Loan Program: Designed for businesses looking to finance major fixed assets like real estate or equipment.
  • Microloan Program: As the name suggests, this program is for smaller loan amounts and can be used for various purposes, including working capital, inventory, or equipment.

It's important for restaurant owners to work with a lender experienced in SBA loans to navigate the application process, as it can be detailed and require substantial documentation.

Can I Get an SBA Loan for a Restaurant?

Yes, you can get an SBA loan for a restaurant. Many restaurant owners turn to SBA loans because of the favorable terms and interest rates they offer. However, securing an SBA loan involves meeting certain criteria and going through a detailed application process. Here are some steps and considerations if you're thinking of applying for an SBA loan for a restaurant:

  1. Determine Your Eligibility: To qualify for an SBA loan, your restaurant must:
  1. Operate for profit
  2. Have a physical presence in the U.S. or its territories
  3. Have invested equity (you must have your own time or money invested)
  4. Have exhausted other financial resources, including personal assets
  5. Not exceed SBA’s size standards for small businesses
  1. Choose the Right SBA Loan Program: The most popular SBA loan program for restaurants is the 7(a) loan program, but the CDC/504 loan program might be suitable if you're looking at real estate or large equipment purchases. The Microloan program might be appropriate for smaller needs.
  2. Prepare a Detailed Business Plan: Lenders will want to see a comprehensive business plan that outlines your restaurant concept, target market, marketing strategy, financial projections, and other pertinent details. This shows lenders that you’ve thoroughly considered your business model and its potential profitability.

Resource:  Free Restaurant Business Plan Template 

  1. Gather Necessary Documentation: This includes:
  1. Personal background and financial statements
  2. Business financial statements
  3. Ownership and affiliations (other businesses you might be involved in)
  4. Business license and certifications
  5. Loan application history
  6. Income tax returns (both personal and business)
  7. Resumes for each principal
  1. Show Ability to Repay: The lender will look closely at your financials and restaurant cash flow projections to ensure that your restaurant will generate enough income to repay the loan.
  2. Collateral: While SBA loans are backed by the U.S. government, lenders still typically require collateral. This can include business assets, and in some cases, personal assets.
  3. Good Credit: A strong personal and business credit history will enhance your chances of securing an SBA loan.
  4. Work with a Lender: You can’t get an SBA loan directly from the SBA. You'll work with an SBA-approved lender, like a bank or a credit union. They'll guide you through the application process.
  5. Expect a Thorough Review Process: Due to the SBA guarantee, there’s often a more rigorous evaluation process compared to other types of loans. Be patient and be prepared to answer additional questions or provide more documentation if asked.
  6. Closing and Funding: Once approved, you'll move to the closing process, which might involve additional paperwork. After that, you'll receive the funds.

Securing an SBA loan for a restaurant can be a lengthy and detailed process, but it can provide the necessary capital to start, operate, expand, or enhance your restaurant business. Consider working with a financial advisor or loan specialist familiar with the SBA process to guide you.

Why an SBA Loan is a Good Option for a Restaurant

SBA (Small Business Administration) loans can be a particularly good option for restaurants for several reasons:

  1. Favorable Interest Rates: Typically, SBA loans offer competitive interest rates, often lower than traditional business loans. This can lead to significant cost savings over the life of the loan.
  2. Longer Repayment Terms: SBA loans often come with extended repayment terms, sometimes up to 10 years for working capital or up to 25 years for real estate. This means lower monthly payments, which can be crucial for cash flow, especially in the early stages of a restaurant's life.
  3. Smaller Down Payments: Traditional business loans might require a sizable down payment, which can be challenging for many restaurant owners. SBA loans often require smaller down payments, making it easier for businesses to secure the financing they need.
  4. Availability of Larger Loan Amounts: Some restaurants may require substantial amounts of capital, especially if they are looking to buy property or make significant renovations. SBA loans can offer higher loan amounts compared to some other financing options.
  5. Flexible Use of Funds: While some loans might have strict criteria on how the funds can be used, SBA loans offer a bit more flexibility. They can be used for a range of needs, from purchasing equipment and inventory to working capital or refinancing other debts.
  6. Guarantee from the SBA: The SBA guarantees a portion of the loan, which reduces the risk for lenders. This makes lenders more willing to provide loans to businesses that might be considered riskier, like new restaurants or those without an extensive credit history.
  7. Guidance and Counseling: Along with financial assistance, the SBA often offers counseling, training, and guidance through its district offices, resource partners, and online resources. This can be invaluable for restaurant owners looking for advice on running and growing their business.
  8. Potential for Fee Reductions: From time to time, the SBA might offer fee reductions or eliminations, further reducing the cost of securing a loan.
  9. Builds Business Credit: Successfully repaying an SBA loan can help a restaurant build its business credit, making it easier to secure other types of financing in the future.
  10. Mitigation of Lender Concerns: The restaurant industry is often viewed as volatile, with a high rate of failure compared to some other industries. The guarantee provided by the SBA can mitigate lender concerns about the inherent risks of the industry, leading to a higher likelihood of loan approval.

SBA Loan Application Process for a Restaurant

Securing an SBA loan for a restaurant involves a series of steps, from initial research to final disbursement of funds. Here’s a breakdown of the SBA loan application process for a restaurant:

  1. Determine Eligibility: Before diving into the application process, ensure that your restaurant meets the SBA's eligibility requirements. This typically includes being a for-profit business operating in the U.S., meeting size standards, and having the owner invest some personal equity.
  2. Choose the Right SBA Loan Program: Determine which SBA loan program best suits your needs. The 7(a) loan program is the most popular for a variety of needs, but the CDC/504 might be more suitable for purchasing real estate or large equipment, and the Microloan program for smaller financing needs.
  3. Find an SBA-Approved Lender: Use the tools and methods previously mentioned to identify and approach potential lenders.
  4. Prepare a Comprehensive Business Plan: This should detail your restaurant concept, target market, marketing strategy, financial projections, management team, and more. Lenders will use this to assess the viability of your business.
  5. Gather Necessary Documentation: Typical documents include:
  1. Personal background and financial statements.
  2. Business financial statements (profit and loss, balance sheet, financial projections).
  3. Ownership and affiliations.
  4. Business license and certificates.
  5. Loan application history.
  6. Personal and business income tax returns.
  7. Resumes for each principal.
  8. Lease agreements, if renting commercial space.
  1. Fill Out the Loan Application: Your chosen lender will provide you with the necessary forms. The exact forms and their complexity will vary based on the specific SBA loan program and the lender's requirements.
  2. Collateral: Determine what you'll offer as collateral. SBA loans often require collateral, which can include business assets, and in some cases, personal assets.
  3. Submission & Review: Once submitted, the lender will review your application. This involves assessing your creditworthiness, business plan, financials, and any other relevant details. The lender might request additional information or clarification on certain aspects.
  4. Loan Approval/Decline: After thorough review, the lender will make a decision. If approved, they'll provide terms and conditions for the loan. If declined, you have the right to know why.
  5. Loan Closing: If you accept the terms, the loan moves to the closing process. This phase involves additional paperwork and, possibly, fees. Ensure you understand all terms and conditions before signing the final documents.
  6. Disbursement of Funds: After closing, the funds will be disbursed. The timeframe and method (lump sum, staged disbursement, etc.) can vary based on the loan type and its purpose.
  7. Repayment: Begin repaying the loan as per the agreed-upon terms. Regularly monitor your repayment schedule and stay in communication with your lender, especially if you anticipate any challenges in repayment.

Throughout the process, consider working closely with financial professionals, loan specialists, or mentors who can provide guidance and ensure you're making well-informed decisions.

We hope this blog post has been helpful!  If you need any help with your business plan or financial projections we are here to help - ProjectionHub Services - just let us know how we can support you!

About the Author

Adam is the Co-founder of ProjectionHub which helps entrepreneurs create financial projections for potential investors, lenders and internal business planning. Since 2012, over 50,000 entrepreneurs from around the world have used ProjectionHub to help create financial projections.

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