How To Get an SBA Restaurant Loan in 6 Steps

SBA restaurant loans can offer competitive rates with lower monthly payments compared to other financing options. Restaurant loans from the Small Business Administration (SBA) can be used to start a new restaurant, acquire an existing business, or obtain funding to cover other business expenses. However, getting approved for one can be difficult as restaurants tend to have low profit margins.

From a lender’s perspective, the high level of volatility may lead to concerns over the long-term ability of a business to make timely loan payments. To increase your chances of approval, we will walk you through getting an SBA loan for restaurants, from creating a business plan and considering loan options to determining eligibility and applying with your chosen lender.

Clarify Capital is a provider we recommend. It offers SBA loans up to $5 million with annual percentage rates (APRs) as low as 5.75%, with funding in as little as three weeks.

Visit Clarify Capital

Step 1: Create a Business Plan

A business plan is a document that summarizes the key aspects of your business and how it intends to achieve its goals. No standard format exists, but these documents commonly cover financial projections, marketing plans, sales strategies, competitor analysis, and more.

Use our SBA business plan guide and template to create a thorough plan specific to your business. While many lenders will require this document as part of getting an SBA loan, it can also serve as a helpful tool for yourself to ensure that no critical aspects of your business have been overlooked.

Additional items to consider that are specific to the restaurant industry can include:

Historical trends for customer food preferences
Revenue and expenses of comparable restaurants in the same area
Marketing and sales strategies of competitors
Customer reviews and ratings of competitors
Economic factors impacting customer foot traffic

Step 2: Determine Your Funding Needs & Its Purpose

As a business owner, it will be important for you to have a clear picture of what you intend on using the funds for, how much you need, and the expected impact on the business. Consider what the expected return on investment will be as well as your alternatives should it not go according to plan. Depending on your intended use of the funds, you should have an idea of what a successful outcome looks like.

Overestimating your funding needs can be detrimental as it may make it more difficult to get approved for a business loan. Even if approved, you may not have qualified for the best interest rates, which can negatively impact your cash flow.

Meanwhile, underestimating your funding needs can have similar challenges. Without the ability to fully fund your intended business project, you may not get a large enough return on your investment.

Step 3: Consider Your Loan Options

The SBA has several different types of loans, each with varying terms and allowable uses. The best one for you will largely depend on what you plan to do with the funds.

For more details, we’ve provided a guide going through the different types of SBA loans. Below, we’ve also provided a summary of the common SBA loan types and what they may be best utilized for:

SBA 7(a) loan: This is the most common type of loan offered by the SBA and allows funds to be used for a wide range of business purposes. Some examples include working capital, acquisition of equipment, purchase of real estate, construction costs, refinancing debt, or acquiring a new business. Learn more in our SBA 7(a) guide.
SBA CDC/504 loan: SBA 504 loans are issued through Certified Development Companies (CDCs). CDC/504 loans are designed to provide long-term financing for assets that generate growth or additional employment. Some examples can include land, buildings, machinery, and equipment. Check out our article on SBA 504 loans to read about what they are and how they work.
SBA microloan: You can get up to $50,000 with an SBA microloan, so it can be a great choice if you don’t need much funding. Allowable uses include most business-related expenses that help your company expand. We go into more detail in our guide on SBA microloans.
SBA CAPLines: This is a revolving credit line that can be useful for covering recurring or seasonal shortages in cash flow. Learn more about its rates, terms, and qualification requirements in our SBA CAPLine guide.

Step 4: Determine Your Eligibility

It’s important to understand your qualifications as they relate to the eligibility criteria required for the SBA loan you want to get. Qualification requirements can be broken down into the categories mentioned below. We’ve summarized each section, but you can also visit our in-depth guide on SBA loan requirements for further details.

Regardless of what type of SBA loan you are applying for, you’ll need to meet the following criteria to be eligible:

You operate as a for-profit business
You meet the business size requirements to be considered a small business
Your company’s leadership team is deemed to be of good character
You have been unable to get financing elsewhere on the terms you’re seeking

Depending on the SBA loan type you’re getting, additional requirements or restrictions may apply. Some examples may include limitations on your net worth, annual income, lack of delinquency on federal debt, and those engaged in business activities in a particular industry.

While the SBA does set some of the eligibility criteria for its loan programs, many others are left up to individual lenders. Qualification requirements can vary among lenders, but the most common items are listed below:

Time in business: Many lenders will require your restaurant to have been in business for at least two years. This gives them more data to work with when it comes to determining the likelihood of your business continuing to perform. Startups typically have a high failure rate, so the longer your restaurant has been running, the more likely it will be viewed favorably when it comes to getting a loan.
Credit report and credit score: We recommend a credit score of at least 680. However, some SBA lenders can issue approvals with scores of 650 or lower. In addition, lenders will evaluate your credit for the presence of any bankruptcies, late payments, collections, or other derogatory items.
Collateral: Not all SBA loans will require you to pledge collateral to get a loan, but it may help you get approved or secure more favorable rates and loan terms.
Down payment: Depending on the type of loan you’re applying for, lenders may require that you put a down payment of around 10% to 30%. Larger down payments are often required if other areas of your business credit or finances are not strong.
Commercial real estate (CRE): If you will be acquiring CRE, you may be required to ensure the owner occupancy rate is 51% or greater.

Step 5: Gather Commonly Requested Items

As part of the process of getting an SBA loan, you’ll need to provide a variety of credit and financial documents pertaining to your business. While the exact items can vary depending on your specific circumstances, preparing the most commonly requested documents can save you time and get you funded more quickly.

Below is a list of documents that are commonly required by lenders:

Three years of personal and business tax returns
Year-to-date (YTD) profit and loss (P&L) statements
YTD cash flow statement
YTD balance sheet
Most recent three months of business bank statements
Copies of business licenses and professional certifications

Step 6: Find a Lender & Submit an Application

Although SBA loans are guaranteed by the government, these are issued by private lenders. You can get SBA loans from online lenders, credit unions, banks, and loan brokers. You can start with our list of the best SBA lenders for some options.

To help you choose the best SBA restaurant loan for your business, you can ask potential lenders some of the following questions:

What types of loans do you offer?
Do you have experience funding restaurant loans?
What are your rates, loan terms, and fees?
What does the application process look like, and what paperwork will you need from me?
How long does it take to get approved and funded?
Is there a prepayment penalty?

You should also find out if a lender is an SBA-preferred lender. These lenders usually have faster approval and funding speeds because they have more authority delegated to them by the SBA, reducing any potential back and forth. SBA-preferred lenders also have more experience with SBA loans, making it less likely you’ll run into delays or other issues.

Once you’ve found a lender, you can submit a formal loan application. Many lenders allow this to be done online. From start to finish, you should expect the process to take one to three months. Be sure to also check out our tips on how to get a small business loan to improve your approval odds.

Alternatives to an SBA Loan

An SBA loan won’t be right for everyone. If you’re not able to get approved or need funding more quickly, here are some alternatives you can consider:

Small business credit card: You can get a business credit card within 7 to 10 days, and it’s an ideal fit for small and recurring expenses. Some credit cards also have a rewards program in the form of cash back to help reduce the effective cost of your business costs. Check out our best small business credit cards.
Small business line of credit: A credit line allows you to draw funds that can then be deposited into a bank account of your choice. Credit limits are generally higher than credit cards, making it a better fit for larger expenses. Head over to our picks for the leading business credit lines.
Equipment financing: If you need machinery or other business-related equipment for your restaurant, an equipment loan can provide the necessary funding. See our picks for the top equipment financing companies.
Short-term loans: If your restaurant is in need of funding quickly, view our selections for the best fast business loans. You can get funding in as little as 24 hours if eligible.
Rollover for business startups (ROBS): If you want to fund your restaurant without paying interest charges on a loan, a ROBS can allow you to access your retirement accounts tax- and penalty-free. Guidant Financial, our top-recommended ROBS provider, is a company we recommend working with to walk you through this process, as its ROBS product can also be combined with its SBA lending program.

Bottom Line

If you need to get funding for your restaurant, the low rates on an SBA loan can help you save money. You’ll typically need good credit and strong financials to be eligible, and these loans can take up to three or more months to get. If you are unable to wait this long or to get approved, check out some of the alternative financing options we’ve mentioned above.

About the Author

Andrew Wan