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How To Use An SBA Loan To Grow Your Restaurant Business

Expanding a restaurant is an exciting endeavor! More seating, a bar addition, or even opening another location can seem like a dream come true. But growth requires capital, and obtaining financing can be a challenge. This is where Small Business Administration (SBA) loans come in handy. These government-backed loans offer favorable terms to qualifying restaurants looking to take their operations to the next level.

What Is An SBA Loan?

An SBA loan is funding provided by banks and other lenders that is guaranteed by the U.S. Small Business Administration (SBA). This federal agency was created to help entrepreneurs gain access to capital that might be hard to come by otherwise.Because a portion of the risk is absorbed by the government, lenders are more apt to approve applicants. SBA loans feature low interest rates, long repayment terms, and low down payments. There’s also less stringent collateral requirements.

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SBA Loan Options For Restaurants

The SBA has a few loan programs restaurants can utilize, including:

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7(a) Loans

The bread-and-butter offering is the basic 7(a) loan. It can be used for nearly any business purpose, including:

  • Purchasing equipment
  • Renovations
  • Expanding facilities
  • Opening another location
  • Refinancing debt
  • Increasing working capital

7(a) loans go up to $5 million with interest rates capped at around 8%.

504 Loans

For major fixed asset purchases like land or buildings, 504 loans are ideal. They require just 10% down and finance up to $5.5 million for real estate and $5 million for machinery. Interest rates are below 7% too.

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Restaurants needing less than $50,000 should consider SBA microloans. These max out at $50,000 and often fund startups and very small businesses.

SBA Loan Requirements

While the SBA doesn’t directly finance restaurants, it sets guidelines for loans made by commercial lenders, banks, credit unions, and other approved sources. General eligibility basics include:

  • Being a for-profit business
  • Operating in the U.S.
  • Qualifying as a small business per SBA size standards
  • Demonstrating the ability to repay

Each loan program has its own specifications regarding factors like revenue, credit score, time in business, and collateral as well.

How To Apply For An SBA Loan

Applying for SBA-backed financing is fairly straightforward:

1. Choose A Lender

You first need to select a lender that participates in SBA lending. Search the SBA lender match tool to find options near you.

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2. Check Your Eligibility

Before formally applying, ask prospective lenders about their lending criteria. This will confirm if you meet the SBA requirements and if your restaurant is a fit for them.

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3. Submit Your Application

Next, complete the lender’s loan application in full. Be prepared to provide financial statements, tax returns, personal financial statements, and other documents.

4. Allow For Underwriting

The lender will analyze your restaurant’s finances to determine if you qualify and for how much. This involves assessing revenue trends, credit, existing debt, collateral, and ability to make payments.

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5. Get Approved & Close

With SBA approval, you can move on to closing the loan. This involves signing final paperwork and securing collateral if needed. Funds are then dispersed to your restaurant!

Using An SBA Loan To Expand Your Restaurant

SBA capital can be hugely beneficial for restaurants aiming to grow. Here are some smart ways to put funds to work:

Open Another Location

Expanding into a second, third, or even more locations is often the number one goal for successful eateries. SBA loans finance nearly everything needed to replicate your concept, like:

  • Property purchase and build-out
  • Kitchen equipment
  • Furnishings
  • Marketing
  • Hiring and training staff

Upgrade Facilities

Giving your existing restaurant a facelift can work wonders too. An SBA loan enables you to fund projects like:

  • Expanded seating and dining areas
  • Kitchen remodels
  • Bar additions
  • Patio/outdoor seating installation
  • AV systems & entertainment

Enhancements like these elevate ambiance and guest experience, allowing you to serve more customers.

Add Catering Capabilities

On-site catering and event services represent huge profit potential. With an SBA loan, you can take your restaurant into off-premise catering by financing:

  • Transport equipment like mobile warming units
  • Serving ware like chafing dishes and platters
  • Marketing for the new catering menu and services
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Open A Food Truck

Food trucks continue to grow in popularity across the country. SBA loans can fund the purchase of your truck outfitted with all needed equipment. This mobile extension of your brand can tap into new audiences.

Refinance Debt

If your restaurant has existing debt carrying high interest rates, securing an SBA loan to pay it off can lead to substantial savings. Less money spent on interest means more working capital to put back into your business.The key is using funds in ways that will boost revenue and profits over the long run.

The Bottom Line

Financing growth is a major hurdle for many small restaurants, but SBA-guaranteed loans make the process much smoother. Taking your eatery to the next level not only benefits your business, but the local community through job creation and economic growth.With strong finances and a solid business plan, an SBA loan can turn your restaurant’s expansion goals into reality. Reach out to a participating SBA lender to learn more about securing this valuable funding for your establishment. Here’s to growing your restaurant the smart way!

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