Finance & Operations

What You Need to Know About Small Business Loans

By Mike Brown

Restaurant owner making calculations

A lot of people dream about opening a small business and creating wealth for their family and community. After all, small businesses don’t just benefit their owners – they create jobs, generate taxes, and grow our economy.

What all owners will face, regardless of age and gender, is a need to access restaurant financing both for the initial costs of opening a small business and as they grow and expand.

Unfortunately most small businesses – especially in the restaurant industry – are capital intensive with low margins, intense competition, and high capital requirements. 

But that doesn’t mean succeeding in the food industry – or in any small business – is impossible. It just requires the right timing, execution, and financing, usually in the form of restaurant loans.  

A critical part is knowing where you can go to get funding if you need it, and specifically, what kind of restaurant loan you will need. In this article, we’ll walk you through:

  • Small business statistics
  • What you need to know about small business loans for restaurants
  • Small business loan lenders for restaurant loans
  • A final note about opening and operating a restaurant or small business

Small Business Statistics

According to the U.S. Small Business Administration, there are currently 28 million small businesses operating in America. Over 400,000 new businesses started in both 2016 and 2017 alone. 

Who owns all these small businesses?

It turns out that women own just 9.9 million businesses (of any size) in the US versus the 14.85 million businesses owned by men. But women are more likely to own a small business than men. They are also more likely to own restaurants. 

It might surprise you to hear that small businesses are mostly owned by people over 35 – just 15.9% of small business owners were under 35 in 2012. The reason so many business owners are older might be because they have more time and money available to start a business. But businesses owned by younger owners could benefit from their increased drive and ability to put in more sweat equity. 

What You Should Know: Restaurant Business Loans

If you’re considering a small business restaurant loan to help your venue, keep in mind it can be difficult for restaurants to access financing.


Since there is a high failure rate in the restaurant industry, lenders and banks usually want security or collateral before they’ll agree to give you a loan. This could be in the form of a lien on a personal or business asset. 

One of the benefits of a secured business loan is you’ll often pay less in interest than an unsecured loan. A secured loan might also be the only type of loan a lender will give you. 

The main difference between a secured loan and an unsecured loan is that a secured loan will require the borrower to provide collateral, a tangible asset like cash or your home, which the lender can seize if the borrower defaults. Unsecured loans do not require collateral, which typically makes them harder to qualify for. They rely upon the borrower’s credit history and income.

The downside of a secured business loan is that if you are unable to repay your loan they can take ownership of the asset that you put up as collateral. 

Reasons You Might Need Restaurant Loans

There are a lot of reasons why you might need a small business restaurant loan – to open your restaurant, to buy equipment, to expand your business, to renovate, or because you realize that you need more working capital to cover all your expenses. 

The pros of using a small business loan for a restaurant are that you can access financing without taking on more investors, begin building your business credit, potentially open a second location, and deduct the interest you pay on your loan on your taxes. 

However, getting a small business loan at a reasonable interest rate and on good terms can be difficult.You might also take on too much debt and struggle to repay your loan, which could put your business at risk or lead to personal financing trouble.

For these reasons, it’s important to carefully consider whether a restaurant loan is the right option for you.

Cafe owner working on laptop

Small Business Lenders and What You Should Know About Them

There are plenty of funding options for small business owners or those trying to become one.

This is great news, since one of the most important aspects of operating a small business is finding a healthy cash flow balance. With expenses high for so many small businesses, applying for a small business loan can be a sound strategy in managing cash flow.

Here is a rundown of the top nine small business loan lenders.

1. OnDeck 

OnDeck is an online lender that gives loans that range from $5,000 to $500,000 with term lengths from three months to 36 months. They offer quick financing with an application that takes minutes to complete and the possibility of receiving the money within 24 hours. They also provide both term loans and lines of credit and require that you personally guarantee the loan.

The minimum requirements for a loan with OnDeck are a credit score of over 500 and annual revenue of at least $100,000. However, their borrowers tend to have credit scores above 660 and revenues around $450,000. 

2. Kabbage

Kabbage is an online lender that gives out loans ranging from $2,000 to $250,000 with repayment periods between 6, 12, and 18 months. With Kabbage, you can fill out an easy online application and get funding in a matter of days. They work with all borrowers and have no minimum credit score, but you do need to connect their software to your business checking account so they can see your cash flow.

The downside is that Kabbage has a high fee structure. Their rates start at 24% and go up to 99% annual percentage rate (APR). Their fee structure is also untraditional, making it potentially complicated for new business owners. It also disincentivizes early repayment, so you can’t save on interest if you repay the money you owe earlier than scheduled. 

3. LendingClub

LendingClub is an online peer-to-peer lender. They offer loans from $5,000 to $300,000 at interest rates that range from 9.8% to 35.7% over terms from one year to five years. They have an easy online application and you can get your cash in as quickly as 2 business days.

They also have lines of credit with 25-month repayment terms. They require a minimum credit score of 600 and collateral, which will involve a blanket lien on your business assets instead of your personal assets if you borrow over $100,000. In order to qualify, your business must be in operation for at least 24 months and have $75,000 in annual sales to get a loan. 

4. Funding Circle

Funding Circle is a peer-to-peer lender that provides loans between $25,000 to $500,000 with terms that range between six months and five years. You can easily apply for their loans online and you’ll hear back in three to five business days. If you’re approved, you’ll get funding within 10 days.

Their interest rates are lower than many online lenders with an APR of between 10.91% and 35.5%. Funding Circle often requires their small businesses to have long track records, good credit, and high annual revenue. Their average borrower has:

  • A credit score around 700
  • Been in business for 10 years
  • 10 employees
  • Annual revenues that exceed $2 million

5. Fundation

Fundation is an online lender that offers loans between $20,000 and $500,000 for loan terms that range from one year to four years. You apply online and usually hear back in one to three days. Their interest rates start at 7.99% and go to 29.99%.

They also allow borrowers to refinance their loans after nine months and borrow more if needed. If you need ongoing access to credit, use Fundation for their lines of credit – they offer between $20,000 and $100,000 with 18 months to repay. They do have alternative underwriting criteria, including looking at more than just your personal or business credit score before deciding whether to lend to you. They tend to favor larger companies with higher revenues and longer track records. 

6. BlueVine

BlueVine is an online lender that offers lines of credit up to $150,000 and invoice factoring services. Invoice factor is when a business will sell its accounts receivable to a third party at a discount; this strategy will usually help a small business that has immediate cash needs.

BlueVine’s lines of credit give you six to 12 months to repay any money you take out. Invoice factoring gives you advances on your invoices up to $2.5 million for invoices due in 90 days or less.

You can get funding as quickly as 24 hours and their lines of credit charge as little as 16% and as much as 78%. Their invoice factoring costs more – anywhere from 15% to 68% APR and a $15 fee on top of that. In order to qualify, you’ll need a credit score above 530 for invoice factoring or 600 for a line of credit. 

7. Fundbox 

Fundbox is a lender that offers loans to small businesses using alternative criteria that doesn’t just look at your personal or business credit. They also look at your business’ health and can use that to help set your loan and interest rate.

They offer amounts that range from $1,000 to $100,000 in invoice factoring. They also offer lines of credit where you pay a weekly fee on the money you borrow and charge as little as 10.1% to 79.8% APR. Their invoice factoring interest rate ranges from 10.1% to 68.7% APR. They do not charge any origination or maintenance fees. While the interest is high, Fundbox can be a good solution if you have bad credit but a thriving restaurant. 

8. Credibility Capital

Credibility Capital is an online lender that offers loans from $50,000 to $400,000 over terms ranging from one to three years. Their rates can start as low as 10% and go up to 25%. They look for businesses that have been around for at least 28-months and business owners that have high personal credit.

Your credit score has to be over 640 to qualify. You can apply online and get your money in as quickly as one week. They are a good option for those who are looking for low interest rates on business loans. 

9. StreetShares

StreetShares is a peer-to-peer lender that focuses on lending to veterans – though they also lend to non-veteran business owners. You can borrow between $2,000 and $250,000 for terms that range from three to 36 months. They also offer a line of credit between $5,000 and $250,000, and invoice factoring for up to $2 million. The interest rates on most of their credit products range between 9% and 40%, although they charge 5.5% on select products.

They prefer to deal with businesses that have been around for 12-months, have a minimum revenue of $25,000, and a minimum credit score in the mid to low 600s. It can take one to five days to get your funding after a quick online application.

Why It Can Be Tough to Succeed with a Small Business

When it comes to taking on additional debt for your restaurant, it’s important to be cautious.

We probably don’t have to tell you that restaurants have a high business failure rate. In their first year of operation, 17% of restaurants fail and are forced to shut their doors. 

The reasons business fail tend to fall into four main categories. 

  • Cash flow. A CB Insights study found that 29% of small business owners in didn’t have enough working capital and failed as a result.
  • Lack of demand. Almost half (42%) of owners in the same study cited a lack of a market as a big impact on the need to close their doors.
  • Poor personnel. Not having the right staff is also bad for business. 23% of owners in the study pointed to this problem that leads to closed doors. 
  • Competition. A failure to stand out against the competition was also seen as having a significant impact on business failure. 

Ultimately, whether your business fails or not depends on the decisions that you make. Many businesses beat the odds and don’t just survive, but thrive. If you have a good concept, research your market, and run your business well, you greatly increase your chances of being one of the restaurants or small businesses that succeed in your community. 

And of course, it never hurts to have some extra cash on hand when you are running a restaurant with high monetary demands. Restaurants are difficult to operate and you need every advantage you can get.

A restaurant loan that gets some extra money flowing through your business is one way to do that. Taking out a small business loan for your restaurant requires responsibility on your end, but if used wisely, it can be a great resource.

Photo of Mike Brown
by Mike Brown

In his role at LendEDU, Mike uses data, usually from surveys and publicly-available resources, to identify emerging personal finance trends and tell unique stories. Mike’s work, featured in major outlets like The Wall Street Journal and The Washington Post, provides consumers with a personal finance measuring stick and can help them make informed finance decisions.

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