A Restaurant Owner’s Guide to SBA Loans

Whether you’re operating a new or existing restaurant, your business can benefit from having extra funds. For restaurants, it can be difficult to secure traditional loans, since they are often considered high-risk by banks. Thankfully, there are alternative options, such as SBA loans. The Small Business Administration (SBA), is a government agency that offers loans designed specifically to help small businesses, including restaurants. 

Understanding 9SBA 7(a) Loans

The SBA 7(a) loan program is the SBA's most popular loan offering, providing financial assistance for various business purposes. For restaurant owners, this loan offers flexibility and favorable terms.

Key Features:

• Loan Amounts: Up to $5 million
• Repayment Terms: Up to 25 years for real estate; up to 10 years for equipment and working capital
• Interest Rates: Based on the prime rate plus a markup, varying by loan size and term length
• Guarantee: The SBA guarantees up to 85% for loans up to $150,000 and 75% for larger loans

What can an SBA loan be used for?

SBA 7(a) loans can be utilized for a variety of purposes within the restaurant industry:

• Purchasing Equipment: Acquire essential kitchen appliances like ovens, fryers, and refrigerators, as well as smaller items such as utensils and linens
• Real Estate: Buy, build, or renovate restaurant spaces, including purchasing land or existing buildings
• Working Capital: Cover day-to-day operational expenses, including inventory and payroll
• Refinancing Debt: Consolidate existing debts to improve cash flow and reduce interest rates
• Buying an Existing Business: Purchase an established restaurant to expand your business portfolio

Benefits of an SBA loan

Why should you choose to get an SBA loan rather than more traditional forms of financing?

• Low Down Payment: SBA 7(a) loans can require down payments as low as 10%, depending on the size and purpose of the loan
• Longer Repayment Terms: Terms can extend up to 25 years, making monthly payments more manageable
• Competitive Interest Rates: SBA loans often have lower rates than traditional or alternative lending options

What About the Restaurant Revitalization Fund (RRF)?

In 2021, the SBA launched the Restaurant Revitalization Fund (RRF) as part of the American Rescue Plan Act. This program provided emergency grants to help restaurants and other eligible food and beverage businesses recover from the financial impact of COVID-19.

RRF grants could be used for payroll, rent, utilities, outdoor seating construction, food and beverage inventory, and other operational expenses. Unlike loans, the funds did not have to be repaid, provided they were used for eligible costs by March 11, 2023.

While the program delivered over $28 billion in relief, it was quickly oversubscribed, and many eligible restaurants were unable to receive funding before it closed.

SBA Loans as the Next Best Option

For restaurants that missed out on the RRF – or for those that received some help but still need capital to grow – SBA loans have become a strong alternative. Programs like the SBA 7(a) loan offer flexible funding for equipment, expansion, hiring, refinancing, and more, all with competitive terms backed by the federal government.

While not a direct replacement for the RRF, SBA loans provide restaurants with long-term, strategic funding to continue recovering and growing in a post-pandemic landscape.

Eligibility Requirements

To qualify for an SBA 7(a) loan, restaurant owners must meet certain requirements:

• Operate a for-profit business located in the U.S.
• Qualify as a small business under SBA size standards
• Have invested equity in the business
• Demonstrate a need for the loan
• Show good character and the ability to repay the loan
• Have explored alternative financing options

How to Get an SBA Loan

The process of getting an SBA loan for your restaurant can be broken down into five simple steps:

1. Create a Business Plan
   Summarize the key aspects of your business, including financial projections, marketing strategies, sales plans, and competitive analysis. This is often a requirement from lenders.
2. Determine Your Funding Needs
   Identify how much money you need and exactly what it will be used for – this will help shape your loan request.
3. Check Your Eligibility
   Make sure your restaurant meets the SBA's requirements for size, location, and business type.
4. Gather Required Documentation
   Commonly requested documents include:
   • Three years of personal and business tax returns
   • Year-to-date profit and loss (P&L) statements
   • Year-to-date balance sheet
   • Recent business bank statements
   • Personal financial statement
5. Find a Lender
   SBA loans are issued through private lenders. At Grasshopper, our digital application makes the process fast and straightforward. As an SBA Preferred Lender, we offer a streamlined experience backed by our knowledgeable SBA Lending team.

Securing an SBA 7(a) loan can provide the financial support needed to start, maintain, or grow your restaurant. Whether you're replacing equipment, opening a new location, or simply building working capital, SBA loans offer a flexible and accessible solution. If you missed out on RRF funding or need additional support, now may be the perfect time to explore SBA loan options.