Business loans for restaurants, bars and cafes

Running a restaurant, cafe or bar requires a lot of money. Sometimes a business loan is essential for covering your operating costs or financing new equipment or renovations.

This guide will run you through the types of loans available and help you find a loan that gives your business cash when you need it but doesn’t leave you with unsustainable debts or crippling repayment terms.

How can a business loan help my restaurant, bar or cafe?

A business loan can help your bar or restaurant at every stage, whether you’re a brand new business or a long-established one. A loan can help you with the following:

• Fund the opening of your new restaurant or bar.
• Help your existing business during a cash flow shortage or other emergency.
• Pay for a renovation or expansion of your business.
• Buy an existing restaurant, cafe or bar.
• Purchase necessary, expensive equipment.

What types of business loans should I consider?

If you don’t have sufficient cash to fully fund your cafe or restaurant and you’re unable to get funding from an investor, you’ll need to consider a business loan. There are many different loans available and some will suit you better than others.

The type of loan that's best for you depends on your business, your financing needs and most crucially, your ability to repay the loan.

Example: Jim's Cafe

Jim has worked as a barista for 6 years and now wants to run his own cafe. He has $50,000 in savings which he plans to invest in his new venture. Jim uses this money to rent suitable premises and to buy an espresso machine, fridge, dishwasher and oven.
Jim calculates he’ll need at least another $25,000 over the next 6 months to cover staff wages, utilities and cost of goods until the cafe is firmly established.

Jim’s financing choice: Business line of credit

Jim opts for a business line of credit for the following reasons:

• He wants fast access to cash when he needs it.
• He doesn’t want to deplete all his funds before accessing extra cash (like with a business overdraft).
• He wants to control his debt and repayments as well as avoid the pressure of having to repay a single large sum.

Luckily, Jim has good credit history. While he doesn’t have much in the way of assets for collateral, Jim’s parents agree to let him use their home equity. This means Jim can get a line of credit at a better interest rate.

* This is a fictional, but realistic, example.

How do I compare business loans?

When researching types of loans, you need to think about the needs of your business, the costs associated with the loan and how you will repay it. Consider the following:

• Interest rates. Loans usually come with a fixed or variable interest rate. A fixed rate lets you plan repayment costs more accurately but may have fees for early repayment.
• Flexibility. For some business owners, flexibility makes a loan more attractive. You may want to borrow more money during the loan period or repay your loan faster.
• Repayments. Calculate how much you will need to pay each month and work out what you can afford (and what you can’t).
• Fees. It’s worth comparing the fees different lenders charge. You might have to pay a fee for establishing a loan or an account as well as pay a monthly maintenance fee.
• Loan terms. How long is the loan? You don’t want to lock yourself into a long, fixed loan if you’re dealing with a temporary cash flow problem. Likewise, a 1-year loan isn’t much help if your business won’t be seriously profitable until much later.

What business costs do I need to consider?

If you currently run your own establishment, you probably have a clear understanding of your business costs. But if you’re opening up a brand new cafe or restaurant, it can be quite hard to estimate your business costs before applying for a loan.

Estimate your costs by considering the following:

• Premises. Where are you planning to open your restaurant or cafe? Research the commercial rents and property values in the area.
• Cost of goods. Check the wholesale prices of the goods and material your restaurant or cafe will need. Get in touch with suppliers and see what deals you can get.
• Wages. If you’ll be hiring staff, make sure you know the minimum wage for your industry. Get a clearer picture of average wages by searching through hospitality job ads.
• Utilities. Compare business energy plans online. If possible, ask a business owner how much they spend on utilities in a busy month.
• Equipment and maintenance. As with goods, do your research on equipment costs. Make sure you factor in the ongoing costs of maintenance.
• Licensing costs. Check with your state and local council to see what licensing costs you’re obliged to pay, especially if you want to serve alcohol.

How to compare an existing business

For a new business, it’s hard to know your costs before you start. You should definitely find a similar business and try to compare. If you’re planning on opening a cafe, for example, you can estimate your costs by doing the following:

• Identify a similar-sized cafe in a nearby locale serving a comparable demographic (consider location, foot traffic, proximity to offices, train stations, etc).
• Spend an hour in the cafe, noting menu prices, counting the number of customers, their orders and the number of staff (do this in a quiet hour and again in a busy hour).
• Make a rough calculation of how much the average customer spends.

While far from perfect, this method can give you a clearer idea of how much money your business can expect to bring in.

What are my chances of getting a loan approved?

Hospitality businesses have high rates of failure and lenders know this. Getting a loan approved depends on many factors.

• • Security. You’ll be able to borrow more from a bank if you have some form of security. This can be either a large amount of cash or a residential or commercial property. If you don’t have much in the way of security, you may need a family member or business partner to act as a guarantor.
  • Skills and qualifications. Say you want to open a cafe but you’ve never used an espresso machine in your life. This wouldn’t inspire confidence in a lender, would it? But if you have a barista qualification and the necessary skills, your business will look a lot more viable and so will your chances of getting a loan.
  • Experience. The same goes for experience. Your proposed restaurant stands a better chance of getting funding if you’ve already managed a restaurant for years.
  • Business plan. You need a detailed business plan. Clearly outlining the nature, purpose and goals of your business helps a lender make a better assessment of your loan application. Make sure to include an analysis of your competition as well as a realistic assessment of your costs and your cash-flow predictions.
  • Financials. If you have an existing business, you’ll have to show your financial data to a lender. You’ll need to be able to show a record of your profit and loss, your costs and your current debts and assets.

What should I look out for if I want to buy an established restaurant or bar?

There’s a lot to consider when buying an established business. You have to do a lot of research to make sure you’re buying a viable, legal business and paying an appropriate price for it.

Financing the purchase depends on whether you’re buying just the business itself (leasehold) or the business and the property (freehold).

• Leasehold
• Freehold

Do your homework before buying

Whatever kind of business you’re buying, you need to look very closely at the financial and legal standing of the business.

• Existing debts. Does the restaurant or bar have any debts attached?
• Profits. Look at how much money the business is making after all its costs are covered. Look at profits over the last 2 years or more.
• Assets. What assets come with the business?
• Valuation. Don’t try to guess how much the business is worth. Get all the accounting data you can and consider the services of a professional valuer if you’re unsure of what you’re doing.
• Changing trends. Nothing stays the same. You can’t predict the future, but you need to think ahead. A thriving cafe in a popular mall might not be such a great buy if a bigger mall is in development across the street.

Food trucks

The food truck trend has come to Australia in a big way. One advantage of running a food truck is you won’t have the enormous costs of renting or owning a premises. But you still have to buy or lease a vehicle and pay the ongoing running costs.

Another cost to consider is the permits and fees required by your state or city.

Depending on your business costs, you may need some kind of business vehicle or business equipment loan for your truck and equipment. If you already own a truck, you may need a short-term loan or line of credit to purchase ingredients and fuel as well as pay for permits.
Finance sorted? Learn about restaurant and hospitality insurance.

Frequently asked questions about getting a loan to buy a cafe or restaurant

• Is it better to borrow from a bank or an online lender?

  Online lenders

  • Online lenders generally offer lower rates than banks.
  • They tend to have more flexible lending criteria, which can be very helpful if you’re starting a new restaurant or bar.
  • They operate under most of the same rules as banks.

  Banks

  • It might be easier to get finance from a bank you currently have an account with.
  • Banks are more strictly regulated, bigger and more stable than online lenders.
  • A bank may be able to offer more tailored and specialised loans that better suit your business needs.

• Will a lender examine my credit history?

  Having a good credit history is always helpful. If your cafe or restaurant is new and hasn’t established any business credit, then your personal credit history is even more important. Some loan products, such as a business line of credit, are much easier to get if you have good credit.

  But there are many options for business owners with poor credit history. You may have to accept a higher interest rate or provide more security. Or you could consider borrowing money from an online lender with more lenient conditions. There are also bad credit business loans for people with poor credit histories.

• What happens if I can’t repay my loan?

  If you’re struggling to repay a loan, you may need to talk to your lender and refinance your loan. If you’re completely unable to pay off a loan, you may have to sell off your business assets or the property you used as security.

  Some lenders charge extra fees for late or default payments and increase the interest rate on future payments.

• How can I borrow money for my business if I don’t have anything to offer as security?

  Banks and online lenders have loan products for people without security. If you run an established business, you might be eligible for purchase order or invoice financing. If you’re starting a new cafe or restaurant, then an unsecured business loan might be a good option.

Frequently asked questions

• Can I get a business loan to open a new restaurant or café?

  Yes. Many Australian lenders offer startup business loans designed for new hospitality ventures. However, you'll generally need a solid business plan, financial forecasts and evidence of relevant experience to increase your chances of approval.

• What can I use a restaurant business loan for?

  You can use the funds for a range of business expenses including fit-outs, commercial kitchen equipment, stock, staffing, marketing and working capital to manage cash flow during quieter trading periods. Be sure to confirm any spending restrictions with your chosen lender.

• Do I need collateral for a hospitality business loan?

  Not always. Some lenders offer unsecured business loans, meaning you don't need to provide collateral, but these often come with higher interest rates. Secured loans, which require an asset such as property or equipment as security, usually offer lower rates and higher borrowing limits.

• How do seasonal changes affect my loan application?

  Lenders understand that restaurants, bars and cafés can experience seasonal fluctuations. They may ask to see detailed cash flow projections or evidence of how you manage off-peak periods to ensure you can meet repayments throughout the year.

• Can I get a business loan if my restaurant has been trading for less than a year?

  It's possible, but more challenging. Some lenders specialise in financing young businesses, but you'll likely need strong personal credit, some trading history and a clear plan for how the funds will help your business grow.

• Are there government grants or programs for food and beverage businesses?

  Yes, there are often various federal and state programs that support small hospitality businesses. These can include grants, low-interest loans and tax incentives. The availability and criteria vary, so check business.gov.au and your state government's website for up-to-date opportunities.

• Can I refinance my current restaurant loan?

  If your business finances have improved or interest rates have dropped, refinancing could help you access better terms or consolidate debts. Compare lenders to ensure that any refinancing fees don't outweigh the potential savings.

• What credit score do I need to qualify for a business loan?

  Each lender has its own criteria, but a good personal or business credit score will usually boost your approval chances. For unsecured loans, lenders may place more weight on your credit history and trading performance.

• How quickly can I get funding for my restaurant or café?

  Many online lenders can provide approval within a few hours and funding within one to three business days, especially for smaller amounts. Traditional banks may take longer as they generally require more documentation and in-depth assessments.

• Are franchise restaurants eligible for business loans?

  Yes. Lenders often have tailored funding options for franchise businesses, including restaurants and cafés. You'll typically need to show the franchise agreement, initial costs and projected cash flow to secure finance.

Written by

Alex Jeffs

Publisher

Alex Jeffs is the senior publisher for automotive content at Finder. He has tested vehicles everywhere from Tasmania to Oodnadatta. See full bio

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Alex has written 51 Finder guides across topics including:

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