How to Get an SBA Restaurant Business Loan in 5 Steps

The Small Business Administration (SBA) is not just a government agency that loans businesses money, it also provides loan information and other financial assistance to entrepreneurs. Here are five quick steps for turning your restaurant into an SBA approved business so you can get the financing you need to grow.

The “how to get a sba grant” is a process that can be done in 5 steps. The first step is to contact your local SBA office and ask for a list of qualifying businesses in your area. The next step is to find out if you are eligible for an SBA loan. After that, fill out the application form online and wait for approval. Finally, once approved, start working with your lender on loan documents.

Due to the industry’s volatility, restaurant company loans might be tough to come by. Many lenders, on the other hand, provide SBA-backed loans that may be used to purchase an existing restaurant, establish a new location, or get operating capital. SBA loans feature interest rates ranging from 5% to 8% and payback lengths of up to 25 years. This article walks you through the five stages you’ll need to take to acquire an SBA restaurant loan, as well as other options if you don’t qualify.

1. Find out whether you’re eligible.

To be approved for an SBA loan, you must fulfill both the SBA and your lender’s qualifying standards. The specific requirements of the lenders may vary, but you should be able to qualify for an SBA loan if you match the following criteria:

• Lenders often need a restaurant to have been open for at least two years before applying for a loan. Startups founded by people with appropriate industry expertise, on the other hand, may be eligible.
• Lenders will typically demand a credit score of 680 to qualify. A well-capitalized company, on the other hand, may be able to qualify with a lower score. Borrowers must not have had any recent bankruptcies, debt delinquencies, or repossessions, according to the SBA. Furthermore, any defaults on financial commitments to the United States, including student loans, are prohibited.
• SBA loans aren’t required to be completely collateralized, although most lenders will ask you to put up collateral if you have it. Furthermore, SBA loans are usually personally guaranteed by the borrower, which means that if you fail, the lender may go after your personal assets.
• The SBA will want at least a 10% down payment. Lenders, on the other hand, may require a down payment of up to 30% of the entire project cost.
• Commercial real estate: You must acquire commercial real estate that is at least 51 percent owner-occupied.

The debt service coverage ratio is a measure that a lender will use to assess your overall profitability (DSCR). The DSCR is calculated by dividing your company’s net operating income by its debt and interest payments. Your DSCR should ideally be 1.25 or greater. If your DSCR is less than 1.25, the lender may urge you to raise your down payment in order to minimize your monthly loan payment.

2. Put together a business plan

The next stage is to construct a business plan for a lender after you’ve determined whether you’re qualified for SBA funding. A business plan is essential because it establishes a strategic framework for your company’s operations. Investing time in research requires you to pay attention to aspects of your restaurant’s operations that you may otherwise neglect.

Market research, your sales approach, history on you and your restaurant, the amount of money you need, how you intend to spend that cash, and three years of financial predictions for the restaurant are all included in a successful business plan. We provide more thorough instructions on how to write a business plan, as well as a template to help you get started.

3. Gather information

In addition to your business plan, SBA loan applications demand other documents. The following documents will be required at the time of application as a bare minimum:

• For all owners with 20% or more ownership, three years of corporate and personal tax returns are required.
• Each owner’s personal financial statement
• Balance statement for the current fiscal year (YTD)
• Profit and loss statement for the first half of the year
• Proof of ownership of a company
• All business permits
• Each owner’s resume

During the underwriting process, lenders may have extra criteria. If you’re utilizing a portion of the loan funds to buy restaurant equipment, for example, your lender would almost certainly ask for a description of the equipment.

Having your loan papers ready ahead of time demonstrates to the lender that you’re serious about growing your business and being financed. The more information you submit throughout the application process, the smoother the underwriting process will be.

4. Locate a Lender

SBA loans are often available from a combination of major banks and internet lenders. These institutions must follow the SBA’s basic qualifying requirements, but they may also fund depending on their own criteria. It’s vital to emphasize that SBA loans are underwritten by banks rather than generated by the SBA. If your restaurant fails, the SBA will guarantee your loan and compensate the lender. The application procedure might take a long time since your loan application is assessed not just by the lender but also by the SBA before being funded.

Before applying for an SBA restaurant loan, you should ask prospective lenders the following questions:

• What costs are associated with the loan’s origination and closing?
• What is the procedure for submitting an application?
• How long does it take for a decision to be made?
• Is there any more documents that must be included with the application?
• Is there a penalty for paying in advance?

Working with an SBA designated lender has two benefits. First, since the SBA delegated greater power to a preferred lender, approval and financing may be faster. As a consequence, the SBA and the lender have less back-and-forth. Second, recommended lenders have handled a significant number of SBA loans and are more familiar with what the SBA looks for in a loan application.

Because the SBA loan procedure may be difficult for both lenders and borrowers, it’s preferable to deal with a lender that has experience with SBA loans. To understand more about which SBA lender you should partner with, see our post on the top 100 SBA lenders.

SmartBiz is one of the lenders we suggest because they can assist you through the difficult SBA loan procedure and have your loan approved promptly. An SBA Express loan of up to $350,000 is available to qualified borrowers, with approval in as little as 30 days.

Go to SmartBiz.com to learn more.

5. Fill up and submit an SBA loan application

Submit your application to the lender of your choosing after you’ve gathered all of your papers and created your business plan. Although the time it takes for each lender to complete your application varies, SBA loans might take three to four months to be fully authorized and financed. You may read our post on applying for an SBA loan to learn more about the procedure.

SBA Financing Alternatives

If you don’t qualify for an SBA loan, you have a few other possibilities. Some of these solutions will have less requirements, but they will have higher interest rates. The following are a few of the most popular choices:

• Business credit cards: If you require a modest amount of working capital or have recurrent bills that you can pay on time, a business credit card makes sense.
• A company line of credit is a great alternative if you need a higher amount of working capital or need finance to aid with cash flow.
• Many lenders provide different sorts of equipment loans to assist restaurants in purchasing new equipment.
• Short-term loans: A restaurant in need of capital quickly may take advantage of a number of quick business loan alternatives, which can provide funding in as little as a few days.
• Even if your restaurant is already open, a rollover for business beginnings (ROBS) plan is worth considering if you have enough retirement assets to use to supply required funding.

Conclusion

If you don’t know where to seek or how to manage the application process, getting a restaurant loan might be challenging. If you have strong credit, enough collateral, and are ready to wait while your loan application is assessed, an SBA loan is a great alternative for your restaurant. SBA loans provide a lower interest rate and more advantageous conditions than other types of credit.

The “how to get a small business loan from the government” is an article that will teach you how to get an SBA restaurant business loan in 5 steps.

Related Tags

• sba loan qualifications
• how to get an sba loan to buy a business
• how to get a business loan from a bank
• restaurant business plan for bank loan
• what do i need for a startup business loan