Lines of Credit for Restaurants

It can be difficult to obtain the capital needed to grow your business. Each account is assigned a Business Advisor. You'll be able to navigate the process and know what you need. We'll assist you in understanding the terms and help you make informed decisions when you are ready to compare offers.‍‍

By Matthew Elling
Co-Founder and Consultant at Line of Credit Depot
Updated on February 10, 2021
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Ask any restaurateur; and they will tell you that the restaurant industry is super challenging. This challenging industry can even be more unpredictable if a restaurant doesn’t have a line of credit. In order to provide the best service and product, restaurants are constantly extending capital to suppliers, labor and other necessary overhead. These non-stop costs can lead to issues when a restaurant experiences a drop in customers or an unexpected high cost expense. Restaurants often access their lines of credit for these unanticipated credit gaps.

To be approved for a line of credit, a restaurant must have been in business for at least 2 years and have shown a profit on the last filed tax return.

Restaurant owners can apply for a line of credit, but keep in mind that the business must be showing profits. One of the main reasons why a restaurant would be declined is usually due to lack of profitability. Now, this doesn’t necessarily mean that a restaurant that shows losses can’t be approved. Here’s how. It’s common for restaurants to forward the depreciation of equipment (stoves, ovens, grills, refrigerators, etc) on tax returns. This will decrease the taxable income and show a lower profit for that particular year. This depreciation can even drop what would be a ‘profitable’ business into losses on the tax return. For the purposes of underwriting a bank line of credit, most of our partner banks will ‘add back’ or remove this line item from the tax return calculation. This means that if there was depreciation of $50,000 and the business net profit was ($14,000) loss, the true gain would be $36,000.

Even if you as a restaurant owner were declined for bank financing in the past, please keep in mind that we work with hundreds of real local and national banks. So just because 1 or 2 banks declined your application for capital, don’t lose the hope of obtaining a line of credit.

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Restaurant lines of credit range from 5 to 8% annual interest rate. Normally terms are 2 year with a requirement for a zero balance payoff within those 2 years. This means that debt on the line must get fully paid off to keep the line of credit active.

When restaurants are renovating their dining areas or even purchasing new kitchen equipment they can access their line of credit. Funds are withdrawn from the line of credit account and deposited into the business operating account. This transfer happens automatically. Monthly charges are based on the amount of capital owed, so you can expect smaller payments if you have minimal debt owed. 

When restaurant owners need capital for their business, funders in the MCA space are usually very interested in lending money. This is because the cost of capital for these short term advances are extremely high, so brokers and funders make their money quickly. Restaurants that have had or are currently paying back an MCA can still get approved for a line of fact, if you showed this high interest expense on your last business tax return, underwriters can even ‘add back’ these expenses to your net profit/loss, thereby increasing your profitability. 

If you run a restaurant and are looking for affordable access to capital, please apply here

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