- Short answer
- Acquisition yes · new build hard
- Best fit
- SBA 7(a) to acquire an operating restaurant
- Also fits
- Equipment finance on the kitchen package
- Once bankable
- Line of credit for working capital
- What decides it
- Prime cost, lease term remaining, and operating history
- Usual disqualifier
- Under two years, or a lease shorter than the loan
Acquisition and new build are not the same request
Restaurants have a reputation for being unfinanceable, and it comes from conflating two very different transactions.
- Buying an existing, profitable restaurant is a solid SBA 7(a) file. There is real operating history, verifiable collections, an established customer base and a lease with a track record. Lenders do these regularly.
- Building a new concept from scratch is a projection-based loan on a business type with a high failure rate. Some lenders will do it with strong operator experience and a large injection. Most will not.
If you are opening rather than buying, know going in that you are in the harder category and that your own operating history is doing most of the work.
Prime cost is the number that gets read first
Cost of goods plus labor, as a percentage of sales. It is the fastest read on whether a restaurant is actually run well, and every lender who does this asset class looks at it before almost anything else.
A restaurant with strong sales and a bad prime cost is not a good credit. It tells the analyst that volume is masking operational problems, and that a soft quarter turns into a loss quickly. Know your number before someone asks.
Have the trailing twelve months by period, not just an annual figure. Seasonal and event-driven swings are normal; being unable to explain them is not.
The lease is a credit term, not paperwork
This is where restaurant deals die quietly. Lenders generally want remaining lease term — including options — to meet or exceed the loan term. A ten-year 7(a) against a lease with four years left and no renewal is a problem no amount of cash flow fixes, because the collateral walks away at the end of the term.
Before you go to a lender: confirm remaining term, confirm the options are yours to exercise rather than the landlord's to grant, and confirm the landlord will sign a collateral access agreement. That last one surprises people late in the process.
Structuring the stack properly
Most restaurant deals are financed as one loan when they should be two or three:
- SBA 7(a) for goodwill, the buildout and working capital. This is the piece that only SBA does well, because goodwill has nothing to repossess.
- Equipment finance for the kitchen package — hoods, walk-ins, line equipment. Financing it separately frees 7(a) proceeds for working capital.
- SBA 504 if the real estate comes with it, at a lower fixed rate over a longer term than folding a building into a 7(a).
Undercapitalized working capital is how viable restaurants fail. The buildout gets funded, the opening goes well, and there is nothing left to absorb three soft months while the room matures. Size working capital before you size anything else.
Where restaurant files get declined
- Under two years of operating history with no comparable operator experience.
- Remaining lease shorter than the requested term. Very common and very fatal.
- Prime cost well outside the range for the concept, with no explanation.
- Sales reported on a cash basis that can't be reconciled to POS and merchant statements.
- Stacked advances. Restaurants are heavily targeted by advance shops, and daily debits against thin margins is arithmetic that does not work. It also closes the SBA door.
If you are buying, get the target underwritten before you agree on price
A bankability memo on the restaurant you are buying tells you what a lender will actually support — which is the strongest negotiating information available to you, and the cheapest. Seller financials in this industry very often need reconstruction before anyone can underwrite them.
Send us the target's file. We will tell you what it supports, where the seller's numbers won't survive underwriting, and what structure closes it. Either way you get the memo, and you will know our fee before you commit to anything.
Why restaurants get targeted hardest
Daily card settlement is exactly what an advance is built to capture, which makes restaurants the single most heavily solicited industry in this market. The pitch arrives the week a POS provider sells your processing data.
Prime cost leaves thin margin per dollar of sales. A daily remit taken off gross card volume comes out before food, labor and rent — so a 15% holdback against a business running 8% net is arithmetic that cannot work, however good the room looks on a Friday.
We do not originate advances, and we will not stack you. But refinancing out of them is something we place regularly — and it is usually the step that has to happen before anything cheaper becomes possible. Send the funding agreements and three months of bank statements.
Common questions
- Is a restaurants business bankable?
- Acquisition yes · new build hard
- What financing fits a restaurants business best?
- SBA 7(a) to acquire an operating restaurant
- What do lenders look at for restaurants businesses?
- Prime cost, lease term remaining, and operating history
- Why do restaurants businesses get declined?
- Under two years, or a lease shorter than the loan
Industries with the same answer
These businesses look nothing alike, but the product that fits them is the same one — and usually for the same structural reason.