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Business Loans for Bars and Restaurants

Business Loans for Restaurants and Bars in Canada

In Canada, there is an abundance of bar & restaurants through a diversity of different cultures. No matter which province or city you go to, there are different types of bars and restaurants for you to experience. It’s become a common type of business for people to take on. If you own a bar or restaurant in Canada but have been discouraged by the expenses, then we have a solution for you. You may qualify for business loans and financing for bars and restaurants in Canada, and what’s incredible is that you can obtain it all through an online application.

The process of procuring a bar or restaurant loan in Canada is simpler than ever before. Even if you aren’t so certain about your credit score, you’ll most likely have a great chance of getting approved as long as you connect with a company that is equipped to accommodate your unique needs. It should be noted that business financing for a restaurant only applies to restaurant that’s been in business for at least 6 months and generates at least $5000 in monthly revenue. If that’s you, then wait no longer and scroll down to access a directory below that lists all of the most reliable bar and restaurant business loan providers from Canada. Depending on whether you need to upgrade your bars, diners, food establishments, make equipment upgrades, renovations, finance a patio installation, pay for staffing or marketing or something else, you can do so through a business loan for bars and restaurants.

To determine which provider and loan is best for you, compare terms, rates and offers and click “apply now” next to the name of the provider that you’ve chosen. A standard set of qualifying questions will be presented for you to answer before getting accepted and processed for the bar and restaurant loan. However, if researching separate providers is too time consuming at this moment, an easy alternative is to pre-apply with Smarter Loans. With a pre-application, we’ll source companies from Canada and have them reach out to you with their very best loan offers.

We can help connect you with the top restaurant business financing providers in Canada.

Get Restaurant Business Loan Now!

Top Business Loans for Bars and Restaurants Providers in Canada

Company
Amount
Interest Rate
Reviews
Terms
$5,000 - $300,000
Starting at 7.99%
4 - 18 Months
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$5,000 - $500,000
Varies
4 - 12 months
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$5,000 - $300,000
Starting at 7.99%
3 - 12 months
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$5,000 - $500k
Varies
6 -12 months
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$5,000 - $250,000
Varies
N/A
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$500 to $300,000
Starting at 8.39%
2, 3, 4, 6, 9, 12, 18 or 24 month terms
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$5000 - $800,000
Starting at 7.99%
6 - 24 Months
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$10,000 - $250,000
Varies
3 - 12 months
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$250 - $1,000,000
Starting at 10%
3 months - 60 months
Apply Now

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Introduction

In most major cities, restaurants and bars are a major hub for tourists looking to experience new cuisines. Opening and operating a restaurant is no mean feat though. There are obvious operational challenges that businesses face such as marketing, finding a location etc., but equally importantly, there are financial challenges with respect to raising capital to fund initial and ongoing expenditures. Restaurant loans can be a solution to these hurdles and this article aims to uncover some of the intricacies involved with obtaining this sort of business financing.

Steps prior to obtaining restaurant business financing

As with other business loans, restaurant business loans also have to be evaluated and compared amongst different lenders who may offer varying products, loan structures and terms. Some key questions to ask before negotiating financing options with lenders therefore are:

  • What do you need the funding for?

    The most common expenditures that restaurants and bars face are inventory costs, marketing costs, store setup and ambience, and wages. Figuring out why you need a restaurant business loan and what expenses you will channel the money to can go a long way in determining the principal amount you need.

  • Are you looking to purchase a fixed asset or pay off an operating expense?

    The accounting for both differs significantly, which is exactly where the value lies for banks. If the restaurant is purchasing a fixed asset (e.g. a machine that automatically chops vegetables), then the machine is expected to provide tangible benefits for the near future meaning that there is additional comfort in lending to the business using the machine as collateral. On the other hand, if the business is looking to pay their wages, this is an operating expense that does not provide any future benefits and hence has no value as collateral for the lender.

  • How much financing is needed?

    In a competitive space as the restaurant industry where profit margins can often get compressed, having added interest costs can be a detriment to financial stability. Therefore, while it is tempting to obtain a large loan, the more prudent and financially savvy route would be to raise only what is needed by the business at that point in time for the foreseeable future.

  • Is cash flow adequate within the business?

    The characteristics of a successful borrower primarily include healthy cash flow and stable revenues. If the bar or restaurant business exhibits seasonality or cyclicality (particularly prominent in higher-end restaurants), then it may not be the best idea to get a term loan. A revolving loan facility might be the better option here (more on this later).

  • What type of assets can be put up for collateral?

    Collateralized loans are cheaper in terms of interest rates as the lender then has a claim on an underlying asset that they can sell in the event of default. If the borrower does not have collateral, they can still obtain a loan, but would likely have to pay a slightly higher rate of interest and in some cases, may be asked to put up personal assets such as a home or car.

Digital Tools For Restaurants

Now more than ever it is important for restaurants to have digital capabilities to serve their customers better. Specifically, online ordering, takeout with mobile pre-order, and delivery are key business elements for the food and hospitality industry moving forward.

In the summer of 2020 we spoke with Ayham Aldajane who is the Director of Business Development at a company called Nown.

Nown is a Point of Sale Solution (POS)  that helps restaurants better serve their customers and increase revenue and sales.

Ayham also spoke about how the world of food and hospitality has changed as a result of COVID-19, and the must-have digital tools that every restaurant owner should know about. Check out the video!

Find more videos on how business owners can get financing on our channel.

Types of restaurant loans and bar loans

When choosing between lending institutions, a lot of attention should be paid to their individual debt offerings and the requisite terms attached. Some of the main types of loans available to restaurant and bar businesses are as listed below:

Canadian Small Business Financing Program Loans:

The SBFP loan is a type of arrangement that allows a financial institution to share the risk of a loan with the government-backed entity. While the financial institution advances and administers the loan, the government guarantees a certain portion in the event of default.

The key advantages of this type of loan program include:

  • Generous borrowing limits (principal amounts) that can be obtained
  • Lower interest rates as a result of the government backing
  • Longer loan terms (up to 10 years) as opposed to conventional commercial loans

However, there are some potential consideration factors here too:

  • Down payments can be potentially (but not necessarily) large
  • Loans can take longer to be advanced than other types of commercial loans

Merchant Cash Advance:

The merchant cash advance is a cash advance against the restaurant’s future card sales. Once the principal is advanced, the restaurant pays a percentage of debit and credit card receipts to the lender until the principal is repaid in full.

Some of the beneficial features of the MCA include:

  • Repayment volumes are variable according to the level of sales activity, which mitigates potential cash flow problems
  • Funding generally happens on accelerated timelines
  • Credit scores and collateral are not required

However, MCAs can also be expensive with up to 200%+ in APRs.

Term Loan:

As the most basic, conventional type of loan, the term loan is an upfront cash advance by the lender based on the borrower’s credit score, credit history, and financial strength. The borrower then services the debt through fixed principal and interest repayments every month.

The main advantages offered by this type of loan include:

  • Fixed repayment amounts which enables easier budgeting and forecasting
  • Interest is tax-deductible and there is no dilution of control
  • Can be refinanced or rolled over pretty easily provided covenants are met

The disadvantages, however are that the company is legally obliged to repay on time. Failure to do so can lead to legal repercussions, asset seizing by lenders, and/or bankruptcy.

Revolving Line of Credit:

The revolving line of credit is a commitment by the bank to provide a certain level of funds at any given point of time within the term of the loan. The business can opt to use any level up to the maximum if they so wish. The interest is then calculated on the weighted average of principal outstanding while the unused portion also has a small fee levied on it for the bank’s opportunity cost in reserving the capital for the business.

The main advantages of this arrangement are:

  • Helps to align business borrowing with financial strength and operating needs
  • Alleviates the impact of cyclicality and seasonality
  • Versatile and can be used for most expenses that a restaurant or bar faces

Care should be taken to ensure that only the amount that is needed is borrowed instead of maxing out till the borrowing limit.

Equipment Loans:

The equipment loan is a cash advance provided by a lender to purchase a certain type of fixed asset that will be used by the restaurant or bar business. The asset then serves as collateral in the event of default.

Advantages of equipment loans include:

  • Lower interest rates as the lender has additional asset comfort
  • No liens on personal assets
  • Easier budgeting and cash flow

The main constraint here though is that the equipment financing can only be used towards the purchase of equipment and nothing else.

What does a lender want to see before advancing a loan to a restaurant?

At a minimum, the lender would want to see the business’s registration documentation, credit score/history, strategic plan, financial statements (showing stable revenue and P&L), and projections. Typically, you need to be in business for at least 12 months and have monthly sales of $10,000 or more.

How do you find financing for opening a restaurant, bar or a coffee shop?

Restaurant funding is easy to find in Canada. You can find many specialized business loans meant for the catering services industry.

You can find these specialized loans online or through a bank or credit union. There are many lenders that offer different kinds of loans to restaurants in Canada. For example, when you open a restaurant, you can look into restaurant loans that provide you with working capital or funding meant for your initial expenses. Or, if you run a restaurant startup, you can look for specific lenders who serve young restaurant businesses.

Restaurant loans can vary as much as any other kind of business loan. So, if you buy a restaurant or open one, try to find the best terms and interest rates you can access.

How do you get loans for a restaurant or bar with bad credit?

There are specific restaurant loans in Canada that are meant for borrowers with low credit scores. These restaurant loans will be more expensive but getting your restaurant funding should still be easy and quick. Bad credit restaurant loans can be found most easily online.

Your chances of getting a restaurant loan with bad credit will depend entirely on who you ask. Banks and credit unions will be much harsher when assessing your credit score. So, you will likely have to focus your search online if your credit score is low.

Alternative lenders provide a wide range of loans. Interest rates and terms will vary significantly, so take your time to compare the lenders that are available to you.

What do I need to apply for a restaurant loan or financing?

To apply for a restaurant loan or restaurant financing, you will need most of the same things you would need for any other business loan.

Specific requirements for a restaurant loan are always determined by the particular lender you go to. In general, you can expect any restaurant lender to want a business proposal from you. Strong and detailed plans can often help you get better rates for your restaurant funding.

Next, restaurant lenders will want to see your business banking or financial statements. They will use the recent history of your business to determine your terms. If you are just getting started for the first time, you will have to go to a lender that will lend to a restaurant startup.

If you’re opening a restaurant, bar, or any other catering business, you may need to provide proof of licensing to your lender. This will vary based on the specifics of your business.

Finally, you will need a credit score check to get restaurant funding. Your credit score will be an important factor in determining your rates. This is especially true if your business is younger.

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