All posts by Mariela Merino

Starting or expanding a fast food business requires significant capital, whether it's to open a new location, renovate an existing one, purchase equipment, or boost marketing efforts. Obtaining a business loan tailored to the fast food industry can help you manage these costs while scaling your operations.

Here’s a comprehensive guide to the best loan options and how to secure a business loan for a fast food company:

Types of Business Loans for Fast Food Companies

1. SBA Loans (Small Business Administration):

   • Purpose: SBA loans are government-backed loans that offer long repayment terms and low interest rates, making them a popular choice for fast food businesses.
   • SBA 7(a) Loan: Provides up to $5 million and can be used for working capital, real estate, equipment, and business expansion.
   • SBA 504 Loan: Specifically for purchasing real estate or large equipment, offering up to $5.5 million.
   • Terms: Long repayment terms (up to 25 years for real estate) and competitive interest rates.
   • Requirements: Strong business plan, good credit score, financial documentation, and potentially collateral.

2. Traditional Term Loans:

   • Purpose: A traditional term loan offers a lump sum of money that can be used for various purposes such as expanding your fast food franchise, upgrading equipment, or managing cash flow.
   • Terms: Fixed repayment terms (usually 1 to 10 years) with fixed or variable interest rates.
   • Requirements: Good credit history, strong business financials, and possibly collateral for larger loans.

3. Franchise Financing:

   • Purpose: If you’re opening a franchised fast food restaurant, many franchisors have partnerships with lenders that specialize in franchise financing.
   • Terms: Financing can cover initial franchise fees, equipment, real estate, and working capital, with terms dependent on the franchisor’s agreements with the lender.
   • Requirements: Approval may be easier for established franchise brands. Lenders typically look at the success of the franchise brand as well as your creditworthiness and experience in the industry.

4. Equipment Financing:

   • Purpose: Fast food businesses require specific equipment (grills, fryers, refrigerators, etc.), and equipment financing allows you to purchase or lease this equipment while using it as collateral for the loan.
   • Terms: Loan terms usually range from 3 to 7 years, and the equipment serves as collateral, which may make approval easier even if you have less-than-perfect credit.
   • Requirements: Lenders evaluate the type and value of the equipment, your credit history, and the financial health of your business.

5. Business Line of Credit:

   • Purpose: A business line of credit provides flexible access to funds, allowing you to borrow as needed to cover short-term expenses like inventory, payroll, or unexpected repairs.
   • Terms: Revolving credit, where you only pay interest on the amount you borrow. The credit limit is typically based on your business’s financial health.
   • Requirements: Strong business financials and credit score. Some lenders may require collateral for larger credit limits.

6. Merchant Cash Advance (MCA):

   • Purpose: If your fast food business has a high volume of credit card sales, a merchant cash advance can provide quick access to funds. In exchange, a percentage of your daily credit card sales will be deducted until the advance is repaid.
   • Terms: Fast approval, but higher fees and interest rates compared to traditional loans. Repayment terms are flexible, based on your daily sales.
   • Requirements: High daily credit card sales and reliable revenue history. MCAs are typically a last-resort option due to their high cost.

7. Inventory Financing:

   • Purpose: Fast food businesses with high inventory turnover can use inventory financing to cover the costs of stocking up on ingredients, packaging, and other consumable goods.
   • Terms: The loan is secured by your inventory, and the amount you can borrow is based on the value of your current stock.
   • Requirements: Lenders will assess the value and turnover rate of your inventory, as well as your business’s financial performance.

8. Working Capital Loans:

   • Purpose: These short-term loans are designed to cover everyday operational expenses, such as payroll, rent, and utilities, especially during slow periods or off-seasons.
   • Terms: Short repayment periods, often 6 months to 2 years, with fixed or variable interest rates.
   • Requirements: Strong cash flow, a decent credit score, and financial documentation to show the loan will be repaid quickly.

Key Considerations for Lenders

1. Revenue and Cash Flow:

   • Fast food businesses, especially established franchises, generate steady cash flow. Lenders will assess your revenue streams and cash flow to ensure you can manage loan payments.

2. Creditworthiness:

   • Both your business and personal credit scores will play a significant role in the approval process. Strong credit can help you secure better loan terms and lower interest rates.

3. Franchise Success or Business History:

   • For franchisees, the success and stability of the franchise brand are important factors for lenders. If you are an independent fast food operator, your business’s track record and profitability will be assessed.

4. Collateral:

   • For larger loans, lenders may require collateral, such as business assets, equipment, or real estate. Franchise agreements may also be considered as collateral in certain situations.

5. Experience in the Industry:

   • If you are new to the fast food business, lenders may want to see prior experience in food service or restaurant management to gauge your ability to succeed.

Steps to Secure a Loan for Your Fast Food Business

1. Assess Your Financial Needs:

   • Determine how much capital you need, whether it’s for startup costs, equipment, working capital, or expansion.

2. Check Your Credit Score:

   • Review both your personal and business credit scores. Work on improving your credit by paying down debts, resolving any discrepancies, and ensuring you have a solid credit history before applying for a loan.

3. Prepare a Business Plan:

   • Lenders will want to see a detailed business plan that outlines your fast food concept, market research, financial projections, and growth strategy. If you’re opening a franchise, provide information on the franchise brand’s success and your expected location’s performance.

4. Research Lenders:

   • Compare loan options from traditional banks, credit unions, online lenders, and specialized franchise lenders. Look for lenders that have experience working with fast food or restaurant businesses.

5. Gather Documentation:

   • Collect necessary financial documentation, including tax returns, profit and loss statements, balance sheets, and any franchise agreements if applicable. This documentation will support your loan application.

6. Submit Your Application:

   • Complete the application process and provide all required documents. Be prepared to explain how you plan to use the loan and how it will benefit your fast food business.

7. Review Loan Terms:

   • Once approved, carefully review the loan’s interest rates, repayment schedule, and any fees. Make sure you fully understand the financial commitment before accepting the loan.

8. Use Funds Responsibly:

   • After securing the loan, use the funds to improve or expand your fast food business strategically. Monitor cash flow to ensure you can meet repayment obligations.

Conclusion

Whether you’re starting a new fast food franchise or looking to expand your existing fast food business, securing the right loan can provide the capital you need for success. SBA loans, equipment financing, and business lines of credit are popular options for fast food businesses, offering flexibility and favorable terms. By preparing a solid business plan, ensuring strong financials, and choosing the right type of financing, you can set your fast food business on a path to growth and profitability.