Restaurant Financing Guide

How to fund your restaurant, finance equipment purchases, and choose the right financing option for your situation

Opening and operating a restaurant requires significant capital, and how you fund it determines whether you start on solid footing or spend your first years digging out of a financial hole. The Federal Reserve's most recent Small Business Credit Survey found that 59% of small firms sought financing in the past year, but only 41% were fully approved. Meanwhile, SBA 7(a) lending hit record levels in fiscal year 2025, the equipment finance industry posted its second-highest year ever, and buy now pay later options are making equipment purchases accessible even for newer businesses. This guide covers the major financing options - from SBA loans to equipment financing to buy now pay later - explains what lenders look for, how to prepare your application, and how to match the right financing type to your specific situation.

Starting a restaurant is one of the most capital-intensive small business ventures. Between buildout costs, equipment, furniture, inventory, licensing, and working capital to cover operating expenses before revenue stabilizes, the financial requirements add up quickly. And those costs do not end at opening - equipment needs replacement, kitchens need upgrades, and growth opportunities require investment.

The challenge for many restaurant owners is not a lack of good ideas or operational skill - it is access to the capital needed to execute them. Research consistently shows that undercapitalization is one of the leading causes of restaurant failure, with studies finding that 44% of small businesses that close cite running out of cash as the primary reason. Yet most restaurant owners are not finance professionals, and navigating the landscape of loans, leases, grants, and alternative financing can feel overwhelming.

This guide breaks down the financing options available to restaurant owners - from traditional bank loans to SBA-backed programs to equipment-specific financing to buy now pay later solutions - and explains when each makes sense, what you need to qualify, and how to position yourself for approval.

Why Financing Decisions Matter More Than Most Operators Realize

The financing choices you make early on affect your restaurant's financial health for years. Taking on too much debt at high interest rates can trap you in a cycle where a large share of revenue goes to debt service rather than operations. Taking on too little capital can leave you underprepared for the inevitable surprises - equipment failures, slow months, supply chain disruptions - that every restaurant faces.

Undercapitalization is a leading cause of failure. The commonly cited statistic that 90% of restaurants fail in the first year is a myth - actual first-year closure rates are closer to 17-30% according to Bureau of Labor Statistics data. But roughly half of all restaurants do close within five years, and insufficient capital is consistently among the top reasons. Restaurants that start with adequate funding and maintain cash reserves have significantly better survival rates than those that open on a razor-thin budget.

Thin margins leave no room for error. The restaurant industry operates on average pre-tax profit margins of roughly 5-10%, depending on segment. At those margins, an unplanned equipment replacement, a slow season, or a lease increase can push an underfunded restaurant into the red. Having financing options available - and understanding them before you need them urgently - is a form of business insurance.

The right financing structure preserves cash flow. A large upfront equipment purchase that depletes your cash reserves may look cheaper on paper than financing, but if it leaves you unable to cover payroll during a slow month, the "savings" become a crisis. Financing allows you to spread costs over time and preserve the working capital you need for daily operations.

Traditional Bank Loans

Bank loans remain the most conventional form of restaurant financing. They typically offer the lowest interest rates and longest repayment terms - but they are also the most difficult to qualify for, especially for new restaurants without an operating history.

What banks look for. Banks evaluate your personal credit score, business credit history (if you have one), time in business, annual revenue, collateral, and the strength of your business plan. A strong application typically requires a credit score above 680, at least two years of operating history, and documented revenue that supports the loan payment. For startups, banks rely heavily on the owner's personal credit, collateral, and the quality of the business plan.

Approval is not guaranteed. The Federal Reserve's most recent Small Business Credit Survey found that small banks had the highest approval rate at 54% - meaning nearly half of applicants at even the most accessible bank type were not fully approved. Denial due to existing debt nearly doubled over a three-year period - from 22% to 41% - reflecting higher debt loads across the small business landscape. If you are carrying significant personal or business debt, bank financing may be difficult to obtain.

Best for: Established restaurants with strong financials seeking large capital amounts for expansion, renovation, or acquisition. Bank loans are less practical for startups or operators with limited credit history.

Bank loan considerations:

• Lowest interest rates of any financing option, but hardest to qualify for
• Requires strong personal credit (typically 680+), operating history, and collateral
• Application process can take weeks to months
• Best suited for established businesses with documented revenue
• Consider building a banking relationship before you need a loan - lenders favor existing customers

SBA Loans

Small Business Administration loans are among the most favorable financing options for restaurant owners who qualify. The SBA does not lend money directly - it partners with approved lenders and guarantees a portion of the loan, which reduces risk for the lender and makes approval more accessible for borrowers who might not qualify for a conventional bank loan.

SBA lending reached record levels in fiscal year 2025. The SBA approved over 77,000 loans through the 7(a) program in fiscal year 2025 - averaging over 1,600 loans per week. Small-dollar SBA loans have grown significantly, and the majority of 7(a) loans are in the range that restaurant owners actually need. The SBA also approved nearly 9,000 loans specifically to startup businesses in FY2025, demonstrating that new restaurants with strong business plans can access SBA funding even without an operating history.

What SBA loans offer. SBA-backed loans generally feature competitive interest rates, longer repayment terms (up to 25 years for real estate, 10 years for equipment), and lower down payment requirements than conventional loans. Some loans come with counseling and education resources to help you manage the business. Unique benefits can include flexible overhead requirements and reduced collateral needs.

Qualification requirements. To be eligible for an SBA loan, your business must be a for-profit entity that is officially registered and operating legally within the United States. You must demonstrate creditworthiness and show that you have exhausted other reasonable financing options. The SBA specifically requires that the requested loan must be unavailable on reasonable terms from non-government sources.

Best for: Restaurant owners with decent credit who need favorable terms and are willing to invest time in the application process. SBA loans work for both startups (with a strong business plan) and established restaurants seeking expansion capital.

SBA loan considerations:

• More accessible than conventional bank loans due to government guarantee
• Competitive rates and longer repayment terms than most alternatives
• Application process requires significant documentation - business plan, financial projections, tax returns
• Processing times can be longer than alternative financing options
• Check the SBA website for current programs, as offerings and limits change periodically

Equipment Financing

Equipment financing is specifically designed for purchasing business equipment - and for restaurant owners, this is often the most practical financing option because the equipment itself serves as collateral, making approval more accessible than unsecured loans.

The equipment finance market is massive and growing. The Equipment Leasing and Finance Association reported that 2025 was the second-highest year on record for new equipment financing volume, with growth of nearly 6% over the prior year. Industry confidence reached an 11-month high entering 2026, and credit approval rates remain strong - over 78% industry-wide, and even higher for small-ticket transactions like restaurant equipment purchases. This means the environment for equipment financing is favorable, with lenders actively competing for business.

How equipment financing works. You select the equipment you need, apply through a financing provider, and if approved, the provider funds the purchase. You then repay the amount over an agreed term - typically 12 to 60 months - with interest. The equipment serves as collateral, which means the lender can recover the equipment if you default. This collateral structure is what makes equipment financing more accessible than unsecured business loans, because the lender's risk is lower.

Equipment financing vs. equipment leasing. Financing means you own the equipment once the loan is paid off. Leasing means you use the equipment for a set term and either return it, buy it at a residual value, or renew the lease. Financing builds equity and makes sense for equipment with a long useful life - commercial refrigeration, ovens, and other restaurant equipment that will serve you for years. Leasing can make sense for equipment that becomes obsolete quickly or that you may want to upgrade frequently.

Many equipment suppliers offer financing directly. Rather than applying separately through a bank or lender, you can often apply for financing through the equipment supplier at the point of purchase. This simplifies the process - you select your equipment, apply for financing during checkout, and receive a credit decision quickly, sometimes the same day. Supplier-partnered financing programs often work with multiple lenders to find the best available terms for your credit profile.

Equipment financing considerations:

• Easier to qualify for than unsecured loans because the equipment serves as collateral
• Credit requirements vary by lender - some programs accept credit scores as low as 500-600
• Terms typically range from 12 to 60 months
• Equipment purchases may qualify for Section 179 and bonus depreciation tax deductions - see the Tax Benefits section below for details
• Compare financing through your equipment supplier with independent lenders to find the best terms

Buy Now Pay Later for Equipment Purchases

Buy now pay later has expanded beyond consumer retail into business-to-business purchases, including restaurant equipment. These programs allow you to split an equipment purchase into installments - often with a deferred interest period - so you can get the equipment you need immediately without paying the full amount upfront.

BNPL is growing rapidly in commercial contexts. Buy now pay later usage continues to expand, with over 85 million Americans using BNPL services in 2024 and projections exceeding 90 million by 2025 according to consumer finance research. The global BNPL market is projected to reach one trillion in transaction volume by 2031. While much of this growth has been consumer-driven, B2B digital payment solutions are expanding quickly as well. Equipment suppliers are increasingly offering BNPL as a checkout option alongside traditional financing.

PayPal Pay Later is one option to consider. If a supplier accepts PayPal as a payment method, you may be able to use PayPal's pay later options to split your purchase into installments. PayPal's internal data shows that customers who use pay later options tend to place larger orders than those paying upfront, which suggests that flexible payment timing removes a barrier to purchasing the equipment you actually need rather than settling for a cheaper alternative.

Best for: Smaller equipment purchases, operators who need equipment quickly, businesses that prefer short-term installment plans over multi-year loans, and newer businesses that may not yet qualify for traditional financing.

BNPL considerations:

• Fast approval - often at the point of checkout with no lengthy application process
• Useful for equipment, furniture, and supply purchases
• Shorter repayment terms than traditional equipment financing (typically 1-12 months)
• Some programs offer a deferred interest period where no interest accrues if paid within the promotional window
• Read the terms carefully - deferred interest programs may charge retroactive interest if the balance is not paid in full by the end of the promotional period
• Best for purchases you can realistically pay off within the promotional or short-term window

Crowdfunding and Community Investment

Crowdfunding allows you to raise capital from a large number of individual contributors - typically in exchange for rewards, early access, or in some cases equity. For restaurant concepts with a strong story and community connection, crowdfunding can provide startup capital while simultaneously building a customer base before you open.

How restaurant crowdfunding works. You create a campaign on a crowdfunding platform, set a funding goal, and offer rewards to backers at different contribution levels - for example, a free meal, a private tasting event, or naming rights on a menu item. If your campaign meets its goal, you receive the funds (minus platform fees). Some platforms operate on an all-or-nothing model where you receive nothing if the goal is not met.

Crowdfunding does more than raise money. A well-run campaign generates awareness, validates market demand for your concept, builds an email list of potential customers, and creates a group of people who feel personally invested in your success before you serve your first meal. This marketing value can be as important as the capital raised.

Community investment platforms connect local businesses with local lenders. Beyond traditional crowdfunding, platforms now exist that match local small businesses with community investors who want to support businesses in their area. These platforms offer a middle ground between donation-based crowdfunding and traditional lending.

Crowdfunding considerations:

• Requires significant effort in campaign creation, promotion, and backer fulfillment
• Works best for concepts with a compelling story, strong local ties, or a unique angle
• Platform fees typically range from 5-12% of funds raised
• Backer reward fulfillment adds cost and operational complexity
• Not a reliable primary funding source for most restaurants - better as a supplement to other financing

Tax Benefits of Equipment Financing

Financing restaurant equipment is not just about spreading costs over time - it can also create meaningful tax advantages that reduce the effective cost of your purchase. Federal tax incentives are specifically designed to encourage businesses to invest in equipment, and restaurant owners who understand these benefits can time their purchases strategically.

Section 179 allows full-year deduction of equipment purchases. Under Section 179 of the tax code, businesses can deduct the full purchase price of qualifying equipment in the year it is placed in service, rather than depreciating it over multiple years. This applies to a wide range of restaurant equipment - commercial ovens, refrigeration units, food prep equipment, dishwashing systems, POS systems, furniture, and more. The deduction is available whether you pay cash or finance the equipment, which means you can get the tax benefit in year one even while spreading payments over several years.

Bonus depreciation adds another layer of first-year savings. In addition to Section 179, federal bonus depreciation rules allow businesses to write off a percentage of qualifying equipment costs in the first year. Recent legislation has been favorable to small businesses in this area, and current bonus depreciation rates are among the most generous in recent history. When combined with Section 179, these provisions can allow restaurant owners to deduct a substantial portion - or even the entirety - of their equipment investment in the year of purchase.

How Section 179 and bonus depreciation work together. You apply Section 179 first, up to the annual limit. Then bonus depreciation can apply to any remaining eligible cost above the Section 179 amount. The combined effect is that most restaurant equipment purchases - even large ones - can potentially be fully deducted in year one rather than depreciated over five to seven years. This accelerated deduction reduces your taxable income in the year you need it most - when you are making a significant capital investment.

Financed equipment qualifies. A common misconception is that you must pay cash to claim these deductions. In fact, equipment purchased through financing qualifies for both Section 179 and bonus depreciation as long as it is placed in service during the tax year. This means you can finance your equipment purchase, begin using it, claim the full deduction on your tax return, and continue making payments over time. The tax savings can effectively offset a significant portion of your financing costs.

Tax benefits of equipment financing:

• Section 179 and bonus depreciation allow first-year deduction of qualifying equipment purchases
• Both financed and cash-purchased equipment qualify for these deductions
• Qualifying equipment includes commercial kitchen equipment, refrigeration, furniture, POS systems, and more
• Equipment must be purchased and placed in service during the tax year to qualify
• Annual deduction limits and rules change periodically - check current limits before making purchasing decisions
• These deductions reduce taxable income, not your tax bill dollar-for-dollar - actual savings depend on your tax bracket

Tax Disclaimer: This guide provides general information about potential tax benefits of equipment purchases. Tax laws change frequently, deduction limits are adjusted annually, and individual circumstances vary. The information here should not be considered tax advice. Consult a qualified tax advisor or CPA before making financial decisions based on potential tax benefits. Your tax professional can help you determine which deductions apply to your specific situation and how to maximize their value.

Preparing Your Financing Application

Regardless of which financing option you pursue, preparation is the difference between approval and rejection. Lenders and financing providers evaluate both your creditworthiness and the viability of your restaurant concept.

Build your business plan before you apply. Every serious financing application requires a business plan that includes your concept description, target market analysis, competitive landscape, menu strategy, marketing plan, financial projections, and funding request. For guidance on building a strong restaurant marketing strategy, see our Restaurant Marketing Guide. The financial projections section is the most scrutinized - lenders want to see that you understand your costs, revenue potential, and path to profitability.

Know your credit before lenders do. Check your personal credit report and score before applying. Federal Reserve data shows that denial due to existing debt has risen sharply in recent years, nearly doubling over a three-year period. If your credit needs work, taking a few months to pay down debt and correct errors before applying can meaningfully improve your chances. Different financing options have different credit thresholds - SBA and bank loans typically require 680+, while some equipment financing providers accept scores as low as 500-600.

Have your financials organized. Lenders will request personal and business tax returns (typically 2-3 years), bank statements, a profit and loss statement, a balance sheet, and a list of existing debts. Having these documents ready before you apply speeds up the process and signals professionalism.

Request the right amount. Apply for what you actually need - with a realistic buffer for unexpected costs - not the maximum you think you can qualify for. Overleveraging is as dangerous as undercapitalization. At the same time, do not underestimate your needs - running out of capital six months after opening because you tried to minimize borrowing puts your entire investment at risk.

Application preparation checklist:

• Complete business plan with financial projections for at least three years
• Personal and business credit reports reviewed and corrected if needed
• Two to three years of personal and business tax returns
• Recent bank statements (typically 3-6 months)
• Current profit and loss statement and balance sheet (for existing restaurants)
• Detailed list of what the funds will be used for
• List of existing debts and obligations
• Equipment quotes or invoices for equipment financing applications

Matching Financing to Your Situation

Different stages and needs call for different financing approaches. The right option depends on how much you need, how quickly you need it, what your credit looks like, and whether you are starting from scratch or expanding an existing operation.

Related Resources

• Restaurant Equipment Financing - Apply for equipment financing through our lending partners
• New Restaurant Kitchen Equipment Guide - What equipment you need to outfit a new kitchen
• Restaurant Menu Pricing Guide - Price your menu to protect the margins that repay your financing
• Restaurant Marketing Guide - Build the revenue that makes financing sustainable
• Restaurant Menu Design Guide - Design a menu that maximizes revenue per guest

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