A Small Business Administration Loan Primer for Startup Restaurants
It is so-called "common knowledge" in the restaurant industry that banks don't lend money to independent restaurants. They're too risky. But that's not entirely true. You've likely heard of Small Business Administration (SBA) loans,
And in spite of the perceived risk of lending to restaurants, according to data published by the SBA, from 2006 to 2015, more SBA loans were issued to full-service and limited service restaurants than any other business sector. That amounted to nearly 39,000 loans totaling $10 billion. The average size of the loans was relatively modest at $250,000. About 54% of those loans were repaid.
Jeff White, a staff writer and financial analyst at Fit Small Business. writes, "The conventional wisdom is that lenders don't like to give loans to restaurants because they are riskier than other types of businesses. The data, however, casts doubt on this. Full service restaurants and limited service restaurants by far got the largest number of SBA loans between 2006 and 2015."
Learning Objectives:
By the time you've finished reading this article, you should be able to:
- Explain how the SBA reduces the risk to banks in loaning funds to startup businesses.
- Describe the challenges that can face restaurants, particularly startups, when applying for SBA loans.
- List four mistakes businesses should avoid when applying for SBA loans.
White notes, "They came in at numbers 3 and 5, respectively, in terms of their volume of SBA funding. The average loan size was $263,579 for full service restaurants and $238,177 for limited service restaurants. This is smaller than the average loan size for hotels, dental offices, and other businesses. This suggests that restaurants do get lots of SBA loans, but that their loan size may not be that high."
To Continue Learning
