Restaurant Startup Costs – A Complete Breakdown

by Katie Sawyer, 13 minutes read
HOME blog an in depth guide to restaurant startup loans

Restaurant Startup Costs – A Complete Breakdown

Running a restaurant startup is difficult for a number of reasons, you need to pick a location that can turn a profit, choose a restaurant type that would be profitable in your area (Chinese, Mexican, Southern. etc.), recruit a team of managers and employees that can help you reach your mission, and be able to afford all of the equipment and supplies needed to get your restaurant startup of the ground.

Costs associated with starting a restaurant

Depending on the size and type of restaurant you’re planning on opening, your restaurant startup costs can vary widely. A fast food restaurant will need a number of deep fryers while a bakery will need a good amount of industrial-sized ovens. To give you a better idea of what you can expect to buy along with how much each piece of equipment will cost, continue on as we give you a breakdown of each area of a new restaurant startup below.

1. Cooking equipment

2. Kitchen equipment

3. Cooking utensils

Use these costs to give you a rough estimate of what you can come to expect to spend for your own restaurant startup costs depending on the pieces of equipment you do and do not need. While some restaurant entrepreneurs may be able to foot the bill for this equipment, the majority won’t. To help you out with the initial costs associated with your own restaurant startup, you may want to take a look at your options for getting a loan for your restaurant startup. And to make sure you never end up in a situation where you’re spending more than you’re selling, click here to download a calculator that can help you figure out the value of your retail inventory.


What is a Restaurant Startup Loan?

A restaurant startup loan is like any other type of business loan that you get from the bank. You must be able to convince a bank to give you a large sum of money while assuring them that the idea will be profitable enough for you to make your regularly scheduled payments on time, as well as enough to make a profit.

Starting your own restaurant is a common goal for many people looking to make the jump into entrepreneurship. Although running a restaurant startup may be a challenge, you’ll find that when done correctly, the benefits make it worthwhile.

A big part of doing it correctly is to ensure that you have the proper funding to build and maintain your dream restaurant, and unless you’re coming into this business with a fortune, then your best bet to make your vision come true is by getting a restaurant startup loan to help fund your ventures.


Restaurant Startup Costs Breakdown

Although you don’t necessarily have to get a loan for your restaurant startup, you’ll come to find that many of the expenses that come with opening and running your own restaurant startup is too expensive for you to pay out of your own savings.

An In-Depth Guide to Restaurant Startup Loans

To give you a better idea, here’s a list of just some of the costs that come with beginning your own restaurant startup:

  • Commercial lease for your restaurant startup space

  • Restaurant insurance

  • License Fees

  • Staff wages and benefits

  • Scheduling Software for creating employee schedules

  • Renovations

  • Kitchen equipment

  • Beginning stock and inventory

  • Working capital

  • Marketing capital


Types of Commercial Loans that are available to Small Business Owners

To go more in-depth and to give you a better idea of what the process looks like, we’ll go ahead and state the different types of loans that are available to you as a small business owner.

1. Traditional Term Loan

A traditional term loan is a lump sum loan that you repay with regular payments at a fixed interest rate over a set amount of agreed upon time. The tricky part is that you have to apply for the loan directly through the bank and will need a high credit score to be qualified. The process also may take up to 6 months or longer to be approved. The good part is that you’ll receive lower interest rates (6-8%) which will result in lower monthly payments.

You also have the choice of applying for a short or long-term loan, although long-term loans are typically not recommended for newer restaurant startups due to all of the unknown factors when you’re just starting out. Another disadvantage is that they require collateral in the form of your home, vehicle, or business assets.

It is also crucial that you understand where you’re getting your loan from because the bigger banks may have rules that are “set in stone” and don’t provide a lot of wiggle room, while the smaller banks that are more familiar with your market may be more accommodating.

Advantages of Traditional Term Loans:

  • Lower interest rates

  • Opportunity to gain access to a larger amount of money

Disadvantages of Traditional Term Loans:

  • Need a high credit score

  • Must be able to wait up to 6 months or longer

  • Mut give the bank collateral for the loan

How to Apply

When applying, keep in mind that traditional term loans aren’t a short-term fix and are a longer process compared to other loans offered to restaurant startup owners, there is also a lot of documentation that’s needed.

Required Documents:

  • Driver’s License

  • Voided Business Check

  • Bank Statements

  • Balance Sheet

  • Profit & Loss Statements

  • Credit Score

  • Business Tax Returns

  • Personal Tax Returns


2. Small Business Loan (Small Business loan)

A large number of banks offer small business loans in partnership with the United States Small Business Administration, as well as many national and regional banks that offer their own small business loan choices for new business owners. These loans are very similar to traditional commercial loans, but the biggest difference is that it works in conjunction with a government program (small business administration) so it’s much easier for restaurant startup to qualify for it.

The government also has a number of programs that accompany small business loans in order to streamline the loan process for those that meet the requirements:

Preferred Lender Program: The SBA has chosen certain lenders to have the authority to approve SBA loans unilaterally. The lenders with the ability to do this must operate under the same guidelines as the small business loans. The SBA is usually able to provide a loan guarantee to a lender within 24 hours of their request.

SBA Express Loan Program: SBA express loans are supported by an SBA guarantee of 50 percent and the lender (the bank) uses their own application and documentation forms. The lender is also able to have complete control over the ability to approve credit, similar to the preferred lender program.

The reasoning behind the SBA Express Loan is that it gives lenders the ability to offer small business loans of $350,000 or less, faster and easier. Like the Preferred Lender Program, the SBA Express Loan generally provides a loan guarantee to the lender within 24 hours of their request.

Patriot Express Loans: If you are a veteran or a current member of the military community, there are loans of up to $500,000 that are available to you. To give you clarification on who is eligible for the loan, you must be a: veteran, service-disabled veteran, active-duty service members that are also eligible for military Transition Assistance Program, Reservists and National Guard members, current spouses of any of the above, and the widowed spouse of a service member or veteran who died during service or of a service-connected disability.

Patriot express loans also have the quickest turnaround time for loan approvals of any SBA loan, as well as the lowest interest rates of any business loan (usually 2.25% to 4.75% over prime depending on the size and maturity of the loan).

Benefits of Small Business Loans:

  • Lower interest rates

  • Being able to get approved without borderline credit.

Cons of Small Business Loans:

  • It takes longer to get approved.

  • They usually require you to put up some type of collateral.

According to the small business administration, your restaurant startup must adhere to the following in order to be qualified for the loan:

  • Be a for-profit business

  • Be small in size, according to the administration’s standards of being small

  • Be located in the United States

  • Have reasonable invested equity

  • Use alternative financial resources before seeking financial assistance, this includes personal assets

  • Demonstrate a need for loaned funds

  • Use the loaned funds for sound business purposes

  • Not be delinquent on any existing debt obligations to the U.S. government

How to apply

Small business loans are found in both large and local banks, making them easier to access for a wide variety of people. These banks will have extensive loan applications that are built to examine the financial details of your business. Best case scenario, a small business loan application will take a couple of weeks to process.

Keep in mind that even when having the government guarantee on your side, many restaurant startups still aren’t qualified for small business loans. Your borrowing history will also be important to the banks you’re considering getting the loan from.

Required documents:


3. Business Line of Credit

Similar to a credit card, a business line of credit works by offering you a specific maximum credit amount that you’re allowed to take money from. Your monthly payment will then, only be based on the amount of money that you choose to spend.

So for example, say you get approved for a $200,000 line of credit and only use $50,000 of it in the first month to open the business. Your next month’s payment is going to be based on the $50,000 you spent, not the $200,000 line of credit that you have access to.

A business line of credit is much different from a term loan, where the loan starts gaining interest immediately after its been given out. Which is why the lending standards for getting a business line of credit are so much higher than a typical loan. Also, the interest rates that come with it are typically higher and you may not be able to get as much money as you need due to the maximum credit amount.

Benefits of Business Line of Credit:

  • You only accumulate credit as you borrow & spend money.

  • You have access to the credit line even as you pay it down, so you don’t have to worry about losing access to the full line of credit.

Cons of Business Line of Credit:

  • The standards necessary to get the line of credit are much higher.

  • You aren’t able to borrow as much money as compared to other loan types.

How to apply

Depending on the lender you’re working with, getting a business line of credit can be an easy, streamlined process. Online lenders will be very straightforward while a traditional bank would have a thorough business line of credit applications.

A general rule of thumb is that smaller, shorter-term loans will come with a fast & easy application process, while larger and long-term loans will require more paperwork and will take longer to process.

Required Documents:

  • Driver’s license

  • Voided Business Check

  • Bank Statements

  • Balance Sheet

  • Profit & Loss Statements

  • Credit Score

  • Business Tax Returns

  • Personal Tax Returns


4. Equipment Financing Loans

Depending on the type of restaurant startup you plan on opening, you’ll need a lot of expensive equipment (ovens, freezers, etc.) to get & keep your business running. These loans are also very attainable for most restaurants that are just starting out or need some extra finances to pay for certain problems that arise.

It’s also a good option if you have a weak credit rating because the banks see the equipment as the collateral in case you can’t make the payments (keep in mind that not paying means that you’ll lose the equipment that your restaurant runs on.)

An In-Depth Guide to Restaurant Startup Loans

Benefits of Equipment Financing Loans:

  • Get access to the money faster than a typical loan.

  • There’s a limited amount of necessary paperwork.

  • The equipment acts as collateral instead of your house, car, etc.

Cons of Equipment Financing Loans:

  • If you find yourself in a situation where you can’t make payments, the equipment that runs your restaurant startup will be taken away.

  • You may need to depreciate equipment, which means you won’t be able to deduct the full cost each year.

How to apply

An equipment loan application can be a quick & simple process depending on the lender you’re working with. That said, you’re lender will need to see your credit score as well as examining the financial health of your business with tax returns and bank statements. They will also want to know information about the equipment you’re purchasing, like a quote on how much they cost.

Required documents:

  • Driver’s License

  • Voided Business Check

  • Bank Statements

  • Credit Score

  • Business Tax Returns

  • Equipment Quote


5. Short-Term Loans

Short-term loans are lump sum loans that are typically designed to be paid back in 18 months or less. These loans are a very flexible financial tool and are perfect for paying for short-term needs like unforeseen business opportunities, a redesign of a restaurant, and other unexpected needs for extra cash.

Benefits of Short-Term Loans:

  • There’s a designated payment structure.

  • Requires a limited amount of paperwork.

  • Easier to get approved with bad credit, versus other types of loans.

  • They’re suitable for a lot of different business purposes.

Disadvantages of Short-Term Loans:

  • The annual costs are higher than for a longer-term loan.

  • Making payments may be difficult for a business with a wildly sporadic revenue stream.

How to apply

Short-term loans are exclusively applied to online, making them one of the fastest, most straightforward loans to receive. Your lender will likely just need your credit score, bank statements, and tax returns, and you should be able to receive the money just a few days after you apply.

Required documents:

  • Driver’s License

  • Voided Business Check

  • Proof of Ownership

  • Bank Statements

  • Credit Score

  • Personal Tax Returns


6. Commercial Real Estate Loans

Commercial Real Estate Loans are made for restaurant startup owners that want to buy or upgrade commercial properties to build a restaurant or to redesign an existing one. These loans are provided by banks and private lenders and the property that is bought is used as collateral.

Types of Commercial Real Estate Loans:

  • Traditional Commercial Loan

These come from a bank and are difficult to qualify for many people. Bank Commercial Real Estate Loans are typically reserved for the highest credit borrowers and for businesses that have been showing a history of profit for a number of years.

  • Small Business Real Estate Loan

The small business administration has two loan programs that can be used for real estate purposes: the 7(a) and the 504 loan program.

The 7(a) is for more general business purposes and can be used for things like buying and repairing the property you want to use for your restaurant. It’s a 25-year term for real estate and rates are in the range of 7% to 9.5%.

The 504 loan program offers the biggest savings and can help small restaurant startups purchase and upgrade expensive assets like commercial property and equipment. The biggest benefits of this program are the long terms (20 to 25 years) and low fixed rates (starting at 5%).

  • Bridge Loan

A bridge loan is a short-term loan that allows you to quickly buy property or capitalize on an opportunity for your restaurant startup. You either have to pay the loan in full or refinance into a longer-term loan.

  • Hard Money Loan

These loans are short-term and can come from private lenders and investors. Hard money lenders tend to loan smaller amounts and charge higher than average interest rates. In exchange, they’re much easier to qualify for than a bank loan.

Benefits of Commercial Real Estate Loans:

  • Able to pay for business properties that unexpectedly present themselves for your restaurant startup.

  • Different types to choose from to fit your needs.

  • Disadvantages of Commercial Real Estate Loans:

  • Applying for one is very paperwork intensive

How to apply

Commercial Real Estate loans are a large, capital-intensive investment, so your lender will examine you, as well as the restaurant startup property you would like to purchase.

Required documents:

  • Resume and background information for owners

  • Corporate documents

  • Company organization chart

  • Purchase contract

  • Budget for the project

  • Environmental reports


7. Merchant Cash Advance

These loans serve as a lump sum of capital that you repay with a small portion of your daily credit card transactions. A Merchant Cash Advance can be very expensive, so it’s best for borrowers who don’t qualify for any other financing options.

Benefits of Merchant Cash Advance:

  • Fast access to your funds.

  • Bad credit is accepted.

  • Easy approval process.

  • Suits best for a wide range of business purposes, including a restaurant startup.

  • Quick approval process.

Disadvantages of Merchant Cash Advance:

  • Typically higher fees than with traditional loans for a restaurant startup.

  • Less flexibility to change your merchant service providers.

  • Daily deduction of credit card receipts reduces cash flow.

How to apply

One of the biggest benefits of a Merchant Cash Advance is that it’s fast & easy. The applications for these loans are almost always online and can be approved on the same day that you apply.

You should take into caution, though, that fast loans are expensive loans and that Merchant Cash Advances have the highest cost of capital on the market.

Required documents:

  • Driver’s License

  • Voided Business Check

  • Bank Statements

  • Credit Score

  • Business Tax Returns

  • Credit Card Processing Statements

An In-Depth Guide to Restaurant Startup Loans


Final thoughts

Opening & running a restaurant startup is a dream for many entrepreneurs, and the best route to making that dream a reality is by researching your best options for loans that can help you get your business off the ground. Go through this list and make sure to do your own research on loans that you think would best fit your goals.

After you figure out which loan is best for you, it’s never too early to begin thinking of how you’re going to handle making and organizing your employee shifts. Click the button below to better understand how Deputy can strengthen your business.

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