Surviving COVID-19: 7 Financing Options for Restaurants

Surviving COVID-19: 7 Financing Options for Restaurants
Samantha Novick

By Samantha Novick

Every industry is feeling the impact of COVID-19, but restaurants face some of the most difficult challenges. Shelter-in-place orders, social distancing, and business closures make it next to impossible to generate pre-coronavirus revenue numbers.

And no money means mo' problems.

It takes money to make money, and restaurants desperately need to make money to survive COVID-19 in the short and long term. Restaurants already run on razor-thin margins, meaning every penny counts. Fortunately, there are more financing options than ever for restaurant owners to claim—you just need to know where to look.

From small business loans to microgrants to business credit cards, cash is available; it just takes a bit of application work and a little know-how. Below, we'll show you all the fantastic options at your disposal, the necessary qualifications, and how to apply.

US Federal Government Financial Relief Programs

The CARES Act has several components offering financial assistance to small businesses in the US, but none are more popular than the Paycheck Protection Program (PPP).

Economic Injury Disaster Loans (EIDLs) were also a hot commodity, but the government has since limited application to the agriculture industry—so they're not any use to restaurant owners at this time.

PPP Loans

The Paycheck Protection Program seeks to protect jobs and cover other employee-related expenses by offering small businesses SBA loan amounts up to 2.5 times your restaurant's monthly payroll costs. PPP loans can be used to fund:

  • Payroll costs: wages, salaries, commissions, tips, etc.
  • Healthcare costs: group healthcare benefits, insurance premiums, etc.
  • Mortgage interest payments
  • Rent
  • Restaurant utilities

The government also offers 100% forgiveness on the loan principal as long as the funds are used on the appropriate expenses. To calculate your maximum loan forgiveness, you can use this handy calculator. At least 60% of the funds need to be used on direct payroll costs.

Best for: Businesses who need cash to keep their doors open and their staff employed.

How to Qualify and Apply

To qualify, your restaurant needs to meet three criteria:

  • Your restaurant was in business as of February 15, 2020
  • Your restaurant has employees or independent contractors necessitating payroll costs
  • You have proof that your restaurant has sustained economic damage due to COVID-19

To apply, find an eligible Paycheck Protection Program lender. Download a copy of the PPP borrower application form and submit it to your desired lender.

State and Local Government Assistance

Different states, counties, and cities in the US provide geographic-specific COVID-19 financial assistance to small businesses. You can find everything from eviction bans to microloans to state grants for your restaurant. Check your governor's website.

Traditional Small Business Loans

Federal and state governments have provided massive COVID-19 funding, but traditional business loans still make powerful financing options. Whether your restaurant needs to finance payroll, inventory, or a new electric skillet, these loans can make it happen in a jiffy.

SBA 7(a) Loan

SBA 7(a) loans are one of the best financing options for small businesses. These government-backed loans carry loan amounts up to $5 million with low-interest rates and generous repayment terms. SBA 7(a) loans can be used on a variety of business expenses: purchase equipment, upgrade your real estate, stock up on inventory, tackle an emergency, and more.

The only downside to SBA loans is the confusing, extensive application process. Fortunately, lending marketplaces like Funding Circle streamline the process by working with Preferred SBA Lenders who provide in-house approval and accelerated processing.

Best for: Small businesses that need substantial cash to do big things.

How to Qualify and Apply

To qualify, your restaurant will need:

  • Three or more years in business
  • $50,000 or more in annual revenue
  • No federal tax liens
  • Positive book value
  • To be in an SBA eligible industry

Start your application by using a lending platform like Funding Circle. They'll ask for your necessary information and relevant documents, and then they'll help you shop around for the best SBA 7(a) loan for your restaurant.

Business Line of Credit

Flexible credit is crucial to surviving volatile market conditions, and the world hasn't seen a market this unpredictable in decades. A business line of credit gives your restaurant access to capital, and you only pay interest on what you use. That means if you get a line of credit as a safety net for an emergency and never use it, you won't have to pay anything for it. And if you do need to dip in and borrow a portion, you'll only pay interest on the funds that you borrowed—nothing more.

You can use your business line of credit to finance just about anything: payroll, rent, equipment, inventory, and more. Plus, your credit is revolving, meaning you can use it as many times as you want. Once you repay the portion you've used, those funds will become accessible again—no need to reapply for additional financing.

Best for: A business line of credit is great for any business to keep in their back pocket. Restaurants, in particular, will find more value in a line of credit because it can help supplement times of volatile cash flow.

How to Qualify and Apply

Different banks and alternative lenders have varying requirements, but you'll usually need the following:

  • Six months in business
  • $50,000 or more in annual revenue
  • 560 or higher credit score

You may also need to make a personal guarantee.

Business Credit Card

A business credit card works similarly to a personal credit card. The only real difference is that your business card can only be used for your restaurant's expenses. This card can provide quick, easy credit that can be used to finance everything from your inventory to your payroll to your day-to-day costs.

Whether you have big one-time purchases or teeny-tiny everyday expenses, a business credit card can give you the extra working capital you need to keep your restaurant operating smoothly. Plus, using your card will earn you points, cashback, and other rewards and build your credit to help you qualify for bigger loans down the road.

Best for: New restaurants with low or non-existent business credit and business owners who want capital to deal with everyday expenses.

How to Qualify and Apply

Here's what it takes to qualify for a business credit card:

  • As the name states, you'll need a business to get a business credit card
  • Credit card issuers will look at your personal credit history. Different credit cards cater to different credit scores, but you'll typically find better rewards and lower rates with a higher credit score.

To apply, do your research and compare the different cards your restaurant qualifies for. Then, visit your desired lender's website and submit your application.

Short Term Loan

If time is of the essence, then you can't afford to wait on the SBA's process. A short term loan can get you the cash you need in as little as 24 hours, but that speed comes at the price of higher interest rates. However, sometimes money now is more valuable than larger payments later.

You can use a short term loan to finance just about any of your restaurant expenses: payroll, outdoor seating investment, food truck, etc. When you need cash but don't have time to wait, a short term loan could be the answer to your prayers.

Best for: Businesses with short-term financing needs that could eat into cash flow.

How to Qualify and Apply

Qualifying for a short term loan is a bit harder than the requirements for a business line of credit or credit card, but it's still manageable:

  • 12 months or more of operating history (minimum—may need more)
  • Strong credit score
  • Collateral (often, but not always)

Apply by finding a bank or alternative lender that offers short term loans. Submit your application and expect a response reasonably quickly—this is a speedy loan.

Canadian Government Financial Relief Programs

If you call Canada your home, then there are several Canadian government relief programs available to your restaurant. However, the Canada Emergency Wage Subsidy (CEWS) is perfect for most restaurant's current circumstances.

Canada Emergency Wage Subsidy (CEWS)

The CEWS is a relief program provided by the Candian government to cover staff wages during a health crisis. It's similar to the PPP loan, except you don't have to get funding and apply for forgiveness later.

The CEWS covers 75% of an employees' wages (up to $847/week) retroactive to March 15, 2020. This allows you to maintain your restaurant payroll without detracting from your bottom line. With COVID-19, you have enough expenses to worry about—thanks to CEWS, salary doesn't have to be one of them.

CEWS subsidies can cover wages for up to 24 weeks for periods between March 15, 2020, and August 29, 2020.

Best for: Any small business that's struggling to make payroll due to COVID-19.

How to Qualify and Apply

Any restaurant that can prove it's suffered at least a 15% drop in gross sales in March and a 30% drop in April and May qualify.

To apply, submit for your CEWS claim period using the three different applications:

  1. Apply using My Business Account
  2. Apply using Represent a Client
  3. Apply via the WebForms application

Follow 7shift on Instagram for more updates on how your restaurant can navigate and succeed in the new normal!

Stay safe.

Reinventing the way restaurant teams work

Simple to set up, easy to use. Give your restaurant the team management tools they need to be successful. Start your free trial today.

Start free trial

No credit card required
Samantha Novick
Samantha Novick

Formerly senior editor at Funding Circle, specializing in small business financing. Bachelor's from the Gallatin School of Individualized Study. Work featured in a number of top small biz publications