Restaurant Term Loans: How They Work and What They Cost
A restaurant term loan is a lump sum you repay in fixed monthly payments over a set term — typically 1 to 5 years, sometimes longer from a bank. It is the lowest-cost-per-dollar way to fund a planned expense like equipment, a renovation, or a second location, because interest is charged on a declining balance rather than a fixed factor rate. The tradeoffs: payments don't flex when sales dip, and approval takes longer and requires stronger credit and financials than a cash advance.
What Is a Restaurant Term Loan?
A term loan gives you a fixed amount of capital up front, which you repay on a set schedule — usually equal monthly payments — over a defined term. Each payment covers the interest due plus a slice of principal, so the balance falls over time (standard amortization). You can model the exact payment, total interest, and total cost with the restaurant loan calculator.
Term loans come from banks, credit unions, and online lenders. Banks generally offer the lowest rates and longest terms but the strictest requirements; online lenders are faster and more flexible on credit but cost more. For the lowest-cost government-backed option, see SBA loans for restaurants.
Typical Rates and Terms
Cost varies widely by lender, product, and your qualifications. Typical ranges:
| Source | Typical APR | Typical Term | Typical Speed |
|---|---|---|---|
| Bank / credit union term loan | ~8–25% (qualified borrowers) | 1–7 years | 1–4 weeks |
| SBA 7(a) loan | Prime + lender spread, within SBA caps | Up to 10 yrs (working capital/equipment) | 30–90 days |
| Online / fintech term loan | Higher; varies by profile | 3 months–5 years | 1–3 days |
Not all applicants qualify; terms vary by provider and state. A longer term lowers the monthly payment but increases total interest — run both with the calculator before choosing.
What Lenders Look For
- Time in business: banks often want 2+ years; many online lenders accept 6–12 months.
- Revenue: consistent sales that comfortably cover the new payment. Lenders may look for the payment to be a manageable share of revenue.
- Credit: personal and business credit matter more than for a cash advance. Stronger credit means lower rates.
- Collateral / guarantee: larger loans may require collateral, and most small-business term loans require a personal guarantee.
Restaurants run thin margins, so lenders scrutinize cash flow. Having clean books and recent statements ready speeds approval — see restaurant bookkeeping for getting financials in order.
Best Uses for a Restaurant Term Loan
Equipment and build-out. A defined, one-time cost with lasting value is the classic fit. Compare with the restaurant equipment financing guide, since equipment can also be financed against the asset itself.
Expansion or a second location. A larger, longer-horizon investment where predictable fixed payments help you budget. See opening a second restaurant.
Refinancing high-cost debt. Replacing a merchant cash advance or stacked advances with a lower-rate term loan can cut your effective cost and turn a daily drain into a single fixed payment. See MCA consolidation.
Term Loan vs Cash Advance vs Line of Credit
Term loan: lump sum, fixed payments, lower cost per dollar, slower approval. Best for planned, one-time investments. The fixed payment doesn't shrink in a slow month — budget for that.
Merchant cash advance: fast (24–48 hours), repayment flexes with daily sales, but higher cost. Best for urgent, short-term gaps. See cash advance vs loan and the MCA calculator.
Line of credit: revolving — draw and repay as needed, pay interest only on what you use. Best for recurring or unpredictable gaps. See MCA vs line of credit.
For the full side-by-side, see restaurant funding options.
Summary
A restaurant term loan is the cheapest-per-dollar way to fund a planned investment, with predictable fixed payments over 1–5 years (longer from a bank or the SBA). The cost of that lower rate is slower approval, stronger credit requirements, and a payment that doesn't flex when sales dip. Model the payment and total cost with the loan calculator, and check the lowest-cost path via SBA loans for restaurants.
Not all applicants qualify; terms vary by provider. Explore Restaurant Funding Options.
Frequently Asked Questions
- A term loan is a lump sum of capital repaid in fixed monthly payments over a set term, typically 1 to 5 years (longer from a bank or the SBA). Interest is charged on a declining balance, so it usually costs less per dollar than a merchant cash advance. It is best for planned, one-time investments like equipment, renovation, or expansion.
- It varies by lender and qualifications. Bank and credit union term loans for qualified borrowers often run roughly 8–25% APR; SBA 7(a) loans are tied to the prime rate plus a lender spread within SBA caps; online lenders are higher. Stronger credit, more time in business, and consistent revenue lower the rate. Not all applicants qualify.
- A term loan charges interest on a shrinking balance and has fixed payments, so it is cheaper per dollar but slower to approve and harder to qualify for. A merchant cash advance funds in 24–48 hours and its payment flexes with daily sales, but it costs more. Use a term loan for planned investments and an advance for urgent short-term gaps.
- Amounts range widely — from a few thousand dollars from an online lender to several hundred thousand or more from a bank, and up to $5 million through an SBA 7(a) loan. The amount you qualify for depends on revenue, time in business, credit, and collateral.
- Often, yes. Replacing a high-cost advance (or stacked advances) with a lower-rate term loan can reduce your effective cost and convert a daily holdback into one predictable monthly payment. It requires qualifying for the loan, which depends on credit and cash flow. See our pages on MCA consolidation and cash advance vs loan.
- Online and fintech term loans can fund in 1–3 days. Bank and credit union loans typically take 1–4 weeks. SBA 7(a) loans usually take 30–90 days. If you need money within 48 hours, a term loan is usually too slow and a cash advance or line of credit may fit better.
Estimate your monthly payment
Adjust the amount, rate, and term to see a rough monthly payment for restaurant funding.
Estimate only — your actual rate and term depend on your business. Talk to someone for real numbers.
