How to Get a Business Loan for a Pizza Restaurant

23 Jun, 2016 / Comments: Comments Off on How to Get a Business Loan for a Pizza Restaurant / By

Pizza is one of only a handful of things in this world that everyone can agree on. In fact, studies have found that more than 90 percent of Americans indulge in a slice or two of pizza at least every month and the pizza industry brings in more than $36 billion each year. These numbers can be extremely enticing for a small business owner. However, if you’re looking to open a pizzeria, you’ll need to have capital. This is especially the case to secure equipment such as restaurant seating and pizza ovens. Luckily, business loans designed for pizza restaurants are widely available and depend on the loan request that is made. Let’s take a look at securing a business loan for your pizza shop.


Overview of Small Business Loan

Pizza restaurant owners typically rely on lenders and banks to obtain conventional loans, asset based loans, and SBA loans to fund their already existing pizza shop or to start-up a new one. There are several loan purposes to think about as a borrower, which depends on if you want to purchase an existing business, gain financing for a new location, remodel, acquire real estate, etc. When it comes to obtaining a pizza restaurant loan, you’ll be faced with several decisions when it comes to picking the right lender and loan product.


Figuring Out the Best Type of Loan

There are plenty of loan and funding programs out there that are an excellent solution for a pizza restaurant. Pizza shops are known to receive competitive loan terms and rates due to their popularity. Interest rates range from 4.25 to 8.75 percent across the board and are structured as either fixed-to-float or fixed variable. Pizza shop owners also have the option of taking out a quick close financial product, such as a merchant cash advance, that doesn’t require that high of a credit rating, but does come with higher interest rates.


Asset Based Lines of Credit for Pizza Shops

As a soon-to-be or current pizza restaurant operator, you may look into an asset based line of credit for a wide range of business uses. Using asset based financing for your pizza restaurant can either be done through term or revolving loans that are secured by such assets as real estate or accounts receivable.


SBA Loans for Pizza Shops

The Small Business Administration’s 7(a) and 504 loan programs are both often used by pizza restaurant owners as an alternative to other more traditional financing options. With this type of loan, a certain percentage (usually 75 percent), is fully backed by the SBA so that lenders and banks take on less risk when giving you the loan. That being said, lenders must adhere to a strict set of loan eligibility requirements and procedures when underwriting a SBA loan. This includes procedures for both the terms and pricing of the loan.


Cash Flow Loans for Pizza Shops

Even though your pizza shop may be growing, you can easily find yourself needing some extra padding to cover daily expenses like inventory, rent, and payroll. Having an uneven cash flow is one of the most common challenges that pizza shops face. With this type of financing, lenders will give you funds and utilize your future expected cash flow as collateral against the loan. Pizza restaurants face the same amount of competition as other restaurants. However, the key difference is that there are only three main ingredients involved, which is wheat, tomato, and cheese. This causes pizza shop owners to be at the mercy of the prices for these ingredients compared to other restaurants with a wider varied menu, and thus often end up in a cash flow problem. This is why many lenders have specialized knowledge in lending to pizza shops and why it is so common for pizzerias to take out these types of loans.

William Mahnic
William Mahnic is a Finance Professor at Case Western University and has spent more than 20 years in the finance industry before becoming a professor. Mahnic has appeared as a commentator on both TV and radio talk shows including NPR, Crain's Cleveland Business, WKYC 3 and The Washington Post. He has been interviewed in BusinessWeek, Wall Street Journal and The Los Angeles Times.

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