How to Get a Loan for a Bar In 2020

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Figuring out how to get a loan for a bar is a common problem for those working in the hospitality industry. In some cases, bar and nightclub owners are looking for financing to expand profitable enterprises or solve an urgent problem. In others, a bar or nightclub is put up for sale and potential entrepreneurs require funds to purchase the business.

In this article, we cover these business loan scenarios to provide answers to the question of how one can get a loan to acquire or fund an existing bar.


Why Traditional Lenders Avoid Bar and Nightclub Financing

Traditional commercial lenders like large banks tend to shy away from providing business loans to the bar and restaurant industry. The success of these bar and food enterprises is largely dependent on the state of the economy. We use the term “largely” because there are thousands of well-established bars and restaurants that survive and even prosper during economic downturns. But the banking industry tends to view these businesses, and small businesses as a whole, as high risk.

One reason banks avoid financing to restaurants and bars is the incorrect assumption that they have up to a 90% failure rate in the first year. This assumption is not backed up by relevant studies, but by viral media. The fact is that bar and restaurant start-up failure rates are only slightly higher than total small business failure rates. But rumors persist and bar and restaurant owners often find themselves outside traditional commercial lending circles.

Fortunately, traditional banks aren’t the only commercial lending source. Alternative fintech commercial lenders have filled the small business financing vacuum left by traditional lenders. There are a wide variety of small business financing options that provide needed working capital for bar and restaurant owners. We discuss these business loan options throughout this article.



Business Loans for Existing Bars, Taverns and Nightclubs

If you’re an existing successful bar owner, you know that it takes both financial and sweat equity to realize a return on investment (ROI). While successful bar owners provide sweat equity, it’s the lack of financial capital that sinks many bars, taverns, and nightclubs. If lack of funding is putting your bar at risk, there are a variety of ways to acquire business financing.


Commercial Line of Credit

Because you’re researching alternative small business financing solutions, we’re assuming that your bank isn’t willing to provide a business loan to your bar, tavern, or nightclub. They normally cite risk factors like bar industry failure rates, unsatisfactory personal or business credit scores, or insufficient assets as reasons for bank loan denial.

Alternative fintech (financial technology) commercial lenders use different criteria for evaluating small business loan risks. They use a proprietary financial algorithm that evaluates not only your bar’s history, but forecasts where your business is heading and its financial ability to service a commercial loan.

A commercial line-of-credit is an option for some bar, tavern, or nightclub owners. A revolving line-of-credit works similarly to a business credit card without the high interest rates. The funds are available to bar owners when needed and paid back during periods of high cash flow. You’ll need a personal FICO score above 650 to qualify although some commercial lenders accept lower ratings. The lower your credit score; the higher the interest rate.

Bar owners will also need to have been in business for at least one year and show an average monthly income of at least $10,000. These aren’t hard and fast rules as different fintech business financing firms have different lending criteria. A bar business line-of-credit can be either secured by assets or unsecured where the tavern owner’s promise to pay is sufficient.


Bar Equipment Loans

Bar equipment occasionally breaks down and usually at the most inconvenient time. Commercial equipment financing uses the asset(s) being purchased as security for the loan. In many cases, a 10%-20% investment or down payment to the supplier from the bar owner is required to secure the loan. Some commercial lenders will provide 100% financing if the bar owner meets other relevant criteria.


Small Business Administration (SBA) Microloan Program

The SBA Microloan Program provides small business loans up to $50,000. Business loan proceeds can be used for:

  • Working Capital
  • Inventory or Supplies
  • Furniture and Fixtures
  • Machinery and Equipment


The Small Business Administration has specialty programs for women-, and veteran-owned companies ranging from start-up loans to business acquisition and bar expansion financing.


Merchant Cash Advance or ACH Business Advance

A Merchant Cash Advance (MCA) is the easiest commercial financing option for bar owners to qualify. An MCA for a bar is primarily approved based on future credit card receipts. Approval is less reliant on FICO scores so even bad credit bar owners may qualify. A bar or nightclub owner will need to prove average monthly sales of at least $10,000 over a 12-month period. Financial statements, bank statements, tax returns, and credit card statements are normally required for Merchant Cash Advance approval.

Repayment for an MCA is accomplished through an automatic deduction from daily or weekly credit card receipts. Merchant Cash Advance financing costs are based on a factor rate rather than interest rate. For example, a $10,000 cash advance with a factor rate of 1.15 will result in a repayment of $11,500. A set percentage, say 10%, is deducted from the bar or nightclub’s daily or weekly credit card receipts until the loan is repaid.

An Automated Clearing House or ACH cash advance is identical to an MCA except that it’s based on total revenue, not just credit card sales. Bars, taverns, and nightclubs normally have a significant amount of cash sales that are deposited into a business bank account. Repayment is made through daily or weekly Automated Clearing House deductions from the business bank account.

Both MCAs and ACH cash advances are an expensive business financing option. They should be entered into with a clear plan for repayment. They can help bar owners through emergency situations but should not be used as a long-term small business financing solution.


Business Loans to Buy an Established Bar, Tavern or Nightclub

Financing an established bar, tavern, or nightclub may be the best option for those pondering on how to get a loan for a bar. An established bar has a financial history that can make it easier to obtain a small business loan. Commercial lenders can use the data to measure the value of assets, cash flow, and profitability in the business loan approval process.

The type of loan needed to finance the purchase of a bar depends on several factors.


Long-Term Commercial Loans

A long-term commercial loan is necessary if the bar you’re buying includes commercial real estate. If the potential buyer has a reasonable down payment, they can approach traditional lenders for a long-term business loan using the commercial real estate as collateral. Long-term small business loans can range from five to 25 years. A personal FICO score of at least 670 is necessary for a business loan from most banks and credit unions.


Small Business Administration (SBA) 504 Loan Program

If you’re unable to secure financing for a commercial real estate purchase from traditional lenders, then the Small Business Administration may have a solution. The SBA’s 504 loan program offers small business financing for commercial real estate deals including land, buildings, equipment, and renovations. The program offers funding up to 90% of the purchase price with stable long-term interest rates.


Small Business Medium-Term Loans

If commercial real estate isn’t part of the purchase price of the bar, tavern, or nightclub, then a medium-term small business loan may suffice. In this case, the aspiring bar owner is purchasing equipment, cash flow, profitability, and goodwill (reputation) of the enterprise. The business loan should cover the purchase price as well as at least six months of operating expenses as a cushion.

Small business medium-term loans are generally two to five years. Aspiring bar owners will need at least a 670 FICO score for most traditional commercial lenders. Acceptable FICO scores may be lower than 670 through alternative small business lending sources.


Small Business Administration (SBA) 7(a) Loans

With the SBA’s 7(a) small business loan program, potential bar and nightclub owners can borrow up to $5 million dollars. The program is open to present and future small business owners even those with less than stellar credit histories. As mentioned previously, the SBA has specific small business loan programs for veteran- and women-owned small businesses. There are also small business loan programs for economically-disadvantage applicants.



Preparing for How to Get a Loan for a Bar

Bar, tavern, and nightclub owners, current or potential, can increase their odds for getting a loan for a bar with detailed preparation. Typical documentation requirements include:

  • A detailed business plan for a bar, tavern, or nightclub.
  • 3 to 5 years of financial statements including balance sheet, income statement, and cash flow analysis.
  • Resumes for all bar owners detailing bar and nightclub experience.
  • Personal and company credit reports.
  • 3 to 5 years of personal and business tax filings.
  • State and federal business registration documents.
  • Current business loans.
  • Purpose of the current bar loan request and plans to pay it back.


The steps above will help fast-track your bar or nightclub loan request but shouldn’t be considered an exhaustive list. Commercial lenders who consider your loan proposal will guide bar owners through their proprietary bar and nightclub loan process.


Final Words on Getting a Loan for a Bar

The first answer current and aspiring bar and nightclub owners need to address is the urgency of the small business loan. Working with traditional lenders like banks or credit unions and the Small Business Administration is a good first step for non-urgent commercial loans. If unsuccessful, alternative fintech commercial lenders can resolve your small business financing objectives.

For those who need small business financing urgently, SBA Express Loan or SBA Microloan programs may be an option although required documentation can slow the commercial loan application approval process.

Fintech commercial lenders generally have expedited business loan approval processes that can provide funding in just a few days. Working capital, equipment, and term business loans along with Merchant Cash Advances have few barriers to access funds with many fintech commercial lenders advertising up to 90% approval ratings.

By focusing on the purpose of the loan, the minimum amount required, and a detailed payback plan, aspiring and current bar owners can provide their own answer for how to get a loan for a bar, tavern, or nightclub.

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