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A Guide to Bar Business Loans

A Guide to Bar Business Loans
Lauren Ward
Lauren WardUpdated April 8, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Whether you’re looking to buy a sports bar or build a gastropub from the ground up, you’re likely going to need a fair amount of capital to make your vision a reality. Fortunately, bar owners (just like any other small business owners) have access to a wide range of business financing options, including loans backed by the Small Business Administration (SBA), equipment loans, business acquisition loans, merchant cash advances, and business lines of credit. The best loan for your bar business will depend on how much capital you need, how quickly you need it, whether you’re opening a new bar or buying an existing establishment, and your qualifications as a borrower. Here’s what you need to know to get the right loan for your bar, tavern, pub or nightclub.

What Are Bar Business Loans?    

A bar business loan is any type of small business loan that will be used specifically for starting, renovating, or buying a drinking establishment. This type of loan can be short-term or long-term, and comes with varying rates, terms, costs, and required qualifications. You can find a bar business loan at a bank, through an SBA lender, or via an online lending platform.  

How Do Bar Business Loans Work?  

Bar loans work like other types of small business loans. You can find unsecured loans that don’t require collateral or secured loans backed by your business assets or the equipment you’re purchasing. Interest rates can be fixed or variable, with repayment terms lasting anywhere from six months to 25 years.When a lender is assessing if you are eligible for a bar loan, and how much they are willing to lend to your business, they typically consider several different factors, including your revenues, business history, plan for using the borrowed funds, available collateral, along with your business and personal credit scores.For a traditional term loan, you would receive the entire amount of the loan (the principle) up front, and then start paying back the loan (principle plus interest) on a predetermined monthly schedule.

Times When a Business Loan for a Bar Can Be a Good Idea

There are several scenarios in which you may want to get a bar business loan. These include:
  • Buying an existing bar
  • Opening a bar
  • Opening a second (or additional) location
  • Renovating a bar
  • Rebranding your bar
  • Purchasing bar equipment
  • Covering operational costs
  • Getting consulting services
Recommended: Best Cities to Start a Business in the US 

Top Funding Options

Lenders offer different kinds of loans that you can use to build, buy, or renovate a bar, tavern, pub or nightclub. Here are some financing options you may want to consider.

SBA Loans

Business loans backed by the SBA can be an excellent option for bar entrepreneurs. The SBA itself doesn’t provide the financing, but rather works in partnership with approved lending partners — including local and national banks as well as non-bank lenders and nonprofits — to guarantee a large portion of the loan’s proceeds in the event that the borrower defaults. Because this reduces the risk to the lender, SBA loans offer borrowers low rates, high amounts (up to $5 million) and long repayment terms (as long as 25 years). And with the popular 7(a) loan, you can use the funds toward almost anything, including equipment, inventory, refinancing existing debt, and buying property for your bar. SBA loans can be difficult to qualify for, though. Applicants with prior experience owning or operating a bar will be more likely approved for this type of loan.

Equipment Financing

If you need to purchase high-ticket equipment for your bar, you may want to pursue an equipment loan. With this type of financing, the equipment itself acts as collateral for the loan, which keeps the interest rate low and your other assets (either business or personal) safe. You would typically get a quote for the equipment you’d like to buy, and a lender would then front you all or a large portion of the cost. Equipment financing can be limiting, however, as you can only use the funds for business-related equipment.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending, also known as “crowd lending,” allows you to get loans directly from other individuals via an online P2P platform. Most P2P sites have a wide range of interest rates based on the creditworthiness of the applicant. When you apply for a P2P loan, potential investors — regular people who are looking to grow their money with your interest payments — review your request, choose whether to finance the loan, and commit to funding all or just a part of it. (For this reason, there may be multiple people who are actually providing the capital you need.) As you pay off your P2P loan, those investors receive regular payments until the loan term ends. 

Business Acquisition Loan

If you're looking to buy an existing bar, you may want to consider getting a business acquisition loan. This type of financing often comes with favorable rates and terms because the bar you are buying likely has tangible assets that can be used as collateral for the loan. Acquisition loans must be used within the allotted time period and only for the purpose specified at the time of application. 

Business Line of Credit

Business lines of credit are similar to credit cards, but the line of credit is often much higher than what you could receive from a major credit card company. The interest rates also tend to be more favorable. This could be a solid choice for a bar loan when you don’t know how much you’ll need, and don’t want to pay interest on money you don’t end up using. A line of credit also gives you access to money in an emergency or during seasonal dry spells.

Merchant Cash Advances

A merchant cash advance (MCA) is another form of financing that may appeal to bar owners. With this type of financing, you receive a lump sum of money from an MCA company, called an “advance.” In return, you give that company a small percentage of each credit card sale you make until the advance is paid off (plus fees). In a business where a majority of sales are likely to come from credit cards, this can be a valid way to borrow money with minimal risk. However, costs tend to be higher than other forms of business financing.

Getting a Business Loan

What Type of Loan Do You Want?

Things to keep in mind when choosing a loan include:
  • Are you comfortable securing the loan with either personal or professional assets? A secured loan will likely have a lower interest rate than an unsecured loan, but you could lose any collateralized assets in the event you default on the loan. 
  • What kind of payment structure do you need? Do you want a standard monthly payment, or would daily or weekly payments work better for you? Also, do you want the repayment period to be as long as possible?
  • Do you need the absolute lowest interest rate possible? Or, is a loan with a fast turnaround and a high interest rate acceptable? Generally speaking, the lower the interest rate, the longer it takes for the lender to process your application. Are you OK waiting several months or did you need the loan yesterday?

How Big a Bar Business Loan Do You Need?

It’s key to determine the correct amount of money that your bar needs, because if you ask for too much, lenders will question your ability to repay the loan, and if you do not ask for enough, you will have trouble getting your bar business off the ground.To find out how much money your bar needs, you should create detailed cost projections for the use of the loan. Include profit and loss and cash flow statements to estimate the revenue that you will generate by taking out a loan, as well as your costs. Doing this will not only help you determine the amount of money that you need, it will also show lenders that you are responsible and informed.

Gather Necessary Documents

Exactly which documents you will need to submit when you apply for a bar loan will depend on whether your bar is already in operation or you’re opening a new business. However, they may include:  
  • Personal and business bank statements
  • Personal and business tax returns
  • Resume (for you and any other owners)
  • Business license and registration
  • Balance sheets 
  • Profit and loss statements 
  • Information on other loans
  • Proof of collateral 
  • Business plan
  • A clear explanation of how you’d use the loan

Comparing Lenders and Rates

To choose the best bar business loan product from a lender, you will want to compare:
  • Interest rates
  • Fees
  • Repayment terms
When comparing loans, it’s a good idea to look at each loan’s APR, which is the true cost of the loan once you account for fees (such as origination and processing fees). While one loan may initially seem like the best option because it has the lowest interest rate, it may not be the cheapest once you account for all added fees.

Applying for a Loan

Once you gather all of the appropriate paperwork, applying for a small business loan should be relatively simple. How you’ll actually apply will depend on the lender. An online lender may allow you to link your bank accounts through its website, whereas a bank or credit union may require you to apply at a branch or over the phone. Either way, when filling out a business loan application, be sure to include everything the lender asked for and in the correct format. This can reduce any unnecessary back and forth and help make sure you get a decision as quickly as possible.

Business Grants for Bars

There are grants available for small businesses (including bars). And, unlike loans, this money doesn’t have to be paid back. Competition for small business grants tends to be stiff, however, and you may need to show that you are bringing economic opportunity to an underserved area or that you are a female- or minority-owned business. You can find small business grants at government agencies, state organizations, and private corporations. A few good places to start your search include the government database Grants.gov, your local Small Business Development Center, your municipality's chamber of commerce, the USDA Rural Business Development Grants, and the Minority Business Development Agency Centers.

Comparing Business Loan Rates

Ready to turn your dream of owning the hottest night spot in town into a reality? You may want to start by researching and comparing small business loan options. With Lantern by SoFi’s easy online tool, you can review multiple small business loan offers that meet your needs and qualifications. (You can also find loans for cafes and liquor store loans.) There’s no obligation and you only need to fill out one application.
Photo credit: iStock/PeopleImagesThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.SOLC0122021

Frequently Asked Questions

How do you start a bar with no money?
Can you get a loan to open up a bar?
How much does opening a bar typically cost?

About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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