A great pizza shop is a gem in a town or city—the kind of place that people from all walks of life are devoted to. But we don’t need to tell you that. If you’re opening or currently running one of these beloved places, understanding how to get a business loan for a pizza shop can help you keep things going smoothly day to day, or even expand if you’re ready. The right business loan can be an essential tool for all different types of expenditures and investments.
We’ll go through the steps for how to get a business loan for a pizza shop from start to finish. It’s worth knowing the process, because even if you’re not ready this second for a capital infusion, you may want to be versed in how to do it if and when the day comes. The best news is that the process isn’t as difficult as you imagine it might be.
We’ll review loan types in a bit so you zero in on the specific type of financing that will help your business the most. But first, let’s go over the basic steps for how to get a loan for a pizza shop.
The first step in getting a business loan for a pizza shop is understanding your business financing needs. For instance, a pizza shop operator who needs to fix a broken oven ASAP is in a different position than one whose sales are down and is worrying about paying for utilities. Different still is someone who wants to buy a closed competitor’s gear, or expand to another building.
Perhaps this seems very obvious, but there are a lot of nuances to this process—the answer should be more than “we need capital.” The easiest way to do this is to ask yourself a set of questions:
It’s important to understand that your options for business loans for your pizzeria will be contingent on how strong of a candidate you present as. Lenders are evaluating your risk—in other words, how likely (or unlikely) you are to repay the loan.
To evaluate this, lenders will generally look at your credit score and revenue. They also care how long you’ve been in business. Some credit scores and revenue numbers will disqualify you for certain loans. Before you get started, check your credit score to know where you fall.
Understand that your financial profile will also affect your interest rate and other terms. As you might expect, the stronger the finances of your pizza shop, the less expensive your loan may be.
As we mentioned, we’ll get deeper into specific loan types in just a minute. But before we do, you should have a sense that you’ll need to zero in on an option that best fits your business. Since you asked yourself those three crucial questions above to determine your needs, and have a sense of your credit score, you’ll find that some types of business loans will emerge as both more helpful and more realistic.
Different business loans will require different types of documentation, so keep in mind that you’ll need to check in with your potential lender on what they actually require. But, in general, most loans will require the following documents:
You also may need documents including your profit and loss statement, evidence of business licenses and certification, personal tax returns, and a business plan. The further in advance you can pull your pizza restaurant’s documents, the more you can speed up the loan application process and, eventually, approval.
Now, we’ll get into specific loans that most help pizza shops. Keep in mind that although you may not qualify for every loan listed here, there is likely a business loan that will fit your criteria.
In general, SBA loans are considered the top option for business loans. They’re provided by private lenders, such as banks, but guaranteed by the U.S. Small Business Administration, which means that, in the case of default, the government will reimburse lenders up to 85%. This significantly lessens the lender’s risk—which is good news for you, since they’re able to offer some of the most competitive terms out there.
As you might anticipate, there’s a lot of competition for these loans since they’re so favorable, which means that banks are selective and choose the most qualified candidates. If your pizza shop’s financial profile is strong after a few years in business, consider applying for an SBA loan. Particularly, you’ll want to look into SBA 7(a) loans, which are working capital loans, and CDC/504 loans, which are meant to purchase fixed assets like real estate.
SBA loans involve a lot of paperwork (more than listed above), and, as a result, often take a lot of time for approval. If you can’t take a few months to wait for your cash, you might need to consider an alternative.
Additionally, if you don’t have strong credit and revenue numbers (profitability not required, FYI), and SBA loan probably won’t be a fit for you. As an alternative, you may want to investigate a business term loan for your pizza restaurant.
Commercial pizza ovens cost a lot. If you’re financing a new pizza shop, or re-outfitting an existing shop, a new oven is a massive investment that many pizza shop operators can’t afford with liquid assets. There are plenty of other equipment needs for pizza shops, too, including seats and tables, and more.
For expenses such as these, you may want to consider equipment financing. This type of fixed-asset financing enables you to access the capital to finance a specific type of equipment. You’d bring a quote to a lender, who will approve you for the amount of the purchase. Then, you’ll pay interest on the loan for the equipment.
This isn’t a general working capital loan, so you can’t use it for other expenses, such as general operating expenditures. But there’s still a major advantage to this loan because it’s something called self-collateralizing, which means that the asset you’re financing secures the loan and you likely don’t have to put up additional collateral. This also can sometimes make the loan more accessible to business owners without perfect credit, or who don’t have a ton of operating history.
You can often access equipment loans very quickly, which can be immensely helpful in emergency situations.
At some point in their life cycles, nearly all businesses experience some kind of cash-flow issue. This can be particularly stressful for small business owners with thin cash margins, since poor cash flow may mean that you can’t pay your employees, purchase essentials (cheese doesn’t buy itself!), fix an emergency, or keep the lights on.
The best loan for cash flow is a business line of credit. It’s similar to a credit card in that you can access capital from a credit line as you need it (in this case, called a “draw”). It’s different in that you work with a lender, and a draw on your line will mean a deposit into your business bank account. The nice thing here is that you only pay interest on what you use. These business loans are also often what’s called “revolving,” so that when you pay back your outstanding balance, the full credit line is available to you again.
Business lines of credit are among the fastest-to-approval loans. So, if you need to fix an ASAP situation, or even seize an opportunity, this kind of loan can be a great fit.
As a new business, you admittedly don’t have the same options for pizza shop business loans that established businesses do. As you can see, lenders look for a certain level of revenue and time in business to make sure that you’re not a high-risk candidate for a loan (after all, they do need to get paid back).
That said, there are a few options that new pizza shops can look into to get the capital you need to get your company off the ground. Here are the top options:
Like an SBA 7(a) or 504/CDC loan, an SBA Microloan is specifically made for new businesses contributing to their communities. The capital amounts of these loans are far lower—a limit of $50,000—but they come with much better terms than some other options if you can get approved. They are paperwork intensive much like normal SBA loans, so if this loan is of interest to your pizza restaurant, start your application early. It’s also worth noting that minority small business owners, women, and veterans may have an advantage with these loans.
We did mention business lines of credit earlier, so we won’t go too in-depth here. But it bears mention that business lines of credit may be accessible to companies that are as young as six months. Approval will depend on a few components, such as your business bank account balances and your personal credit, since there won’t be a ton of information available about your shop’s financials yet.
You may not think of a business credit card as a tool for financing, but it certainly can be—and especially for businesses that are starting up. You may want to look into 0% introductory APR credit cards in particular, which enable you to spend on your card without interest for a predetermined period. (These periods can often be as long as a year—sometimes longer.) Just keep in mind that at the end of your introductory period, your APR will set in at a rate that will vary with the market Prime Rate, so be sure to see the issuer’s terms and conditions for the latest APR information.
You’ll probably want to get a business credit card for a pizza shop, anyway, so looking into a 0% intro APR card could be an extra-savvy way to approach looking for a card. Plus, you’re able to earn points and perks on these cards.
On your quest to become one of the best pizza shops in the country—or, hey, in your community—you may find that you need capital. Many companies of all stripes rely on business loans to help finance their endeavors, keeping them both stable and launching them to the next level. Of course, understanding how to get a business loan for a pizza shop is the first part of the process to position yourself for the best loan for you—and enable your business to find the success you deserve.