Lines of Credit for Restaurants: Smoothing Out the Cash Flow Roller Coaster

Restaurant cash flow is a roller coaster. Friday and Saturday bring in 40% of your weekly revenue. January is dead while December is chaos. Food costs spike when your supplier has shortages. A catering client wants you to buy $8,000 in product upfront for an event where they will pay you net-30.

A business line of credit exists precisely for this volatility. Unlike a term loan where you take a lump sum and pay it back over years, a line of credit is there when you need it — draw, use, repay, repeat.

How Lines of Credit Work

Think of it like a credit card for your business, but with better rates and higher limits:

• Credit limit: The maximum you can borrow (typically $10,000-$250,000 for restaurants)
• Draw as needed: Take $5,000 this week, nothing next month, $15,000 the month after
• Pay interest only on what you use: $100,000 limit but only drew $20,000? You only pay interest on $20,000.
• Revolving: As you repay, credit becomes available again
• Ongoing access: Most lines renew annually as long as you are in good standing

Lines of Credit vs. Term Loans

Restaurant Situations Perfect for Lines of Credit

Scenario 1: Food Cost Spikes

Beef prices jump 20% due to supply issues. Your food cost percentage spikes from 28% to 34%. You need an extra $6,000 this month to maintain inventory without cutting menu items.

With a line of credit, you draw $6,000, absorb the cost increase, and repay over the next 60 days as prices normalize. Without it, you either 86 items from the menu or run out of critical ingredients.

Scenario 2: Catering Upfront Costs

A corporate client wants you to cater their annual gala — $25,000 event. Great for your business. Problem: they pay net-30, but you need to buy $8,000 in product and rent $3,000 in equipment upfront.

Draw $11,000, execute the event, collect payment 30 days later, repay. You paid maybe $200 in interest to unlock a $25,000 revenue opportunity.

Scenario 3: Slow Season Bridge

January through March, your revenue drops 35%. But rent, utilities, and core staff payroll stay the same. You need $15,000-20,000 to bridge the gap until spring.

A line of credit lets you draw gradually as needed — maybe $5,000 in January, $8,000 in February, $4,000 in March — then repay as summer revenue picks up.

Scenario 4: Surprise Repairs

The grease trap backs up on a Friday night. Emergency plumber charges $2,500. The HVAC compressor fails Monday — another $4,000. These things cluster.

With available credit, you handle emergencies without derailing operations. Without it, you are scrambling for expensive same-day financing or putting repairs on personal credit cards.

Typical Line of Credit Terms for Restaurants

Qualification Requirements

Lenders evaluate restaurants for lines of credit based on:

• Time in business — Most want 12+ months, banks often want 2+ years
• Monthly revenue — Typically $10,000+ monthly minimum
• Cash flow consistency — Lenders want to see steady deposits, not wild swings
• Credit score — 600+ for alternative lenders, 680+ for banks
• Existing debt — Your total debt payments relative to revenue
• Bank account history — Overdrafts and negative balances are red flags

Using Your Line Responsibly

A line of credit is a tool. Like any tool, it can be misused:

• Do: Use for short-term cash flow gaps you can repay within 90 days
• Do: Keep utilization under 50% to maintain flexibility for emergencies
• Do: Repay draws as quickly as possible to minimize interest
• Do not: Use for long-term capital needs (that is what term loans are for)
• Do not: Max out and make minimum payments indefinitely
• Do not: Use to cover chronic losses (fix the business problem, not the symptom)

The Utilization Trap

Some restaurant owners get a line of credit, max it out, and stay maxed out — making minimum interest payments while keeping the full balance drawn. This is expensive and defeats the purpose.

If you consistently need to use your entire line, you may have a structural cash flow problem that borrowing cannot solve. Or you may need a larger line combined with discipline about repayment.

Combining with Other Financing

Many restaurants use multiple financing tools strategically:

• Equipment financing — For major kitchen investments (5-7 year terms)
• SBA loan — For expansion, buildouts, real estate (10-25 year terms)
• Line of credit — For working capital flexibility (revolving)
• Credit cards — For small daily expenses with points/rewards

The key is matching the financing to the need. A line of credit complements other financing — it does not replace it.

Bank vs. Online Lenders

Where to get your line depends on your situation:

• Bank LOC: Lower rates, higher limits, but harder to qualify. Best if you have 2+ years in business, strong credit, and a banking relationship.
• Online LOC: Faster approval, lower requirements, but higher rates. Best if you need quick access or do not qualify for bank financing yet.
• SBA CAPLines: Government-backed lines of credit with competitive rates. Good middle ground but longer application process.

Start with your existing bank if you have a relationship. They already know your cash flow patterns from your business account.

Getting Started

If you do not have a line of credit, consider getting one before you need it:

• Apply during strong months — Your financials look better when business is good
• Keep it available — You do not have to use it immediately
• Establish history — Make small draws and repay to build a track record
• Review annually — Request limit increases as your business grows