Restaurant Ownership Percentage and How It Affects Your Chances of Getting a Business Loan


The percentage ownership in your restaurant is key if you are seeking financing. Also keep in mind that your personal credit can play a crucial role in the loan application. Traditional lenders, such as banks or credit unions, will consider your personal credit score as well as request a personal guarantee in order to back their capital. For most lenders, your personal credit history is not completely separate from the financial health of your business.

However, what happens if you have a business partner? Business loan applications in case of multiple owners are not too different; that said, you should make a few important considerations — in particular when it comes to whose credit these lenders will scrutinize.

Limited personal guarantees are quite common for many small business loans where more than one individual owns at least twenty percent of the restaurant. The guarantee states how much money individual owners would be responsible for in the unfortunate event of a loan default.

The Twenty Percent Rule

In case you have at least 20 percent ownership in a small business, it is likely that the lender will examine your personal credit.

The Small Business Administration started this 20 percent rule; the rule requires personal guarantees from all business owners who have 20 percent or more restaurant ownership when applying for a small business loan. Personal guarantees protect lenders from irresponsible or financially unstable business owners.

The Strength of Your Loan Application

Make sure you discuss with your business partner whose personal assets and/or credit scores will matter most to the lender. The credit score of each owner should be high enough or it may hurt your chances of qualifying for a small business loan.

Discussing your credit scores can be an awkward or uncomfortable conversation and some individuals may be afraid of receiving blame for a specific business issue, getting judged, or feeling defensive of his or her personal spending habits. However, you need to have this discussion before you apply for the loan, because a single sub-par credit score may harm your chances of receiving an approval.

Change Your Restaurant Percentage Ownership

While complicated and time-consuming, changing your ownership percentage in the business can help you qualify for the funding you need. First and foremost, understand the different policies of your prospective lender. For example, the SBA has a 6-month look-back policy, meaning you will need to adjust your ownership percentages far in advance.

Similarly, other lenders may look at your tax returns or articles of incorporation. Still other lenders may not even follow the twenty percent rule, and instead only require that seventy percent or fifty percent of the total ownership of your business be represented.

Next, you should work with a lawyer and an accountant. Each type of entity has its unique ownership rules, which may vary from one State to another; therefore, you do not want to make any mistakes.

Bottom Line

If you are looking to secure financing for your restaurant, ARF Financial can help. Our no fee Line of Credit is a great solution. You’ll receive 24-hour access to 5 separate loan drafts over a six month period with rates that are affordable, and there’s no need for collateral. Less than perfect credit is not a barrier, and tax returns and financials are not required on amounts up to $400,000!  We can get you approved in as little as 24 hours and your credit will not be impacted when applying! At ARF Financial, we make restaurant loans fast, affordable and hassle-free! APPLY NOW.