A business line of credit lets your restaurant borrow up to an approved limit, pay interest only on what you draw, and repay and reuse the money as cash flow allows. It works best for short, predictable gaps such as a slow January, a delayed vendor payment or inventory ahead of a holiday rush, and works badly as a permanent way to cover losses.
Restaurants live on thin margins and uneven weeks. A line of credit is a shock absorber, not extra income. Use it with a plan for repayment before the first draw.
How a line of credit works
The lender approves a limit, for example $50,000. You draw $12,000 for a bulk purchase, owe interest on $12,000, then repay and the available credit returns. Some lines charge a draw or annual fee, and some are secured by equipment or a personal guarantee. Always read the fee schedule.
| Feature | Line of credit | Term loan |
|---|---|---|
| Funds | Draw as needed | Lump sum |
| Interest | On drawn balance only | On full balance |
| Best for | Cash flow timing | Equipment, buildouts |
| Repayment | Revolving | Fixed schedule |
For big one-time purchases, compare options in how to get restaurant financing and loans.
Good reasons to draw
- Seasonal dips when sales fall before staff costs do
- Buying inventory at a discount
- Covering payroll while a catering invoice is unpaid
- Emergency repairs, such as a failed compressor
- Bridging time before a tax refund or insurance payout
Bad reasons to draw
Paying regular rent because sales have dropped for months, covering owner draws, or funding a concept that does not turn a profit. If you need the line every month, you have a margin problem. Start with how to improve your profit margin.
What it really costs
Interest rates on small-business lines vary widely by credit, time in business and lender, so compare quotes. Add fees to find the true cost. A quick example:
| Item | Amount |
|---|---|
| Draw | $15,000 |
| Annual rate | 12% |
| Months outstanding | 3 |
| Interest | $450 |
| Draw fee (1%) | $150 |
| Total cost | $600 |
That is about 4 percent of the borrowed money for a three-month gap. Worth it if the draw earns or protects more than that. The calculator linked above does this math with your own numbers.
How to qualify
Lenders typically look at time in business, monthly revenue, credit scores and existing debt. Prepare:
- Two years of tax returns, or whatever history you have
- Recent profit and loss statements and bank statements
- A short explanation of what you will use it for
Clean books speed approval. If yours are messy, start with restaurant bookkeeping basics. Your POS sales reports also prove revenue: Cobblestone POS exports daily and monthly sales summaries for free, which makes lender paperwork simple.
Set rules before you draw
Write a short policy: maximum balance (for example, never above 30 percent of the limit), a repayment date for every draw and what the money may be used for. Track each draw in a simple log and review it during your monthly financial close.
Pair the line with a forecast. A 13-week cash flow forecast shows when you will need money and when it can be repaid, so you borrow on purpose instead of in a panic.
Open the line before you need it
Banks lend more readily when your numbers look healthy. Apply during a strong quarter, even if you do not draw immediately. Many owners pay a small fee to keep an unused line available, which is cheap insurance.
Takeaway: Use a line of credit for temporary timing gaps with a clear repayment date, never to hide a profit problem. Compare total cost, not just the headline rate, and open it before you are in trouble.
Disclaimer: this is general information, not financial advice. Talk with your accountant or lender before borrowing.
Download the free line of credit cost calculator (Excel)