Restaurant Line of Credit | How It Works

A restaurant line of credit is a revolving credit limit — typically $10,000-$250,000 — that you draw from as needed and repay, with interest charged only on the amount drawn, not the full limit. Once approved, the credit stays available to reuse as you pay it down, which makes it a standing tool for seasonal dips and cash-flow gaps rather than a one-time loan for a specific purchase.

How a Line of Credit Differs From a Loan

A term loan or working capital loan gives you a lump sum up front and starts accruing interest on the full amount immediately. A line of credit works more like a credit card sized for the business: you're approved for a limit, you draw only what you need when you need it, and interest applies only to the drawn balance. Once you repay a draw, that capacity becomes available again — a loan doesn't reset that way. See restaurant working capital loans for the lump-sum alternative and when it fits better.

Why Restaurants Specifically Use Lines of Credit

Restaurant revenue rarely stays flat across the year — a slow January or a weather-dependent patio season is normal, not a warning sign, but conventional bank underwriting sometimes treats it as risk. A line of credit built for restaurant seasonality lets an owner draw during the dip and repay during the busier stretch, without reapplying for a new loan every time revenue swings. It's a fundamentally different fit than seasonal restaurant financing strategies built around a one-time seasonal buildup, though the two are often used together.

What It Costs

Lines of credit are typically priced similarly to term loans — often in the high single digits to high 20s+ APR range on the drawn balance, depending on credit and revenue — sometimes with a modest additional fee for keeping the line open. Because you only pay interest on what you draw, the effective cost of a line you use sparingly is much lower than a lump-sum loan sitting mostly unused. See realistic ranges across all loan types in restaurant loan rates.

What Lenders Look for on a Line of Credit Application

Requirements generally run similar to a working capital loan: 6-12+ months in business, $10,000+ in monthly revenue, and credit in the 600-650+ range. Because a line of credit is a standing facility rather than a one-time loan, some lenders weight the consistency of revenue over its raw size — steady $12K/month reads better to many underwriters than volatile revenue averaging $20K/month. The full requirements list across loan types is in restaurant loan requirements.

Line of Credit vs. Credit Card for a Restaurant

A business credit card also revolves, but typically carries a much higher APR and a lower limit than a dedicated line of credit, and doesn't usually offer the larger draw amounts a restaurant needs for payroll or inventory during a real gap. A line of credit is generally the better tool once the need exceeds a few thousand dollars.

For how a line of credit compares against term and SBA options, see restaurant loans.

Sources

• U.S. Small Business Administration — Loan programs
• Federal Reserve Small Business Credit Survey
• Consumer Financial Protection Bureau — Credit basics

FAQ

How does a restaurant line of credit work?

You're approved for a credit limit, draw only what you need, and pay interest solely on the drawn balance. As you repay a draw, that capacity becomes available to use again — unlike a loan, which is a one-time lump sum.

How much credit can a restaurant qualify for?

Typical limits run $10,000-$250,000, sized against monthly revenue, time in business, and credit profile. Lenders generally want to see consistent revenue rather than just a high average.

Is a line of credit cheaper than a loan for a restaurant?

It depends on usage. Because interest applies only to the drawn balance, a line of credit used occasionally can cost less overall than a lump-sum loan you're not fully using — but the rate on the drawn amount is often comparable to or higher than a term loan.

Can a new restaurant get a line of credit?

It's harder without an operating history — most line-of-credit lenders want at least 6-12 months of revenue data. Brand-new restaurants typically start with SBA loans or equipment financing instead, then add a line of credit once revenue history exists.

This guide is for general information only and is not financial advice. Loan terms, rates, and qualification criteria vary by lender and change over time. Confirm current terms directly with any lender before applying.