Food keeps the wheels of the world turning. Restaurants are a profitable venture to get into. If you're depressed, you eat, then you're happy, again you eat, and yes, when you celebrate, you eat. If you decide to open an attractive restaurant in a good area, it can earn a good amount of money.
What is the initial stage to open a restaurant? It's getting an entrepreneur loan for your restaurant. There are many considerations for a brand new restaurant. These include staffing, marketing, licensing, advertising, etc. There's much groundwork to be accomplished to get a restaurant set in operation. This demands money, and business loans for restaurants can be a boon to fulfil such financial requirements.
Did you know?
SME loans can be used to back restaurant financing. Opt for government programmes to receive SME loans at low-interest rates. Small and medium enterprises can get low-interest short- and long-term loans from banks including SBI, Allahabad Bank, Bank of Baroda, and Andhra Bank via government initiatives. Under the Credit Guarantee Fund Trust for Micro and Small Enterprises initiative, banks can lend up to ₹1 crore without requiring collateral security.
Why Apply for a Restaurant Loan?
A person can consider availing a business loan for their restaurant for several reasons, but here are the top 5 reasons:
Starting a New Business
Startups can drain money faster than expected, and sometimes, you can't even estimate the required costs. You may need to buy furniture and fittings, update old kitchen equipment, refurbish premises, etc.
Purchasing an Already-Established Restaurant
It's a great idea to purchase an already-established restaurant because you grab an already-established customer base. However, the food offerings shouldn't be too contrasting. For example, if you buy a restaurant famous for non-veg, and you open a pure veg restaurant instead, you may lose the existing customers.
Renovating an Existing Location
Redesigning new interiors is a great way to attract new customers. Interior design trends keep on changing, especially in big cities. Renovation is the best way to cope with the wear and tear of the restaurant because no one wants to walk into an ugly-looking restaurant.
If your restaurant isn't giving you much profit, and you've seen a better location for your restaurant, which you feel is much better, then you should shift to the new location. Yes, it does cost! But no worries, you can use loan money.
Buying New Equipment
Whether it's wait staff, baristas, or chefs, the right tools are always necessary for their jobs. Such equipment demands finance (grills, dishwashers and premium ovens can be costly). Just keep this fact in mind.
Benefits of a Restaurant Loan
- There aren't any extra charges, and you get to know all charges at the start.
- Processing of loans is speedy. The documents and application are completed online.
- Restaurants can get a business loan that is available at a maximum of the amount of ₹2 crores.
- There are two ways to pay off loan repayments bi-weekly or monthly. You can repay the loan quicker by adopting the bi-monthly method.
- You will get the loan amount on your behalf within three days instead of 7 days if you opt to get the loan through the traditional method.
- The online application process for loans will ensure that the person applying for the loan has full control over the loan. You won't have to surrender your assets.
- The interest rates for restaurant business loans are reasonable and vary from case to case, considering the borrower's financial background.
- There is no requirement to offer collateral for the business loans for the restaurant.
- There are many loan terms that the loan applicant can select according to their needs.
Eligibility Requirements for a Restaurant Loan
Expertise and Experience
It is a fact that ability attracts money. The borrower must prove or hire the necessary skills in running their restaurant. If the person has enough skills, they will be able to use those skills and knowledge to make a restaurant successful and pay back the loan.
A proportion of the loan amount paid in the beginning builds confidence in the lending relationship. Most organisations require that entrepreneurs pay for their project's small part and the remainder secured through the loan.
A guarantee is usually required to approve loans, and it helps the lender cover loss in case of loan failure happens.
Certain institutions that lend money require assets to serve as security. If you don't completely pay back the restaurant business loan, hypothecations are obligatory.
Credit Rating of the Borrower
Credit scores show the creditworthiness of the businessperson. Lending institutions need a minimum score before they can issue the loan, and it is proof of repayment capacity, current market position, and future incomes.
The bank will need the following documentation for approving the restaurant business loan:
- Bank statements of business for the past six months.
- Address proof for applicants on documents like an aadhar card, driver's license, etc.
- Legal documents for business.
- Identification proof of the applicant such as a driver's license card, ID card, etc.
- Copy of the Business PAN card.
Types of Restaurant Business Loans
Many banks provide a variety of loans that meet the needs of SMEs.
- The loans can be secured using inventory, real estate, and even machinery as collateral.
- Working capital loans are for immediate needs that require high-interest rates and are due in less than one year.
- Term loans for large investments that are available for a loan duration of between 1 and 10 years.
- A guarantor must be present for the application of any restaurant loan, in addition to offering collateral security.
Also Read: Explore The Profitable Food Business Ideas
How Can I Apply for a Restaurant Loan Online?
Applying for business loans for restaurants is easy and doesn't have serious hassles.
- Apply online for your restaurant loan: The application procedure can be completed online. Certain basic information you must fill in on the bank's website. There are also tools (EMI calculators) available on banks' websites to help you understand what your EMIs will look like.
- Upload all the documents required: All the necessary documents required by the applicant need to be submitted online. Since all documentation is minimal, it will not take much time.
- Loan disbursement: All the time saved during the entire procedure is passed on to the borrower. The time to disburse the loan is very rapid, and the loan amount will be credited within three days.
Things You Need to Secure When You Opt For a Restaurant Loan
The Ministry of Small/Medium Enterprise has developed a solution for the next generation of successful entrepreneurs. They've brought plans for ambitious businesses in the Credit Guarantee Fund Trust for Small and Micro Enterprises. These are called the CGTMSE Scheme. Let’s learn more about the essentials you must know to obtain a loan to finance your restaurants.
Create an Entity for Business
The initial first step is to decide on the sort of business you want to run. It'll determine the type of business you'd like to go with and the investment that you will need. Based on the format of the restaurant and the owner, the individual must register their business with one of the following types:
- Sole Proprietorship
- Private Partnership
- Private Limited.
After registration and obtaining legal approval to start an enterprise, one must create an effective business plan.
Make a Business Plan
Making an effective business plan isn't a simple task, and it's advised to consult a professional in preparing a solid business plan. It must include a Vision, Mission, Business Model, and a financial forecast.
Based on your business plan, the bank decides whether or not to approve your business loan application. Therefore, your document describing your business is the most crucial document from others required to apply for a loan to a restaurant.
Get the Bank Loan Sanction
Once you have completed the business plan, you'll have to gather all the financial documentation within the file to obtain the loan you need for your restaurant. These documents will be needed:
- Identification/Address Evidence
- Documents from Collateral (Property and Fixed Deposit documents).
- Income tax return for the recent three years (Personal or Business company.
- The borrower's profile
So, if you've got plans of opening an eye-catching restaurant where you serve mouth-watering dishes, don't waste time sitting behind. Plan up, contact the bank, and start your loan procedure straightaway! There are hardly any complications.
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