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written by | March 23, 2022

Loan for a Restaurant Business

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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.

Changing Location

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.

Also Read: How Digitized Menu Benefits Your Restaurant Business

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. 

Down-Payment

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.

Guarantor

A guarantee is usually required to approve loans, and it helps the lender cover loss in case of loan failure happens.

Collaterals

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.

Documents Required

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

Conclusion

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.

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: Who are the candidates for the loan?

Ans:

Following are the loan candidates:

  • Units on the owner's premises or units in lease premises with an unexecuted lease with a repayment period.
  • Mid Sized hotels, restaurants/bakeries, fast food outlets, motels, Highway inns, kiosks, mess, and canteens.
  • New Startups
  • Authorised and permitted units an to conduct business in the Hotel industry, Catering from Municipal or Local Administration.

Q: What is a suitable individual contribution towards the investment?

Ans:

Suitable individual contribution can be in the form of:

  • 25% of the total cost for Kitchen Equipment/Fixtures/Furniture.
  • 35% of the entire investment for purchase, construction, expansion, renovation, modernisation of premises, and interior decoration.

Q: What is the loan tenure?

Ans:

Loan tenure is:

  • According to the bank's terms, the loan's duration can be between 5 and 7 years with a loan term.
  • A year of working capital, which you can renew annually.

Q: List of banks that offer a business loan under the CGTMSE

Ans:

The following banks to obtain loans for your restaurant business.

  • Indian Bank
  • SBI
  • HDFC Bank
  • Vijaya Bank
  • Yes Bank
  • Axis Bank Limited
  • ICICI Bank
  • Induslnd Bank
  • Andhra Bank
  • IDBI Bank

In addition to the banks, numerous Fin-tech startups have emerged to provide loans to food establishments and restaurants.

Q: What is the rate of interest on loan for restaurant startup in India?

Ans:

An average of 11 to 13 per cent, based on the institution.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.