A Complete Guide On Restaurant Business Loan

14 Sep, 2022 16:48 IST 27 Views
A Complete Guide On Restaurant Business Loan

Running a successful hospitality business requires meticulous planning and prudent financial management. Without these, any hotel or restaurant business cannot get off the ground or stay in the business in the long run.

Purchasing inventory, procuring licenses, renovating the interiors, hiring and training staff, and marketing require a lot of investment. Also, a business may take months or years to reach the break-even point before making profits. So funding is essential to pull the business against all odds.

One easy way of getting cash is to borrow from a bank or a non-banking finance company (NBFC). The different types of loans offered to hotels and restaurants are unsecured loans and asset-based loans. There are many lenders that offer tailored SME loans for restaurant businesses.

Eligibility Criteria

Lenders do an extensive check of several factors like years of operation, cash flow and purpose of loans while approving the loan amount. They also look for some kind of guarantee or tangible assets before offering a loan. Some lenders even insist on a down payment.

Like any other loan, a credit score of 750 and above of the restaurant owner makes it easy to secure a business loan. It is also possible to secure a business loan with a low credit rating but that would carry a higher interest rate.

The loan amount can be utilised for a bundle of purposes like:

• To Match Cash Flows:

Restaurants have longer operating cycles and thus require a working capital loan. They need to account for short-term needs of regular nature like wages, food and beverage costs, utility costs etc even as customers and inflows build over time.

• To Manage Unpredictable Revenue Cycles:

In a business, a steady revenue means positive cash flow, more money in the bank and a return on the capital. But due to some unforeseen circumstances, like a new competitor in the locality, the revenue generation may face a setback. A working capital loan can be useful at such times.

• Marketing:

To boost brand awareness a dynamic marketing strategy endorsing the restaurant’s name is needed and this requires money.

• Expansion:

The loan can be used to purchase or lease land for setting up a restaurant in a new location or even refurbishing and expanding existing outlet.

Most lenders have a simple online process to approve a business loan. All an applicant has to do is to fill the form and submit the necessary documents like identity proof, residential proof, financial documents, proof of business type, etc. If one is opting for a larger amount and has an existing outlet in a prime land, one can use the property papers of that unit to go for a higher collateral-backed loan. It requires some extra documents.

Conclusion

Restaurant business loans can be taken by sole proprietorships, partnership firms and companies. Indeed, loans are helpful, but it is good to do a little groundwork before applying for a business loan.

A restaurant operator can take unsecured loans for covering daily expenses. If one wants to go for expansion and set up more outlets, one can also go for a bigger loan backed by collateral.

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