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Restaurant Loans for Small Businesses

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Restaurant Loans for Small Businesses

Restaurant Loans for Small Businesses

A lot of people today dream of having their own restaurant. For some it might be a passion, for some it might be the best way for a growing and profitable business.

The demand for food today is above anything else. Wherever you are, whatever you are doing, you will always look for delicious meals to devour. With this, the competition between restaurants has risen.

Every restaurant aims at providing people with unique meals along with a lot of added facilities like good service, distinctive furnishings, music, and more. Setting up a restaurant today is a task; therefore, you require a good amount of capital in order to set up a fine restaurant.

For obtaining a fair capital to establish a restaurant you can either ask someone to invest in the business with you or you can easily take a restaurant loan and pay later as you earn. Opting for a loan is a much better idea as you will be the only owner of your company whereas having one more investor means that you must share your ownership.

What is a Restaurant Loan?

A Restaurant Loan is a funding provided by Banks, Financial Institutions or Online and Offline Lenders to small business owners for starting their restaurant.

These are a type of installment loans that you must pay back over a certain period. This period is called as term length.

The loans are available at different rates of interest as per the policy that is followed.

Getting restaurant loans enables owners to acquire a decent capital with which they can carry out the process of establishing a suitable restaurant. Apart from this, it is mandatory to have a guarantor for restaurant loans. Restaurant Loans can be of three types:

  1. Term Loans:

These loans are often taken when a big investment must be made. The tenure of term loans can vary from 1 to 10 years.

  1. Working Capital Loans:

A working capital loan is generally taken for short term requirements. These loans have tenure of within a year and have high interest rates.

  1. Asset-Based Loans:

An Asset-Based Loan is acquired by keeping an asset like property, inventory or machinery as collateral with the bank. The interest rate for asset-based loans is low.

Why Business Owners Require Restaurant Loans?

When setting up a restaurant, there are a lot of things that need capital. The owners of new restaurants would require a loan for the following reasons:

  • Marketing and promoting their restaurant
  • Branding
  • Purchase of new equipment
  • Licensing the restaurant
  • Property for restaurant
  • Furniture and more…

Owners of already existing restaurants might require a restaurant loan for:

  • Getting new equipment
  • Renovating restaurant
  • Expanding restaurant

Apart from these there are various reasons why a business owner might need a small restaurant loan.

Benefits of Taking Restaurant Loans

A business owner needs a restaurant loan to begin a new restaurant or to expand an existing restaurant.

For this, owners need a large amount of capital to handle the expenses. Therefore, taking a business loan is the best option as it boosts the business by providing finance. Several other benefits of taking restaurant loans include:

  • Affordable payment rates. The interest rate is not so high when you take a small restaurant loan. Therefore, you can pay back the loan easily in installments.
  • Getting a restaurant loan is a hassle free and fast process. You will just be required to submit necessary documents and be eligible for the loan after which your restaurant loan will be sanctioned.
  • You can build your business credit by getting a small restaurant loan. You can easily pay back your restaurant loan on time therefore, when you do that, your chances of getting a loan in future increases as you have a good credit score.
  • You can be the sole owner of your restaurant by taking a restaurant loan because you do not have any other investor.

Some Disadvantages of Taking a Restaurant Loan

  • You must not take loan of a large amount as it might be difficult to pay the loan back with the interest rate.
  • There might be a chance that your restaurant does not prosper; this will put u in a financial trouble as you must pay your restaurant loan back.
  • If you fail to repay your loan amount with interest the bank can take over your property or machinery which was the collateral.

Eligibility criteria to avail Restaurant Loans

It is essential to fulfill the eligibility criteria of the bank or money lender if you wish to avail a restaurant loan. Eligibility criteria for different banks and lenders vary accordingly.

Below are listed some common eligibility criteria’s that a business owner must fulfill in order to be eligible to get a restaurant loan:

  • A down payment must be made
  • There must be a guarantor
  • The owner must have a good credit score
  • Financial record must be good
  • Property, inventory or machinery as collateral security

List of required documents for Restaurant Loan

Identity Proof of the applicant
  1. Adhaar Card, PAN card, Driving License, Voter ID or any government approved valid document
Address Proof of the applicant
  1. Adhaar Card, Passport, Driving License, Electricity Bill
Documents of the company
  1. Bank account statements of last months
  2. Legal business documents
Ownership Proof
  1. Registration documents

Features of Restaurant Loans

Here are some of the mail features of a restaurant loan for a small business:

  • Loan amount varies from INR 20 Lakhs to INR 3 Crores.
  • The repayment period for restaurant loans is between 1 to 7 years.
  • A guarantor is required for the loan
  • The interest rate for a restaurant loan varies from 12% up to 20%
  • Processing charge for the loan varies in different banks

Procuring a restaurant loan for small businesses is quite easy. It is essential for the business owner to know the requirements of the restaurants and then take a loan according to that. There can be a chance that the restaurant takes off well and gains success but it can also fail and put the owner in debt. Therefore, before taking a restaurant loan the owner must take into consideration all the factors and how he will repay the loan in the given time. If everything is distinct then taking a restaurant loan is beneficial for the owner.

Praneet is the CEO and Editor of the website TeckFly.com. He is a blogger and have varoius blog on various topic and he is from India who loves to read and write about Technology, Gadgets and Gaming. If you share the similar interests then you can follow him on Facebook | Google+ | Twitter

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