One of the most common entrepreneurial ventures in India is to open a restaurant, food chain, or a cafe. The restaurant industry is expected to grow at an annual rate of 11% by 2018. There are several factors involved in obtaining funding to open a restaurant. Factors like the business model, location, staffing, licensing, branding, promotion, marketing, etc. A new restaurant requires extensive marketing, and promotion to attract customers. The initial branding, promotion, and marketing costs can equal the operation costs of a new restaurant.
Most restaurant start-ups struggle to obtain funding without a guarantor, and a substantial asset to put as collateral security. However, with the projected growth in the restaurant industry, banks offer restaurant loans for sole proprietorships, partnership firms, and limited companies. Restaurant loans can be used for short-term and long-term business needs like:
With its high start-up costs, bank loans, secured loans, SBA loans, equipment financing, and credit loans are some of the funding avenues available for opening a restaurant.
Banks offer different types of loans to meet the requirements of SMEs.
A guarantor is required for obtaining any type of restaurant loan in addition to providing collateral security.
Restaurant funding can be backed by SME loans. To obtain SME loans at reasonable interest rates, opt for government schemes. Under the government schemes, small and medium businesses can secure short-term and long-term loans with lower interest rates from banks like SBI, Allahabad Bank, Bank of Baroda, Andhra Bank, etc. Banks can lend up to Rs.1 crore without requiring collateral security under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme.
Obtaining a loan to fund a restaurant can be difficult unless the applicant meets the following eligibility criteria:
The following are the interest rates, and charges applicable for a restaurant loan:
|Loan amount||Rs.20 lakhs to Rs.3 crores|
|Repayment period||1 to 7 years|
|Interest rate||12% to 20%|
|Guarantor requirement||Needed for all banks|
|Processing charge||Varies with banks|
Banks offer business loans to women entrepreneurs who want to start a catering business. Under the Annapurna Scheme, a loan of up to Rs.50,000, repayable in 36 installments, is offered to women who run individual or partnership firms. In addition to providing collateral security, a guarantor is needed to obtain the loan.
To successfully apply and secure a business loan for a restaurant, first, come up with a suitable concept or theme. Second, choose an appropriate location for the restaurant. Third, create a winning business plan. Fourth, be well prepared for a bank loan application with a guarantor, and substantial collateral security at the ready. Below is a list of banks that offer restaurant loans to entrepreneurs in India:
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