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  • Personal Loan BYTES FROM OUR KITCHEN

    Loans for Restaurants

    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:

    • Working capital requirements.
    • Property purchase.
    • Construction or renovation of a restaurant.
    • Purchase of kitchen equipment, fixtures, and furnishing.

    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.

    Types of SME Loans offered for Restaurants

    Banks offer different types of loans to meet the requirements of SMEs.

    • Term loans for big investments, given for a loan tenure of 1 to 10 years.
    • Working capital loans for short-term needs with high interest rates, payable in less than a year.
    • Asset-based loans that can be obtained using assets like real estate, inventory, and machinery as collateral security.

    A guarantor is required for obtaining any type of restaurant loan in addition to providing collateral security.

    Government Schemes for SME Loans

    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.

    Eligibility criteria to obtain Restaurant Loans

    Obtaining a loan to fund a restaurant can be difficult unless the applicant meets the following eligibility criteria:

    • Guarantor.
    • Collateral security.
    • Down payment.
    • Good financial track record.
    • Perfect credit score.
    • Restaurant management experience and expertise.

    Interest rate and Fee Details

    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
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    Annapurna Scheme for Women Entrepreneurs

    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.

    Banks that offer Restaurant Loans

    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:

    • Vijaya Bank’s V Restaurant retail lending scheme
    • SBI loan for restaurants
    • Annapoorna and Arogya Scheme offered by Indian Bank
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