Loans to open a restaurant

Despite the pandemic and a series of economic shocks, the UK hospitality industry still goes from strength to strength.

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With the UK restaurant trade expected to expand by 2.1% in 2023, and deliver more than £19billion in gross turnover, it’s a good time to own or launch a place to eat. Best of all, restauranteurs seeking finance to buy, build, expand, or refurbish restaurants, or cover their everyday expenses are now spoilt for choice.

Read on to discover everything you need to know about this feast of loans for restaurants.

What restaurant business loans are available?

There are restaurant business loans to furnish almost every need:

Buy, build, refurbish, or expand a restaurant.
Join a restaurant franchise.
Secure working capital to pay day to day expenses.
Start a new restaurant.
Pay your VAT.

Finance can be secured for restaurants, cafes, take-away outlets, sandwich bars, coffee shops and more. Many of these loans require no additional security. Even if you’ve been turned down elsewhere, or you have bad credit, it may be possible to obtain the funds your hospitality business needs.

The different types of restaurant business loans explained

Restaurant loans to spur growth

Loans to buy or build a restaurant:

Commercial mortgages may be used to buy an existing restaurant, buy a property and convert it into a restaurant, or build a new eatery from the ground up. Borrow up to 90% of LTV (loan to value, a comparison of the size of the loan to the value of the property), repay the loan over 1 – 30 years. The property acts as security for the loan.

Finance to refurbish or expand a restaurant:

Development loans are ideal for refurbishing, expanding and retrofitting restaurant premises – paying for land, design and construction costs. Borrow up to 90% of the cost of the project, repay in 6 – 24 months, or convert to a commercial mortgage. The property acts as security for the loan.

Asset finance may be used to pay for expensive restaurant machinery and fittings, such as HVAC systems and big-ticket kitchen equipment. Pay for the assets as you use them to make money for your business. The asset acts as security for the loan. (You may also consider asset-refinance – a reverse loan that lets you release the equity in your existing business assets and then rent them back. Use the tied-up cash to pay working expenses, expand your business, pay taxes, or pay off other debt)

Loans to join a restaurant franchise:

Buying into an established hospitality franchise can make good business sense – you become part of a well-known chain, gain valuable marketing support, and have easy access to supplies and equipment. However, restaurant franchises don’t come cheap, with some major chains asking more than £100,000 to join. Franchise finance helps you pay the joining and startup costs. Borrow from £1,000 up to £5million. Additional security may be required.

Working capital for restaurants:

Cashflow problems are the most common cause of restaurant failure. Working capital loans are short-term debt that help you cover dips in trade, especially if your sales are seasonal. Choose from a small-business loan, merchant cash-advance, revolving credit line, or invoice-finance to secure the funds you need. Use the cash to pay for almost any business purchase, including wages, business rates and utilities. Additional security may be required.

VAT loans for restaurants:

Seasonal income and slow business periods can cause cashflow chaos, making it tough for some restaurants to pay their VAT bill on time. Use a short-term VAT loan to pay HMRC and avoid penalties and interest. The lender pays the taxman direct. You repay the loan over 3, 6, 9 or 12 months. Additional security may be required.

Restaurant loans for startup companies:

Launching a new restaurant can be daunting, and budding restauranteurs should secure as much funding as they can. Startup loans can provide much-needed seed money to get new businesses off the ground. Some of these loans are UK Government backed, allowing entrepreneurs to borrow up to £25,000 per business partner and a maximum of £100,000 if four partners are involved. (Repay over 1 – 5 years, with no personal guarantee required). A strong business plan and accurate financial forecasts are essential to secure a startup loan. Previous experience in hospitality is useful but not mandatory. Note that startup loans from non-government lenders may require security, have higher fees and interest rates and offer different funding limits and repayment terms.

How to improve your chances of getting funding

Preparation is key. No matter if you are seeking funds to buy or launch a restaurant, cover everyday expenses, or pay your VAT, the lender will need full business details, relevant property information, and in many cases, a detailed business plan. Additional to these core requirements, most lenders will also seek the following information:

Most recent three-years bank and tax records. (Business account if you are an established restaurant owner, personal account for entrepreneurs launching their first restaurant business).

Cashflow forecast.

Profit and Loss Statement and recent Balance Sheet. (Established restaurants).

Details of any existing debt.

List of major customers and suppliers.

List of any assets, such as property or inventory.

Industry experience

Although many lenders to the hospitality trade prefer to work with seasoned restauranteurs, a lack of previous experience in the industry may not be a hurdle for newcomers if their business plan, financial projections and available security are strong enough.

Business plan

After hard collateral as security, your business plan is the most important element of any loan application. Lenders will be seeking solid information. This includes accurate financial forecasts, a feasible marketing schedule, details of partners and co-directors, and an exit strategy that reveals the long-term goal of the business. Borrowers who may struggle to assemble this document are advised to seek the services of a hospitality business-development professional before applying.

Deposit

Apart from startup loans and some working capital finance, such as merchant cash advances, there are few restaurant loans that do not require a deposit (security) from the borrower. This may be provided as a cash input, or in the form of collateral, such as property and hard assets. The deposit sum will vary depending on the type of loan provided and the borrower’s financial situation.

Personal finances

Some lenders may ask for a personal guarantee by the business owners or directors to secure the loan. If they do, they will check their personal finances and credit scores. The stronger they are, the better. Don’t get caught out by an error on your credit report, always check your business and personal credit scores before you apply.

How to find the right funding for your restaurant

No matter if you’re seeking funds to start a restaurant, or cash to grow your current hospitality business, restaurant financing is a niche financial sector, with differing rules of application. Restauranteurs seeking funding may find themselves forever searching and making applications to lender after lender.

The delays this can create could cause you to lose business and leave your restaurant vulnerable to the competition. Instead, working with a broker, who can access restaurant loans and mortgages from a wide range of lenders is a better way to go. No more cold calls and endless demands for information, simply tell us what you need and leave the rest to us.

Get started with Swoop

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