Food is something that keeps the wheels of life going. Restaurant business is a very profitable business to go into. People will eat no matter the occasion. If you are sad you eat, you are happy you eat. If you open a restaurant in the right location, it will easy bring in a lot of profit. But what is the first step to opening a restaurant, it is getting a restaurant business loan. There are a ton of factors to keep in mind when you are opening a restaurant, licensing, staffing, marketing, promotion etc. A lot of groundwork needs to be done to get a restaurant up and running and all of it requires quiet a bit of funds.
Types of Business Loans for Restaurants
Restaurant owners in India have access to a variety of loan options tailored to meet their specific needs. Each type of loan for restaurant startup in India serves a unique purpose. It helps restaurants at different stages of their business journey.
- Asset-Based Loans
These loans are designed for restaurant owners looking to invest in tangible assets essential for their business. Whether you want quality machinery or considering purchasing the property for your dream location, asset-based loans are ideal for these. The unique characteristic of this loan is its structure- the very asset you are purchasing serves as collateral. This arrangement often leads to more favourable interest rates and terms. However, it is crucial to understand that if you default on payments, the lender has the right to seize the asset. Asset-based loans typically offer longer repayment periods. It allows you to spread the cost over time and manage your cash flow more effectively.
- Term-Based Loans
If your restaurant requires substantial capital, term-based loans are the way to go. This loan for restaurants provides larger amounts over extended periods. They often go up to 60 months or even longer. Whether you are planning to open a chain of restaurants or completely revamp your existing establishment, term-based loans offer the financial help you need. They are particularly suited for significant investments that will yield returns over a longer period. With terms that can be customised based on your business plan and financial health, these loans offer repayment flexibility.
- Working Capital Loans
Every restaurant experiences ups and downs in business. Working capital loans are designed to smooth out these fluctuations. These short-term loans are perfect for covering day-to-day operational expenses during slow periods. For instance, you have an ice cream shop and you don’t have enough traffic during the winter. But you still need to pay staff, maintain your inventory and keep the lights on.
Working capital loans bridge this gap, ensuring your business stays afloat during off-peak seasons. These loans are easier to qualify for and have shorter repayment periods compared to other types of loans. The flexibility of working capital loans makes them a popular choice for restaurant owners who need quick access to funds to maintain their operations. Lendingkart provides lucrative working capital loans ranging from ₹50,000 to ₹2 crore.
- Government Schemes
The Indian government recognises the vital role of small businesses, including restaurants and their role in the economy. To support this sector, several government-backed schemes are available. These schemes often come with more favourable terms than traditional loans, making them an attractive option for many restaurant owners.
The Credit Guarantee Scheme for Micro & Small Enterprises (CGTMSE) is one such initiative that offers collateral-free loans to eligible businesses. These loans provide necessary funding and come with lower interest rates and longer repayment periods. Plus, government schemes may offer other benefits like subsidies or tax incentives. It is worth exploring these options thoroughly, as they can significantly reduce your financial burden. These schemes can help you establish or grow your restaurant business successfully.
Restaurant Business Loan Features & Benefits:
- Business loan for restaurants can be availed off for up to Rs. 2 crores.
- Loan processing is fast. The application and documents are done online
- Loan amount is disbursed to your account within 3 days. As opposed to 7 days if you choose to take out the loan from a traditional route.
- There is no need to put in a collateral for the loan.
- There are no hidden costs. All the fees and charges are made known right at the beginning.
- All interest rates charged for the business loan are fair and differ from case to case after taking into consideration the financial history of the applicant.
- There is a variety of loan tenures that the applicant can choose from as per their convenience.
- There are options to pay off the loan payments either monthly or bi-weekly. Paying bi-monthly would mean that the loan gets paid off easier.
- Applying for a loan online through Lendingkart makes sure that the applicant has complete ownership of the loan. You wouldn’t have to give up your assets.
Eligibility Criteria:
Securing a loan for your restaurant venture in India requires meeting certain criteria set by lenders. While these requirements may vary between financial institutions, understanding the common eligibility factors can help you prepare for the loan application:
- Guarantor: Many lenders require a guarantor for restaurant start-ups. It provides an additional security for the loan. This individual agrees to repay the loan if your business fails to meet its obligations. However, if you have successfully run your restaurant for around five years or more, lenders may waive this requirement. This flexibility recognises the reduced risk associated with established businesses.
- Down Payment: While not always mandatory, investing your savings into the business can strengthen your loan application. It demonstrates your commitment and confidence in your venture. The amount of down payment, if required, can vary depending on lender and loan type. Discussing this aspect with potential lenders early in the process can help you understand their specific requirements.
- Collateral: Many lenders like Lendingkart now offer collateral-free loans. This makes borrowing more accessible for restaurant owners. However, offering collateral might help secure better loan terms, especially if you have a less-than-ideal credit score. Collateral could be in the form of property, equipment, or future revenue from the business. Consider your ability to repay carefully before opting for a secured loan.
- Credit Score: Your credit score is a critical factor lenders use to assess your creditworthiness. In India, credit scores typically range from 300 to 900, with scores above 750 generally considered good. Maintaining a score above 700 can significantly improve your chances of loan approval and better terms. If your credit score is low, consider taking steps to improve it before applying for a loan.
- Expertise and Experience: Lenders are particularly interested in your experience and expertise in the restaurant industry due to high failure rates in the first years. Many lenders have minimum experience requirements, often ranging from 2 to 5 years in the restaurant business. If you are new to the industry, consider partnering with someone experienced or be prepared to present a detailed business plan. Some lenders might also consider your educational background in hospitality management or related fields.
Eligibility Requirements for Lendingkart
The eligibility criteria for a restaurant loan from LendingKart have been kept at a minimum to make things easier.
- If the loan is taken for an existing restaurant, the restaurant has to be in business for 6 months at least.
- If the restaurant is already up and running than a minimum turnover of Rs. 90,000 or more is necessary in the last three months preceding the loan application.
- The business must not be in a blacklisted list for small business loans
- The location of the business must also be in a proper location.
Things to Secure When Opting for a Restaurant Loan
Before you embark on your journey to secure a restaurant loan in India, you must take a few crucial steps. These strengthen your application and increase your chances of approval. The preparation makes you an attractive candidate for lenders and sets a solid foundation for your business:
Build a Business Entity
The first step in your restaurant journey is deciding on and establishing your business structure. This decision will impact various aspects of your business, including taxation, liability, and even your loan eligibility. In India, you typically have three main options:
- Private Limited Company: This structure offers limited liability protection and is often preferred by lenders due to its formal structure and clear owner delineation. It is suitable for businesses planning significant growth or seeking substantial investments.
- Partnership Firm: If you are starting a restaurant with one or more partners, this could be a suitable option. It allows for shared responsibilities and investments but comes with shared liabilities as well.
- Sole Proprietorship: This is the simplest form of business structure, ideal for small, owner-operated restaurants. While it offers complete control, it could also mean you bear all liabilities personally.
Each structure has its pros and cons, so it is advisable to consult with a legal expert or business advisor to choose the most suitable plan for your specific situation. Once you have decided, proceed with the registration process, which typically involves registering with the Registrar of Companies (ROC) for a Private Limited Company, or with the local municipal corporation for a Partnership or Sole Proprietorship. This registration is crucial as it legitimises your business in the eyes of lenders and regulatory bodies.
Create a Business Plan
A well-crafted business plan is your roadmap to success and a crucial document for loan applications. It is not just a formality; it is a comprehensive blueprint of your restaurant’s vision, operational strategy, and financial projections. Creating an effective business plan can be challenging, especially if you are new to the industry. Consider these key elements:
- Executive Summary: A concise overview of your restaurant’s concept, target market, and financial highlights.
- Market Analysis: Detailed research on your target audience, competition, and market trends in your chosen location.
- Menu and Service Description: An outline of your culinary offerings and service style, highlighting your unique selling points.
- Marketing Strategy: Your plan to attract and retain customers, including digital marketing, promotions, and community engagement.
- Operational Plan: Details on day-to-day operations, staffing, supplier relationships, and quality control measures.
- Financial Projections: Realistic forecasts of your income, expenses, and profitability over the next 3-5 years.
Given the complexity and importance of this document, it is wise to seek professional help. A business consultant or a mentor with restaurant industry experience can provide valuable insights and help you create a compelling, realistic plan. Remember, your business plan is not just for lenders, it is a living document that will guide your decisions and strategies as you build and grow your restaurant. Regularly revisiting and updating your business plan can help you stay on track and adapt to changing market conditions.
Documents Required:
The documents needed for a restaurant business loan are:
- Identity proof of applicant like a driver’s license, PAN card etc.
- Address proof of applicant like a driver’s license, aadhar card etc.
- Copy of PAN card of Business
- Business bank statements of last 6 months
- Legal business documents.
Fees and Charges:
All the fees and charges that an applicant has to face when applying for a restaurant business loan are:
| Interest Rates | Starting from 1.25% per month |
| One time processing fee | 2-5% |
| Tenure | Up to 2 years |
| Pre-closure fee | Pre-closure charges are applicable as per the lender’s policy |
| Loan Amount | Rs. 50,000 – Rs. 2 crores |
| Repayment schedule | Monthly or Bi-weekly |
Know more: Business Loan Interest Rate
How to Apply Online for a Restaurant Business Loan?
The application process for restaurant business loan is quiet simple and does not require any jumping through hoops.
- Apply for the loan online: The application process can be done Some common details need to be entered at the Lendingkart website. The website also has a tool if you wish to know how your EMIs would look like.
- Submit necessary documents: All necessary documents of the applicant needs to be uploaded online. Considering all documentation is minimum, this will not take much time at all.
- Loan disbursal: All the time saved in the whole application process is transferred to the applicant. The loan disbursal time is super quick. The loan amount reaches within 3 days.
Conclusion
The restaurant industry in India is booming. Securing the right financing can make all the difference in bringing your culinary vision to life. Whether you are launching a new concept or expanding your existing eatery, various loan options are available to suit your needs. With careful planning and the right financial partner, you can turn your restaurant dreams into reality. Lendingkart offers tailored financial solutions for MSME businesses including restaurants. We provide quick and hassle-free online applications. Our user-friendly platform and competitive rates make us an appealing choice for aspiring restaurant owners across India.
Documents Required:
- ID Proof: Aadhaar Card, PAN card, Voter ID, Driving Licence (any of these)
- Residential Proof: Electricity or water bill (latest), Ration Card (any of these)
- Proof of business registration
- Partnership deed (if any)
- Passport sized photographs
- Banking documents: Salary credit of last 6 months
Cities we serve in India
North
East
West
South
North
Delhi NCR: Delhi, East Delhi, Gurugram, Faridabad ,Ghaziabad, New Delhi, South Delhi, Noida, Rithala
Haryana: Chandigarh, Rohtak, Palwal ,Gurgaon, Rewari, Panipat, Kaithal, Karnal
Himachal Pradesh: Shimla, Mandi, Manali, Chamba, Kullu, Rampur
Uttarpradesh: Lucknow, Agra, Kanpur, Allahabad, Varanasi, Meerut, Jhansi
Punjab: Amritsar, Ludhiana, Jalandhar, Patiala, Firozpur, Lahore
Uttarakhand: Dehradun, haridwar, Mussoorie, Roorkee, Kichha
East
Odisha: Bhubaneswar, Cuttak, Sambalpur, Berhampur
West Bengal: Kolkata, Hooghly, Howrah, Kalyani
Bihar: Patna, Sasaram, Nalanda, Aurangabad, Jahanabad, Siwan, Darbhanga, Buxar
Jharkhand: Ranchi, Jamshedpur, Dhanbad, Deoghar
West
Gujarat: Ahmedabad, Vadodara, Surat, Jamnagar, Gandhinagar, Deesa, Porbandar, Bharuch
Goa: Panaji, Madgaon , Mapuca , Ponda
Rajasthan: Alwar, Jaipur, Ajmer, Behror, Dholpur
Maharashtra: Mumbai, Palghar, Pimpri, Ulhasnagar, Thane, Ahmednagar, Aurangabad, Nashik, Nanded
South
Telangana: Hyderabad, Ranga Reddy, Khammam, Secunderabad, Warangal, Nalgonda, Karimnagar, Nizamabad, Adilabad
Karnataka: Bangalore, Mangalore, Hubli, Mysore, Shimoga, Davanagere, Gulbarga, Bellary, Belgaum
Andhra Pradesh: Vijayawada, Visakhapatnam, Guntur, Tirupati, Rajahmundry, Kakinada, Amaravati, Kadapa, Nellore, Kurnool, Anantapur
TamilNadu: Chennai, Coimbatore, Madurai, Trichy, Salem, Vellore, Erode
Kerala: Ernakulam, Kochi, Thiruvananthapuram, Kollam, Thrissur, Malappuram
Restaurant Business Loan FAQs:
1. How to get a business loan for a restaurant?
To secure a business loan for a restaurant, start by creating a detailed business plan outlining your restaurant concept, financial projections, and repayment strategy. Then, research and approach lenders that specialize in restaurant loans or offer small business loans suitable for restaurants. Be prepared to provide collateral or a personal guarantee, and ensure your credit history is in good standing. Seek guidance from a financial advisor or restaurant industry expert to increase your chances of approval.
2. What is the maximum loan amount I can apply for?
The maximum loan amount you can apply for in the context of restaurant business loans, also known as small business loans for restaurants, typically varies based on factors such as your creditworthiness, your business plan, and the lender’s policies. It’s essential to consult with lenders specializing in restaurant loans to determine the specific loan amount you qualify for to start or expand your restaurant business. LendingKart offers up to Rs. 2 crore in loans for restaurant businesses.
3. Is the interest rate fixed or variable?
Restaurant business loans can have both fixed and variable interest rates, depending on the lender and the specific loan terms. When seeking a loan for your restaurant, it’s essential to carefully review the loan agreement to determine whether the interest rate is fixed, meaning it remains constant throughout the loan term, or variable, meaning it can fluctuate based on market conditions. Different lenders may offer different options, so be sure to inquire about the terms when exploring small business loans for restaurants.
4. How long does it usually take for the loan to be approved and disbursed?
The time it takes for a restaurant business loan to be approved and disbursed can vary. Typically, the approval process for restaurant loans, whether for startup or expansion, may take a few weeks to a couple of months. Factors such as the lender’s processing time, the completeness of your application, and your creditworthiness play a role. It’s advisable to have a well-prepared application to expedite the process. For Lendingkart, Loan processing is fast. The application and documents are done online, and the loan amount is disbursed to your account within 3 days. It will be 7 days or more if you choose to take out the loan through a traditional route.
5. Can the restaurant business loan be pre-closed?
Yes, the loan can be pre-closed. Usually a pre-closure charge is applied, but the pre-closure request has to be put in after the first EMI payment has been done.
6. Can I get a business loan with a low credit rating?
A business loan might get approved with a low credit rating but with a higher interest rate. It will be better if the credit rating is improved before applying for a loan.
7. Why are the interest rates low at LendingKart?
The interest rates are low because all processing is done online, thus saving on manual costs.
NOTE: No processing fees are being charged by Lendingkart before disbursement of the loan amount. Any individual claiming otherwise must not be entertained. Please report such activity on 