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How To Acquire A Restaurant Business Loan?

How To Acquire A Restaurant Business Loan?

Securing a seat at any of the restaurants in the city without a reservation over the weekend is like a mini-miracle given the number of people visiting restaurants these days. Eating out is no longer a special event like before but a must-do for most families over the weekend, where they unwind and visit new restaurants and try new cuisines. If you too wish to cash in on the popularity of restaurants or have your own small restaurant, then now is the right time. 

However, running a successful restaurant needs elaborate planning first, in terms of deciding on the cuisine you wish to serve at the restaurant, the location of the restaurant, the ambience of the restaurant, hiring the right cook or if you are a passionate cook who will be cooking at the restaurant, the equipment needed for the kitchen along with the furnishings for the restaurant and several other factors concerning the restaurant. But the most important task though, that will allow you to attend to all the other tasks without any anxiety and doubts, is to acquire the funding required for a restaurant and how or where to acquire it from.



Expenses Incurred While Starting And Running A Small Restaurant

A restaurant, even a small one, requires funding and capital for setting up and running the place. Before procuring funds, it is better to get an idea of the areas where you will need funds while applying for a restaurant business loan or while arranging for funds elsewhere.

The areas which require funding and the costs and expenses while starting a restaurant include-

Restaurant Lease or Commercial Lease

A commercial space is a must for a restaurant to operate, which includes an area where the diners can sit and enjoy a meal and a kitchen area to prepare the cuisine. If you own a commercial property in a suitable location to run the restaurant, that you have kind of ‘hit the jackpot’, but otherwise purchasing a property can be a huge financial burden and the funds can be used elsewhere if a space is leased out. Thus, leasing out a commercial space and the accompanying paperwork is one of the main expenses while planning to run a restaurant.

Licences, Permits and Registrations

A restaurant requires several registrations and licences along with permits to operate, such as a business entity registration, a Shop Act registration, an FSSAI licence along with GST registration, liquor licences (if planning to serve liquor at the restaurant), all of which have a fee which is an expense to be accounted for in the restaurant business.

Insurance for the Restaurant

A restaurant needs insurance to get protective coverage against property damage, accidents and injuries, crime, and also for workers’ compensation, and the insurance premium is an expense that needs to be counted while considering the expenses to be incurred 

Kitchen Equipment

Equipment, including cooking range, utensils, cooking tables, crockery and cutlery are the basic requirements of every restaurant, even a small establishment and this is a cost that is to be considered first and negotiated initiallt while considering to apply for a restaurant business loan.

Staff Wages/Salaries and EPFs

The salaries and wages paid to the staff, including the cooks and the waiters (if any) is a regularly recurring expense that needs to be counted while arranging for funds. Also if the total number of employees is above a certain number then it is mandatory to invest in Employee’s Provident Fund for the employees, which is an additional cost.

Stock and Inventory

A restaurant, even a small one, needs a pre-stocked inventory, including basic raw materials, spices, condiments, dishes, linens, etc. right from the beginning and are an inevitable cost essential for the business.

Restorations and Renovations

Even while leasing out a property for the restaurant, there are certain renovations and restorations like painting the place, arranging the furniture, light fittings that are vital to make the restaurant look appealing in order to please diners and create a nice ambience. Furniture is also a very basic and vital requirement for a restaurant, especially for seating the diners, along with a safely designed cooking area, all of which needs funds for purchasing and executing.

Working Capital

There are several miscellaneous expenses incurred while starting and running a small restaurant which is often forgotten while listing the likely expenses and costs encountered.

Now, that you are familiar with the essential areas that will require funding and the expenses and costs that will need to be dealt with while planning to start a small restaurant and running it, the next logical step is to find for ways to obtain funding. The funding for all of these expenses can be obtained either via-

  • Bank loans
  • Non-Banking Financial Companies or NBFCs
  • Financial support and loans from friends and family
  • Self-funding

Self funding and financial support from friends and family might not be enough to cover the entire expenses of running a restaurant. It is better to apply for restaurant loans and for this bank loans and loans via non-banking financial companies and institutes are more suitable options. Of the two options too, the most secure and reasonable choice is to opt for restaurant bank loans, because bank interest rates are less than NBFCs and they are more willing to support small businesses. But before approaching a bank for a loan, you need to prepare a project report along with keeping the necessary business loan documents ready. Apart from these there are certain additional points that need to be kept in mind in order to acquire a bank loan, since these points will further win the favor of the bank. 

Points To Consider To Win The Favour Of The Bank For A Restaurant Loan

  • Start with a business plan. A business plan will be the first impression of your business on the bank. Making a small hotel business plan will give the bank a clear idea of your goals, future plans, expected finances and the overall growth of your business.
  • Pay your income tax regularly- a discrepancy in paying income taxes regularly can show you and the business in a poor light and dampen the chances of securing a bank loan. 
  • Keep all the required documents ready- while applying for a loan, a good impression is created if you go thoroughly prepared and have all the  business loan documents required arranged meticulously. Normally, the documents required for procuring a restaurant business loan include- 
    1. KYC documents – PAN card, Adhar Card
    2. Address Proof- in case of own property- Index-II and in case of rental property- light bill & rent agreement
    3. Quotation of equipment, furniture & other assets to be purchased
    4. 2 passport size photographs of applicant
    5. In case of existing restaurant business, mandatory ITR/ form 16A
    6. 6 months bank statement
    7. Shop Act/ gram panchayat NOC.
    8. Business specific license, like an FSSAI for the restaurant
    9. Work orders, if any
  • If there are any guarantors for the loan application, then the documents required include-
    1. KYC documents of guarantors
    2. Passport size photographs
    3. Electricity bill
    4. 3 months’ salary slips
    5. 2 years Balance sheet
    6. Bank statement
  • Maintain and present a detailed project report about the business and a thorough business overview, describing the reason why you are applying for the loan for the banks to gain confidence in your plan and vision.
  • Some kind of documentation or proof that you are trained to run a restaurant, or to cook or have trained cooks to cook at the restaurant.

These pointers and information will have you covered and prepared to apply for and acquire a restaurant business loan. However in case of any doubts or to help prepare the report or documents and be thoroughly prepared before applying for a restaurant business loan, you can contact deAsra.


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