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About Loans for Restaurants
India being a land of diversity, you will find a variety of cuisines with subtle and not-so-subtle variations. The food industry is a thriving industry growing by approximately 10% each year. Opening a restaurant though, is another matter altogether. There are several factors such as location, cuisine, staffing, licensing, and marketing to consider.
Opening an average sized restaurant can be an expensive affair – not to mention fine dining. Entrepreneurs struggle with the initial capital outlay as well as working capital – which are quite large considering the daily requirements of vegetables, meat, and grocery.
Banks and NBFCs have introduced new loan products designed to meet the needs of hoteliers and restaurateurs. These loans are offered for various purposes such as -- Working capital
- Purchase of property
- Construction of premises
- Redecorating premises
- Purchase of equipment
- Purchase of furniture
Considering the high capital outlay required for setting up a restaurant, hotel, or eatery, banks offer secured loans for funding new ventures.
Types of loans for the food and beverage industry
The following types of loans are generally offered for restaurants and hotels -
- Term loans – Large loan amounts for tenures ranging from 1 to 10 years.
- Working capital loans – Short term loans – usually less than a year – to fund the day-to-day operations such as purchase of vegetables and groceries.
- Asset-based loans – Long term loans usually for the purpose of purchasing property or equipment. The property or equipment is hypothecated to the bank for the duration of the loan.
It is necessary to have a guarantor for any type of loan for restaurants.
Loans Under Government Schemes
Government institutions such as SIDBI offer loans for business at slightly lower than market rates. The purpose is to promote small businesses. The institutions offer both long and short term loans. Many nationalized banks also offer SME Loans for various businesses including loans for restaurants. As per the recent initiative of the government, MSME (Micro Small and Medium Enterprise) loans for up to 1 crore can be obtained under the CGF (Credit Guarantee Fund) Trust within an hour without providing collateral – as long as you have the required documentation.Loans for Restaurants – Eligibility Criteria
While the process of obtaining loans for restaurants is simple and the interest rates are affordable, it is important to understand that there are some basic criteria for obtaining the loan. The following are the eligibility criteria to get loan for restaurants -
- Guarantor :
- Collateral :
- Down payment :
- Credit Score : Many institutions require a certain minimum credit rating in order to sanction the loan. A credit score is a numerical expression of the creditworthiness of the borrower. It includes current and potential income as well as loan repayment history among other factors.
- Experience and Expertise :
Someone – either an individual or a business – who can guarantee to pay in the event you are unable to repay the loan.
An asset that is hypothecated to the lender institution until such time the loan is completely repaid.
An initial upfront payment expressed as a percentage of the total loan requirement. Many institutions require that the borrower fund part of the project while the rest is funded by the loan.
Setting up a restaurant is not simply a matter of financing. The entrepreneur must possess the required skills – or be able to hire them – to run the business. Many lending institutions demand proof of such skill before sanctioning the loan.
Loans for Restaurants – Interest Rates and other details -
While interest rates and fees vary from one institution to another the following is the general framework within which loans for restaurants may be granted -
| Criteria | Approximate limits |
|---|---|
| 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 |
Loan Schemes for Women Entrepreneurs
Banks and other lending institutions offer loans to women entrepreneurs – both under government initiatives like Annapurna Loan for Women and through other loan products. Here is a list of government and non-government loans for restaurants – especially for women –
| Name of the Scheme | Offered by | Purpose | Maximum Loan Amount | Maximum Tenure |
|---|---|---|---|---|
| 1. Stree Shakti Package For Women Entrepreneurs | SBI | Women who have 50% or more share in a firm or have participated in Entrepreneurship Development Programme (EDP) | 50 lakh | Reduced Interest for amounts over 2 lakhs |
| 2. Bharatiya Mahila Bank Business Loan | Bharatiya Mahila Bank | 20 crores | 7 years | |
| 3. Dena Shakti Scheme | Dena Bank | Women in the field of agriculture and other small enterprises | 20 lakhs (50 lakhs for micro credit) | |
| 4. Udyogini Scheme | Punjab & Sind Bank and some other banks | Women in Agriculture and other small business | 1 lakhs (45000 for SC/ST) | Family Income is considered for eligibility |
| 5. Cent Kalyani Scheme | Central Bank of India | Women starting a new venture or expanding an existing one | 100 lakhs | No collateral or guarantor required |
| 6. Mahila Udyam Nidhi Scheme | Punjab National bank | Women entrepreneurs in Small Scale Industry | 10 lakhs | 10 years |
| 7. Mudra Yojana Scheme For Women | MUDRA | For women who want to start a new venture either individually or together | Shishu- New Startup – 50,000 Kishor 50000 – 5 Lakhs, Tarun 10 Lakhs | Fund availability limited to 10% of total loan amount |
| 8. Orient Mahila Vikas Yojana Scheme | Oriental Bank of Commerce | Women who hold at least 51% share in a business | 25 lakhs | 7 years maximum tenure |
Many banks and financial institutions are coming forward to support women entrepreneurs and restaurant businesses. The details provided here are subject to change by the concerned institutions at any time. It is advisable to visit the website or office of the concerned institutions for complete details regarding the loan.
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