Thinking of Applying for a Loan for Your Restaurant Business? Read this First

Getting a bank loan can be a daunting process and no matter the kind of loan it is, certain procedures have to be followed. Thankfully, things are a bit easier nowadays with online applications, but one still has to provide financial details, documents and go through the verification. In case one wants to open a restaurant of their own, they would have to look for hotel financing and this can be both secured and unsecured in nature, depending on the lender one is applying to.

Things to remember to secure a loan for Restaurant business

Restaurants can fall under the category of small or medium business enterprise and the next generation talented entrepreneurs have much to look forward to in this aspect. One can apply under the CGTMSE scheme or the Credit Guarantee Fund Trust for Micro and Small Enterprise.

Here are some guidelines to be followed to obtain a restaurant loan:

• It is important to form a plan at the very beginning regarding the format of food business and the kind of investment it would require. Based on the format and the ownership, the persona should try to get the company registered in one of the forms like Private Limited, Private Partnership or Sole Proprietorship. Once the registration is done and the legal aspects are taken care of, one should get going with a plan.
• Creating a Business Plan comes next and one should opt for professional help with this. It should have a vision with which one would be able to influence the creditor regarding the business model. This would go a long way in convincing him whether the business would be a safe risk to finance.
• The next step is to obtain a bank loan sanction and that can be done by submitting some documents. Profile of the loan applicant, Income Tax Return of last three years (Personal or Business firm), PAN Card and ID/Address Proof and Documents of Collateral like Property or Fixed Deposit papers are to be submitted.

In case the loan is not covered under CGTMSE Scheme, the following are the pre-requisite to get the loan:

• Primary Hypothecation: The borrower pledges an asset as collateral but retains the ownership of the assets.
• Collateral documents: Above Rs 10 lakh- EM of immovable property, which is equivalent to the loan amount and it is mainly the premises of the hotel or catering unit.

One might also opt for a loan under CGTMSE and once the bank loan has been sanctioned, the bank will further apply to CGTMSE scheme cover at CGTMSE organization. Under this scheme, one can get a loan of Rs 5 lakhs to 1 crore, based on the requirement of the restaurant owner.

The loan tenure can be between 5 and 7 years and in case one wants a working capital loan, then the tenure is one year but the loan can be renewed on a yearly basis. The rate of interest is mostly between 11% and 13%.

In case a restaurateur wonders about his personal contribution, then ideally he should pay 25% of the total investment for kitchen equipment and furniture and fixture. He should also be able to pay for 35% of the total investment for construction or modernization.

Mostly, mid sized hotels, bakeries, restaurants, fast food outlets and mess, canteens and kiosks can also apply for the loan. Units in own premises and units in leased premises with unexpired lease should cover the repayment period. New restaurant start ups can avail the loan as can any unit which has a valid license from the local administration and municipality.