Types of SME Loans offered for Restaurants
Restaurants generally have high starting costs. An SME loan can help startups & established restaurant businesses meet different financial requirements at different times. Common SME loan types for restaurant businesses in India are:
Term Loans
Term loans are significant in amount and used to make heavy investments. These loans are generally 1 to 10 years in tenure, but in certain cases, repayment periods can be as long as 30 years.
Working Capital Loans
Working capital loans help restaurants meet their daily expenses & overhead costs, maintain liquidity, and other short-term needs. The tenures for these loans are low, and the interest rates are pretty high.
Working capital requirements are generally the most common reason small businesses seek loans.
Asset-Based Loans
Assets such as real estate, infrastructure, machinery etc., are used as collateral for asset-based or secured business loans. In most cases, a personal guarantor is often necessary to avail of any loan for a restaurant.
Loans requiring collateral security generally offer higher amounts and longer repayment periods.
Government Schemes for SME Loan
Government SME loans are another great funding source. These loans are offered at attractive interest rates, business-friendly features, and coverage by government agencies. Restaurants can avail of both small-term and long-term loans at low-interest rates, with maximum loan amounts rising to Rs. 1 crore. Government agencies such as CGTMSE and the Credit Guarantee Fund Trust generally cover unsecured bank loans from government initiatives.
Loans of up to Rs. 1 Crore can be availed through Government-backed SME schemes.
The Different Ways A Restaurant Can Use Business Loans
Restaurant loans can be used to meet short-term working capital needs and long-term goals such as buying equipment or making investments. Some of the most common uses are:
- Buy inventory: Buying provisions, raw materials & resources and maintaining adequate inventory
- Remodelling: Renovations, expansions and extensive overhauls to the existing business model
- Upgrade equipment: Buying new machinery and upgrading to better versions
- Purchase software: Purchasing accounting and inventory management software
- Increase marketing budget: Marketing and promoting the business across multiple channels
- Print new menus: Printing menus, banners, posters, fliers & pamphlets, and the like
Eligibility criteria to obtain Restaurant Loans
Several factors determine if a business is eligible for a loan. The ones below are considered the most important by every lender in India.
- Guarantor: Most financial institutions offer term or working capital loans only when the guarantor offers a personal guarantee against any loan default.
- Collateral: The total loan amount can be quite high if the borrower puts up any asset as collateral security.
- Down payment: Many banks require businesses to make a down payment and pay a lump sum for a particular purchase, such as kitchen equipment. The rest of the cost will then be financed by the bank through the restaurant loan.
- Credit Score: A high credit score is essential for availing of any loan and negotiating better amounts & terms. A score of 750 or above is essential for securing finances.
- Experience and Expertise: Applicants can acquire larger sums at lower interest rates & with other convenient terms if they can showcase expertise & experience in the field.
Banks consider this factor quite prominently, as inexperienced business promoters will have difficulty attracting customers while simultaneously running operations smoothly.
Interest Rate and Fee Details
- Interest rates charged: Restaurant loans come with high-interest rates of 12% to 20%
- Loan amount range: Rs. 20 lakhs to Rs. 3 crores
- Repayment period range: 1 to 1o years
- Processing charge: Varies across banks
- Personal Guarantee: Having a guarantor is an essential eligibility criterion.
Loan Schemes for Women Entrepreneurs
There are numerous convenient loan schemes available for women entrepreneurs from major banks and NBFCs. Many lending institutions offer loans through Government initiatives and here are a few of the most prominent ones.
- State Bank Of India’s Stree Shakti Package For Women Entrepreneurs ( Maximum Loan Amount: Rs. 50 lakhs)
- Bharatiya Mahila Bank Business Loan (Maximum Loan Amount: Rs. 20 crores)
- Dena Shakti Scheme By Dena Bank (Max Loan Amount: Rs. 20 lakhs)
- Udyogini scheme By Punjab and Sind Bank (Rs. 1 lakh for women in the agriculture and small businesses)
- Cent Kalyani Scheme From The Central Bank of India (Rs. 100 lakh with no collateral ro guarantor)
- Mahila Udyam Nidhi Scheme by Punjab National Bank (Rs. 10 lakhs)
- MUDRA Yojana For Women by the PMMY MUDRA Initiative (Rs. 50000 to Rs. 10 lakhs, limited to 10% of the loan amount)
- Orient Mahila Vikas Yojana by the Oriental Bank of Commerce (Rs. 25 lakhs)
Banks that offer Restaurant Loans
Some of the most prominent banks offering restaurant loan schemes are:
- The Vijaya Bank with its V Restaurant Loan Scheme: Loans of up to Rs. restaurant businesses can avail 5 crores. The bank decides upon interest rates, and repayment tenures range between 1 to 10 years.
- The State Bank of India’s Loans For Restaurants: Businesses can also avail of SBI’s SME/MSME loans in the restaurant & hospitality sector. Line of credit, secured & unsecured loans, gold loans, PMMY MUDRAs schemes– the State Bank of India has numerous loans available for MSMEs in the restaurant business.
- The Indian Bank’s Annapurna & Aarogya Scheme: The bank offers loans to women in the fine dining and restaurant industry.
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FAQs
These are convenient financing schemes for small and medium businesses in the restaurant industry. They can be short-term or long-term as per business requirements and loan amount. Interest rate is relatively high, and businesses need a personal guarantor in almost all cases. Different loan types are available such as term loans, lines of credit, working capital loans, and secured asset-backed loans, etc.
Yes, you can, but it won’t be easy. You will need to have a credit score of at least 500. The interest rate will be high, and you won’t be able to negotiate for a higher amount or better terms.
Different banks offer different types of loans for varied purposes.
- Short-term loans: Generally of low amount with short repayment period; may involve weekly or daily payments if the amount is meagre
- Long-term loans: Term loans at nominal rates with more extended repayment periods
- Equipment loans: Small-scale loans for buying equipment, machinery, tools, etc.
- Merchant advance: Payments with flexible terms based on turnover or a fixed percentage of sales
- Lines of credit: Businesses get to avail only the amount that they need currently and can avail more once they pay off the borrowed amount
- Small Business Administration loans: SBA loans are unsecured loans by the US Government’s Small Business Administration department to businesses in the restaurant industry. Not applicable in India.
- Invoice factoring: Acquire funds based on outstanding invoices. Businesses pay the lender when they get paid the invoice amounts.
- Commercial real estate: These are real estate loans specially designed for restaurants looking to build new establishments and branches.
Yes, restaurant loans can be pre-closed. However, prepayment charges may be applicable. Businesses can prepay requests only after a certain number of EMIs have been paid.