Restaurant Business Loan Eligibility Criteria
While the eligibility criteria may be relaxed on a case to case basis by the lender, broadly, the following criteria need to be complied with:
- Guarantee: In case of a start-up restaurant, banks would generally insist on guarantee prior to extending the business loan
- Collateral: The tangible assets for which the loans have been taken would be acceptable as collateral cover
- Down Payment Component: Generally, the banks would insist on a certain lumpsum portion of the expenses be funded by the promoter. For example, the cost of certain sophisticated cooking and freezing equipment, which are complex to value by the bank, may be required to be borne by the promoter
- Financial Track Record: Factors like the business model, location of the restaurant, skilled staff, and tenure of licence, brand value and marketing initiatives influence the revenues and financial performance.
- Good Credit Score: Since the lender is primarily concerned with the repayment capability of the borrower, a good credit score of over 750 would help easily obtain a business loan.
- Management Experience in the related field: This is a very crucial aspect. Unless the promoters are interested in culinary matters, it would be difficult to innovate and attract new customers. Often, the initial promotional expenses are as high as the operational costs in a new set up.
The restaurant business is a promising one and banks offer loans to sole proprietorships, partnership firms and companies.
Restaurant loans may be used for short-term working capital purpose or long-term capital expenditure needs like:
- Purchase of land or building to host the eatery
- Renovation of the kitchen or the customer sit out area
- Acquisition of fixed assets like kitchen equipment and specialized machinery
Banks and financial institutions generally mandate a guarantor and adequate collateral prior to loan approval.
Documents required for Loan Application
The following documents needs to be submitted with the loan application form:
- Identity proof: Voter ID, driving license, passport, or signature identification from present bankers of the business entity
- Residence proof: Documents like Voter’s ID, driving license, passport, telephone bill electricity bill, registered sale or lease deed, bank statement
- Business address proof: The proof of ownership of the office premise or the residence by the loan applicant or co-applicants
- Proof of business operations for the previous three years: Valid documents accepted are bank statement, audited financial statements, GST returns, IT filings, incorporation certificate in case of a company, and partnership deed in case of a partnership firm. In case of fund-based limits of less than Rs 25 lakhs, non-audited financials are also accepted
- Memorandum and Articles of Association of the company with Board resolution copy for approval to obtain business loan
- Financial statements and net worth position of promoters and guarantors with IT returns
- Rental agreement in case of business operating out of rented premises, with pollution clearance
- SSI and MSME registration certificate, as applicable
- Business plan: A business plan with projected financials for at least 2 years in case of working capital assistance and for the loan tenure in case of a term loan
- In case of takeover of existing advances, a statement of account from the existing financial institution as to classification of the loan account as being standard
- Copies of lease agreements, ownership title deeds of real estate property being offered as collateral
- For loan cases with over Rs 25 lakhs exposure:
- Audited financials of previous 2 years.
- Detailed profile of the business enterprise namely, names of promoters, directors, partner, nature of business activity, addresses of all existing facilities and premises, shareholding ratios, etc.
- A detailed project report for the specific project in case of term loans elaborating on the cost of acquisition of machinery, capacity, capacity utilization, supplier or vendor details, expected production, sales volumes, pricing, projected financial statements, labour costs, overhead expenses etc for the loan tenure.
- Details like monthly sales (value and volume), production metrics (value and volume), inventory status (value and volume) with breakup of imported, indigenous, work in progress and finished products, accounts receivables and payables, outstanding dues of working capital, term loan and other debt facilities.
- In case of a manufacturing setup, details of tie ups with other enterprises towards technology sharing, details of raw material components, supplier arrangements, buyer profile, peer benchmarking of the unit, competitive position, etc.
- Any other documents as required on a case to case basis
How to Apply for Restaurant Business Loan
Below mentioned is the step-wise business loan verification process:
Step 1: Visit paisabazaar.com to check and compare from all the business loan options offered by leading financial institutions.
Step 2: Pick the deal that suits your business requirements by just filling the basic details like your name, mobile number, residence, loan amount, email address, annual turnover & profit, etc.
Step 3: After submitting the details, paisabazaar’s customer care professional will contact you to verify the submitted details and to proceed with the discussion on the chosen loan deal.
Step 4: Your business loan application will be sent to respective bank for further verification and then the bank’s representative will further contact you to proceed with loan formalities.
Step 5: After your loan application is approved, within defined working days the approved loan amount shall get disbursed in your mentioned bank account.