Podcast recorded in November 2023

Ben Larkins and Jon Maloney talk about restaurant finance.

What is a restaurant loan and how does it differ from other kinds of loans?

It’s pretty much the same, but obviously it’s just used by a restaurant business or a hospitality business. They can use it for furniture, they can use it for a tax bill or a new bar. They can use it for flooring, lighting, ceilings, refrigeration, kitchen equipment or cutlery.

They might need to take on more staff. That’s pretty prominent at this time of year – we’re in November, approaching Christmas, so there’ll be a lot of hospitality businesses looking to take on ad hoc staff to cope with demand.

As we Brits like a drink, the alcohol consumption goes up in the month of December so perhaps businesses need more money for the breweries to get some more beer in. That’s the sort of thing we look at.

What are the eligibility criteria for obtaining a restaurant loan?

We need a minimum turnover of £72,000 a year and minimum trading of 12 months. That’s pretty much it in terms of eligibility. Obviously other funders and brokers may differ.

What documentation is typically required when applying for a restaurant loan?

We just need the last three months’ business bank statements and a full set of year end accounts.

Are there any industry specific considerations or requirements when applying for a restaurant loan?

Not especially – but the restaurant sector can be deemed high risk by funders. It’s not the only business type in that category, but you’ve only got to open a newspaper or drive along a high street to see how many pubs and restaurants go bust and reopen under another name. It is deemed a bit more of a high risk industry.

So it’s a case of making sure that before you apply for a loan that you’re being realistic. You need a clear idea of what you’re going to get approved for.

Can individuals or only businesses apply for a restaurant loan?

We only deal with businesses. That might be a sole trader, a partnership or a limited company – but we don’t deal with individuals.

What are the typical interest rates associated with restaurant loans?

Because of the various degrees of risk, like any loan application, it’s certainly a case by case basis. It all depends on how long you’ve been trading, what your turnover is, your requirements and how much you’re looking to borrow.

But if you’re looking for a restaurant loan, give one of our account managers a call and they’ll be able to talk you through it. Pretty quickly they’ll be able to let you know the interest rate associated with the type of deal you’re after.

What are the repayment terms and options for a restaurant loan?

The term will be six months up to five years. We do have options for weekly payments and even daily payments, because obviously restaurants have a consistent turnover.

We’re getting more demand for that, because it’s easier to manage cash flow from a restaurant’s perspective if they know how many covers they’ve got per day and per week.

They might like the idea of paying weekly, rather than manage a bigger payment at the end of the month. It’s probably a bit harder to juggle the cash flow. So if somebody calls for weekly payments, we can usually make that happen.

Is it possible to pay off my restaurant loan early without incurring penalties or additional fees?

Yes, but it’s very much funder dependent. Some funders offer interest up to the point of settlement. With others, irrespective of at what point you’re settling, you still have to pay the full amount of interest. Some funders will offer a 10% discount for early settlement. So it depends who the funder is.

What if I have bad credit – can I still get a restaurant loan?

Yes, you can, but it all depends on how bad the credit is. If the funder looks at the bank statements and there are multiple missed payments, and on your credit file you’ve got defaults and maybe a CCJ – then you’re probably not going to get a loan.

With bad credit, you have to factor in that the interest rate won’t be as keen. Again, it’s a real case-by-case basis. We assess every application on its merits. If we can, we’ll do it, and we’ll let you know why the interest rate is higher – then you can make an informed decision whether it’s still right.

How can I improve my chances of getting a restaurant loan?

Don’t apply for something too late. If the borrowing is for cash flow, that’s a relatively immediate problem that needs a quick solution.

What we’ve found sometimes in the past, and this is not necessarily specific to restaurants, is that somebody will hold off applying for a loan for cash flow in the hope that things get better. Rather than taking decisive action, they’ll wait. But by then, there’ll be perhaps a couple of missed monthly payments on a loan, or missed bill payments.

Your bank statements show unpaid items and at that stage it’s just making life difficult. Things do happen in business one day that will affect the next. I know you can’t look into a crystal ball and see that in two months time you’ll be struggling for cash. But you will know if things are quiet.

January or February might be quiet months. You know that in advance – so you need some money in the bank to cover those times. Restaurants probably have a good relationship with an accountant or a business advisor. They’ll have a cash flow forecast month on month, and they will be ahead of the game, knowing when they need money.

So it’s pretty essential to arrange a loan earlier rather than let the problem magnify massively. Once there’s some bad credit on the business, it becomes harder to get something that would have been easy three months ago.

How can I get a restaurant loan? What’s the process? How long does this typically take?

Go on our website and there is a restaurant loan category. Have a look through that – there’s a number of FAQs that are useful. Then you can either pick up the phone and speak to one of our account managers, who will take you through the process, or if you want to apply via the internet press Apply Now.

That will go through the application – it takes about 30 seconds to a minute. Then, one of our account managers will be in touch to get the relevant financial information, and we’ll go from there.

Do you have any specific case studies where you have helped clients secure a restaurant loan?

We’ve got plenty – obviously we can’t name names. But we’ve worked with people who have perhaps opened a chain of restaurants and used our loans to refit, or to pay a corporation tax bill, or pay the deposit on a new leasehold.

It’s not just a case of big restaurant chains or people with five or six restaurants. It can be a little tea room or cafe. One of our account managers did one last month for a pub/restaurant. They bought the pub two or three years ago and focused mainly on wet trade – now they’re looking to incorporate food. They’ve got a large restaurant and they need extra staff.

I think they borrowed £35,000, appreciating that Christmas is coming up. They have large orders coming in for Christmas parties and things like that. We were able to arrange the loan within two days and they were very happy.