Running a successful restaurant is an art form, but expanding that business requires something more than skill – namely, financial capital. However, securing adequate funding can be a somewhat daunting task, and UK restaurant owners face an increasingly complex financing landscape.
According to recent reports, the UK has seen a 64% increase in restaurant closures, and a 56% rise in insolvencies (Mondaq).
One of the most significant challenges restaurant owners face is maintaining a steady cash flow to fund growth, especially when the cost of business loans can be prohibitively high.
The key to success lies in secure, reliable funding that supports a stable cash flow. By working with Aurora Capital, you can expect to receive expert guidance and insight into the best restaurant financing options available. With the right financing options in hand, you can take the next step in growing your restaurant business with confidence.
Financing Options for Your Restaurant Expansion
As a restaurant owner, securing the necessary funding to expand your business is critical. There are various financing options available to you, each with its own set of advantages and disadvantages.
Secured business loans
Secured business loans require collateral to secure the loan; in the event that the borrower cannot repay the loan, the lender has the right to seize the collateral. This type of funding is ideal for those who have a property with enough equity available to secure the loan on.
Secured business loans can be used to finance a variety of restaurant expansion needs – perhaps a new industrial dishwasher, chef salaries, or fresh furniture for an upgrade to your decor.
Find out more about secured business loans
Unsecured business loans:
Unsecured business loans do not require collateral. Instead, they are based on the borrower’s creditworthiness and ability to repay the loan. As a result, interest rates tend to be higher than with secured loans, but there is less risk involved for the borrower.
This is ideal for restaurant owners who have been trading for at least 2 years and do not or do not want to have the loan secured against any tangible assets. Unsecured loans are also suitable for those who do not want to put assets at risk.
Find out more about unsecured business loans
Merchant cash advance:
A merchant cash advance is a type of funding that provides a lump sum of cash in exchange for a percentage of the borrower’s monthly card terminal sales.
This type of funding is perfect for restaurant owners who see a large turnover through debit and credit card sales. In essence, once you’ve received your loan, you’ll make repayments based on a pre-agreed percentage of income taken via card terminals.
The repayment terms for merchant cash advances tend to be shorter than traditional loans, and the interest rates tend to be higher.
Find out more about merchant cash advances
Asset finance:
Asset finance is a type of funding that allows the borrower to purchase or lease assets for their business, such as kitchen equipment or delivery vehicles. Typically, asset finance is used to purchase new items, although it is often possible to refinance existing assets.
This solution can be very flexible and used to purchase smaller items such as furniture and equipment, or larger items such as kitchen appliances.
Find out more about asset finance
Revolving credit facility:
A revolving credit facility is a type of loan that gives restaurant owners access to a line of credit that they can draw from as needed. This type of funding can be useful for restaurants that need flexibility with their cash flow, as they can draw on the credit line to cover expenses during slow periods and pay it back during busy periods.
Find out more about a revolving credit facility
Recovery Loan Scheme
Recovery loans are a government-backed loan scheme designed to help businesses recover from the economic impact of the COVID-19 pandemic.
Restaurant owners can use this type of funding to cover a wide range of expenses, from staffing and inventory to rent and utility bills.
Recovery loans have low interest rates and long repayment terms, making them an attractive option for restaurants looking to rebuild after a challenging time.
Find out more about a recovery loan
Comparing Options: Financing For Your Restaurant Expansion
While there are many financing options available for restaurant owners, it can be a little overwhelming and time-consuming to compare and contrast them all.
That’s where a business loan broker like Aurora Capital can help. Our experienced professionals understand the specific needs of restaurant businesses and can guide you through the process of finding the best financing option for your expansion plans.
By using a broker, you’ll have access to a wider range of lenders and financing products, including those that may not be available to you directly. Plus, a broker can help you navigate the application process, ensuring that your application is complete and meets the lender’s requirements, which can increase your chances of approval.
Key Considerations
As with business finance in any industry, it’s important to keep a few things in mind.
Firstly, consider your business needs and goals, and whether the financing option you’re exploring aligns with those objectives. Secondly, assess the risks associated with taking on debt, including interest rates and repayment terms, and make sure they are manageable for your business.
During the application process, it’s essential to provide accurate and complete information to lenders, and to carefully review the terms and conditions of any financing agreement.
Once you’ve obtained financing, keep a close eye on your cash flow to ensure that you can make payments on time and avoid defaulting on your loan.
The Factors Lenders Take Into Account
When considering a loan application, lenders take into account a number of elements that can affect the approval and terms of the loan. It is important for restaurant owners to be aware of these factors before applying for financing.
Here are some key factors that lenders typically consider:
- Credit history and score
- Business revenue and cash flow
- Length of time in business
- Industry and business type
- Collateral and assets
- Business plan and projections
- Debt-to-income ratio
A good use case example would be a restaurant with a solid credit history, steady revenue, and a detailed business plan that shows potential for growth. A bad use case example would be a restaurant with poor credit, irregular cash flow, and no collateral or assets to secure the loan.
By understanding these factors, restaurant owners can increase their chances of getting approved for financing and securing favourable terms.
Expert Tips For Success
When securing financing for your restaurant expansion, it’s important to be strategic and prepared. Here are some expert tips to help you get the best loan possible:
- Create a detailed business plan that outlines your current and future goals.
- Be prepared to provide financial statements, tax returns, and other documentation.
- Shop around for lenders and compare rates and terms.
- Consider working with a business loan broker who can help you navigate the process.
- Don’t take on more debt than you can handle.
- Understand the terms and conditions of the loan before signing.
- Communicate with your lender throughout the process and maintain a good relationship even after the loan is approved.
Restaurant Business Loans With Aurora Capital
Since 2021, when there were 42,070 full-service restaurants operating in the UK, that number has contracted to just over 35,000 (Truly Experiences), and restaurant owners are braced for more lean times ahead.
However, not only is it possible to survive in this fraught and challenging environment, but you can actually see your restaurant business thrive – the key is to access secure and reliable business funding.
By using Aurora Capital as your trusted loan broker, you can save time, stress, and money while ensuring your restaurant’s success. We will guide you throughout the process and provide you with a bespoke funding solution that is tailored to your business needs.
Contact Aurora Capital today to explore the best funding options for your restaurant’s expansion.
