Are you thinking about setting up a restaurant business but need the correct funding to do so? Well, there are a couple of options available to you to help you get your business off the ground, and at Aurora Capital, we can help you find the right one.
In this article, we’re going to explore what options are available to restaurant entrepreneurs, as well as what the loan you take out will need to cover.
How to get funding for a restaurant
Firstly, let’s look at the various types of startup loans available to you.
Government start up loans
One of the main ways to gain restaurant funding in the UK is to apply for a start up loan from the government. Through the Start Up Loans programme, overseen by the British Business Bank, you could borrow between £500 and £25,000 over one to five years with a 6% interest rate to get your business going. With this type of loan, you also get 12 months of free advice, guidance and mentoring.
It’s worth noting that there are only a set number of these loans available, with the government confirming at the spending review in 2021 that 33,000 start up loans would receive funding for the next three years. Typically, these loans are given to entrepreneurs who are unable to source funding elsewhere, though it may still be worth applying.
This scheme is great for owners to take advantage of, however there is a very stringent review process where you will need to provide forecasts and a business plan, as well as other financial documents for them to review your proposal.
Unsecured business loan
One of the main issues facing start-ups is that they are brand new, so there’s often no assets or collateral to secure a loan against. Moreover, the government startup loan scheme can be somewhat restrictive due to the smaller amounts of money offered, and the need for a detailed and lengthy business plan and forecasts. In this event, an unsecured business loan can be suitable to help you fund your restaurant.
You can borrow up to £500,000 over one to six years with an unsecured business loan, but you must have been trading for at least six months. This is a good option if you’ve taken over a restaurant and want to refurbish or re-brand it at some point, but need to find your feet in the industry first. It’s also a good option for existing businesses looking to grow, take on more staff or update their existing equipment.
Merchant Cash Advance
The next option to fund your business is to take out a merchant cash advance. Like an unsecured business loan, a merchant cash advance allows for more flexibility in terms of what they can be used for.
To get a merchant cash advance, your business needs to have taken at least £5k per month in card sales over the last 6 months. This product is slightly more flexible in the way you make repayments, as rather than making a fixed monthly payment, you will repay a percentage of your future card sales – for example, the lender may want to take 10% of your future sales to repay the facility. This means every time a customer spends £10 with a card, the lender will take £1 to repay the facility. In addition, a merchant cash advance has no APR or interest associated with it, just a single fixed fee that will never change.
Restaurant business costs: What could your loan cover?
Once you have decided on a type of funding for your restaurant, it’s important to look at what you will use the money for.
Insurance
Any business needs insurance, especially restaurants. Public and product liability insurance is one of the main ones you’ll need as this will cover you in the event a member of the public injures themselves or their property within your business setting. If you choose to pay your business insurances in one fell swoop to minimise interest from splitting your payments, both secured and unsecured business loans can help you do this.
Restaurant lease
Often the biggest overhead for any business is the cost of the lease on the property unit. Securing a unit can be hard, and the better the location, the higher the cost. Much like buying a house, this can be the biggest hurdle to overcome, but a start up loan of any description can help you secure your ideal location.
Refurbishing restaurant areas
If you’re buying an existing restaurant and giving it a new lease of life, you’ll likely want to undertake a large refurbishment. This costs money. If you need funds to get this going, any of the finance options spoken about above can be of use.
Purchase of kitchen equipment
Professional cooking equipment is far from cheap, but for safety (and quality) reasons, it’s important to keep everything up to date. Whilst you can use start up and business loans to buy equipment, you may find it more appealing to look into asset finance which specifically deals with buying equipment.
Staff recruitment
Secured and unsecured business loans can be used for pretty much anything business related, including getting new staff on board. Aside from rent, staff costs are typically the next big overhead, but without a team, your business can’t thrive. If you need assistance paying your staff, these loans can be used for that.
Food and beverage stock
Business loans generally cover the cost of anything business related, including buying stock. As a new business, you might find it difficult to cut good deals with suppliers, so you may end up paying more in the beginning as opposed to years down the line when you’re a loyal customer. This is where getting a loan to cover stock could help.
Online ads and marketing
A business is never successful without good marketing, so it’s worth factoring this into any spending plans you might have if you’re starting up a restaurant.
Cash flow for the restaurant to keep working
If your business is new and is experiencing cash flow issues, a secured or unsecured business loan can help to bridge the gap and ensure the everyday running of your restaurant until you can solve the financial issues.
Apply for external funding with Aurora Capital
We work with a wide range of lenders that offer multiple types of restaurant funding in the UK, so we can help you find the correct financial assistance to start your restaurant. Contact us to find out more, or apply online today.
