Starting a restaurant business is a passion for many but unfortunately, the passion dies a slow death as many restaurants close within a year of operations. The reasons for such exits are many but most of them relate to poor planning and cash flow management and repulsion from taking out a business loan. But then, there are some restaurants that thrive in spite of adverse conditions. They succeed because they plan well and foresee the typical hurdles. Some of the points to note in this business are as under.
Some Components of Restaurant Business
- Capital cost for premises, equipment and furniture
- Raw material inventory and suppliers
- Credit line from suppliers for material used such as food items.
- Serving tools such as crockery, cutlery
- Staff costs including statutory expenses for late night shifts
- Marketing and promotional costs
Banks and Financial institutions are willing to extend business loans even up to a crore provided they get to see a well-made business plan, investment made by the borrower as well as a 3 to 5 year revenue generation plan. Most lenders look for some collateral especially if the loan amount being sought is high. One way out of it is if the restaurant business takes up a social cause such as feeding the poor or any local cause which will get support from lending institutions which are local as these will help in easing some of the conditions and even lead to lesser interest burden. Well established restaurants can even showcase future receivables on credit cards to show assured income expectations and seek loans. Although some borrowers take advantage of factoring against future credit , as the restaurant business is more on immediate cash payment basis, there is little scope for such an exercise except may be against corporate receipts where restaurants have entered into long term contracts with corporates for providing them with lunch or snacks on a regular basis.
Lenders do provide loans for growing a restaurant business but they look for an- going business and will be wary as the chances of closures in restaurant business is very high and a prudent lender will take all precautions to ensure the loan is serviced regularly. Even after a business loan for restaurants is sanctioned, the lender will be happy to see prudent use of borrowed funds if the establishment expenses are managed judiciously.
The starting point for all such business loans is a business plan, prepared with the help of a reputed CA firm who will know what lenders look for. Own contribution to the business will go a long way in getting sanction of the required amount on attractive terms as the lesser the loan, the easier it will be for the borrower to manage all expenditure including servicing of the business loan for restaurants.