Acquiring a leasehold restaurant can represent an exciting opportunity for aspiring restaurateurs, however securing the right finance is crucial to getting your business up and running.
Unlike purchasing a freehold property, leasing a restaurant involves financing not only the lease itself but additional costs such as refurbishment, refitting, equipment, food and beverage stock, and other costs associated with opening a restaurant.
In this blog we explore the various options available to you if you are looking to finance a leasehold restaurant:
Business loans
Unsecured business loans
Unsecured business loans are a popular option for financing a leasehold facility. Unsecured business loans do not require collateral, making this type of finance popular with new restaurateurs/business owners who may not have significant assets to secure funding. In most cases, lenders consider the applicant’s credit history, business plan, projected revenues and their experience in the restaurant industry before approving an unsecured business loan. Unsecured business loans generally offer:
- Loan amounts of £5,000 upwards
- Repayment terms ranging from 1 to 5 years
- No requirement for the applicant to offer security for the loan, although this means interest rates associated with unsecured loans are typically higher due to the increased risk for lenders
Secured business loans
If you have security which you are willing to use to secure a loan, such as property, assets, or equipment, you can access secured funding. Secured loans typically offer:
- Higher borrowing limits (exact limit depends on the lender, the value of your assets and your financial position)
- Lower interest rates compared to unsecured business loans
- More favourable and flexible repayment terms compared to unsecured business loans
Defaulting on payments can result in loss of the asset used to secure the loan, so it’s crucial you ensure you’re able to make the repayments.
Asset Finance
Owning a restaurant requires significant investment into kitchen equipment, furniture and fixtures. There are two general types of asset finance:
Hire Purchase
You pay for the equipment in monthly instalments, and you eventually own the asset at the end of the agreement.
Leasing agreements
The lender owns the equipment, and you pay a rental fee each month. Often with lease agreements, there is the option to purchase the asset at the end of the agreement should you wish to own the equipment.
Asset finance is beneficial for restaurants looking to preserve cash flow whilst having access to the assets which are essential to the running of your business. With asset finance, you can access high-quality equipment and furnishings without the costs associated with a large upfront payment to own the asset.
Merchant cash advance
If your restaurant generates cash through card payments, a Merchant Cash Advance (MCA) can present a viable, flexible finance option. The lender provides an upfront cash advance, which is then repaid as a percentage of your daily card sales. The key advantages of MCA include:
- No fixed monthly repayments, meaning you can manage cash flow in a seasonal based business
- Repayments are linked to business performance, so in lower income months, you pay less, in high income months you pay more of the MCA loan back
- Access to funds more quickly than a traditional business loan
MCA finance is ideal for restaurants with fluctuating cash flow cycles, especially useful in the early stages of your restaurant operation.
Commercial mortgages and leasehold loans
If your leasehold agreement includes a premium, or significant upfront costs, you may need a leasehold loan or a commercial mortgage. Some lenders offer specific leasehold finance options, which include:
Leasehold loans
Tailored loans designed for businesses looking to fund the lease for an established restaurant. The terms associated will depend on the remaining lease length and the financial strength of the business borrowing the money.
Bridging loans
Short-term financing solutions designed to help businesses secure a lease quickly while arranging longer-term funding.
Choosing the right finance option
When you’re choosing which finance option will be most suitable for your leasehold, consider the factors below to help you make your decision:
- Your business plan and projected cash flow
- The amount of funding required
- Repayment terms and interest rates
- Eligibility criteria and lender requirements
Each finance option has its potential benefits and drawbacks, which we are happy to explain on a no obligation discovery call, that you can book here.
Summary
Funding a leasehold restaurant requires thorough planning and a suitable funding strategy. There are numerous funding options to secure the capital your business needs to launch and grow a successful restaurant, each presenting their own benefits and drawbacks. By exploring the available funding options, you can confidently define exactly what it is you are looking for, and take action in order to achieve the desired goal for your restaurant. Need tailored advice on financing your restaurant? Contact us today to discuss your funding options.
