Connecting hospitality operators with dedicated industry suppliers and specialists
Restaurant Finance
Exploring the finance solutions available for your restaurant
Opening a restaurant involves significant costs, from fit-outs to equipment, so exploring the right finance is essential. Finance options include equipment leasing to reduce upfront costs, fit-out financing with asset backing, and cash flow solutions like merchant cash advances that adapt to your income. Each option is customizable, fitting unique restaurant needs and helping to balance cash flow. We’ve partnered with Mill Wood Finance to provide tailored restaurant finance solutions.
The purpose of the loan
Clearly define why you need financing for your restaurant. Is it to open a new location, buy equipment, manage cash flow? Understanding this will help you to better understand what financial products are available to you and are most suitable to your requirements.
Credit history
Your credit history will strongly influence the types of restaurant finance available to you and the terms that you will be offered. A strong credit history will give you access to more favourable interest rates and repayment terms.
Repayment terms
Be realistic about your restaurant’s projected cash flow and how easily you will be able to meet the required repayment schedules. Short-term loans may have higher repayments but can be paid off quicker, whereas long-term loans might seem more manageable but will accumulate more interest over time.
Collateral
If the financing you desire requires security, you will be required to place an asset as collateral. Determine which assets, if any, you are willing to use and potentially lose if you do not keep up with repayments. By having a valuable asset such as property or equipment, you may be able to access better loan terms by securing the loan against the assets.
Interested in finance for your restaurant?
Give Mill Wood Finance a call – the finance partners of Find a Restaurant
Phone Number
01273 523690
Example of how restaurant finance can work
In this hypothetical example, imagine a restaurant with the following details:
- Concept: Heritage bistro
- Location: Edinburgh, Scotland
- Cuisine: Modern British with a focus on local, sustainable produce
- Covers: 100
Hypothetical background
James and Emily are two seasoned chefs with experience in top restaurants across the UK and have decided to open a new resturant in Edinburgh’s bustling city centre. Their vision is to offer an intimate dining experience focused upon modern British cuisine, highlighting seasonal and locally sourced ingredients.
Having found a suitable premises, they decide it requires significant investment to get the space ready for their restaurant concept. Their intial cost estimates for the renovation, fit out, kitchen equipment and interior design came to £350,000. They faced the difficult situation of balancing high upfront costs with tight cash flow management constraints.
Project outgoings
The pair identified the following major costs before opening:
- Fit out costs: £200,000 for refurbishing the premises
- Equipment: £100,000 for high-quality kitchen equipment and furniture
- Marketing: £15,000 for the pre-launch, social media and web design
- Working capital: £35,000 to cover initial inventory and payroll
Whilst the chefs had personal savings of £100,000, they were still £250,000 short of what was projected. After a consultation with a restaurant financial advisor, they explored various financing options.
Finance solution: Lease Finance
Hypothetical financial figures
| Amount financed | Term | Monthly Payments | Total Interest Paid* |
|---|---|---|---|
| £100,000 | 5 Years | £2,000 | £20,000 over years |
James and Emily were keen to avoid tying up all of their funds into purchasing the required restaurant equipment. They wanted to ensure they had the sufficient working capital to manage the restaurant’s initial few months of operations. By opting for equipment lease finance for their restaurant, the chefs were able to:
- Reduce their upfront costs
- Preserve cash flow
- Access high-quality equipment outside of their initial budget
*example interest rate for hypothetical example
Fit-Out Financing
In this hypothetical example, the fit out represents a major cost to the restaurant launch. This is true for many restaurants, especially those with a specific concept in mind. Everything from the interior to the restaurant flooring represent major outlays that need to covered.
Asset finance is a potential avenue to explore to finance your restaurant fit-out costs. Asset finance allows restaurateurs to borrow money using the restaurant’s physical assets as collateral, spreading the cost over time while reducing upfront cash outgoings. Hire purchase is a popular asset finance option for restaurants undergoing a fit-out. With hire purchase, you can acquire the necessary equipment, furnishings and fixtures immediately but pay for them over an agreed term while still gaining ownership at the end of the agreement.
Hypothetical financial figures
| Amount financed | Term | Monthly Payments | Ownership |
|---|---|---|---|
| £150,000 | 5 Years | £3,000 (dependent on the interest rate) | They would own the equipment at the end of the term. |
Hire purchase asset finance enables businesses to spread costs over an agreed upon period of time, rather than requiring upfront payment. Despite this, the restaurant can benefit from using the equipment and assets from day one, helping new restaurants to get up and running. Hire purchase agreements can often be tailored to meet the restaurant’s cash flow requirements, with options for lower initial payments or a balloon payment at the end of the term.
Cash flow management
Whilst Emily and James in this hypothetical example have reduced their cash flow burden through lease financing, they still require extra financial support for their working capital. The pair applied for a £35,000 merchant cash advance. This type of restaurant finance has a repayment schedule linked to their card sales, allowing them to repay a portion of their card sales, rather than relying on a fixed monthly repayment schedule. This flexible structure meant their repayments fluctuated based on revenue, which was ideal for managing cash flow during quiter periods of trading.
Tailored restaurant finance solutions
In this hypothetical example, James and Emily were able to alleviate the immediate financial pressure to opening a restaurant through the use of lease finance and asset finance. They were able to keep their working capital free for other critical expenses such as payroll. Flexible financing solutions such as a restaurant merchant cash advance helped the restaurateurs to navigate through their early months of operation without overcommitting to fixed monthly payments. By combining lease finance, asset finance and cash advances, they were able to create a tailored financial solution that was right for their restaurant and launch strategy.
Whilst this was just a hypothetical restaurant opening example, many operators will find themselves in a similar situation. You might find it overwhelming just how many different types of restaurant finance are available to you, all with different financial implications and repayment demands. That’s why we have partnered with the experts at Mill Wood Finance, who take the stress out of securing restaurant finance. Their team will take the time to understand your restaurant concept and business plan. From there, they will tailor a finance package that suits your repayment capabilities and immediate need for funds.
Secure finance for your restaurant by Contacting Us Today
Our dedicated team will work tirelessly alongside our specialist finance partner to secure you the financial capital your restaurant business requires at a competitive rate and faster than other providers.
Click Here