How to get a loan to start a restaurant: a beginner's guide

A loan to start a restaurant is borrowing taken out before the business has any trading history, to pay for premises, fit-out, equipment and the first months of running costs. This guide is for first-time restaurateurs and chefs going it alone who want to know what lenders expect. Smart Funding Solutions is a commercial finance broker: we compare lenders on our panel that consider new hospitality businesses and help you present the plan properly. For finance for established restaurants, see our main restaurant loans page.

Lenders see new restaurants as higher risk because there are no accounts to assess, so preparation makes a real difference.

The business plan is the centre of that preparation; our guide to writing a business plan for a loan covers the funding request, a sources and uses table and the downside case lenders look for.

01What a new restaurant needs funding for

• Lease premium, deposit and legal fees, or a property purchase
• Fit-out: kitchen, extraction, dining room, bar, lighting and decor
• Kitchen equipment, furniture, tills and booking systems
• Licences, insurance and compliance
• Opening stock, recruitment and training
• Pre-opening marketing
• Working capital for the first months while trade builds

02Matching each start-up cost to the right finance

Our guide to financing a restaurant fit-out goes into the equipment and building costs in more detail.

03Types of loans for starting a restaurant

Start-up loans

The government-backed Start Up Loans scheme, delivered through the British Business Bank, offers personal loans for business purposes to new businesses, with mentoring support. Start-up business loans from other lenders are also available, usually assessed on your personal credit, experience and plan.

Asset finance

Hire purchase or leasing spreads the cost of ovens, ranges, refrigeration and furniture over monthly payments. Because the equipment is security, it is often the easiest finance for a new restaurant to obtain.

Unsecured business loans

These avoid a charge over property but usually require a personal guarantee. Many unsecured lenders require a trading history, so options for brand-new businesses can be limited.

Secured loans and commercial mortgages

If you own property with equity, a secured loan can raise larger sums. A commercial mortgage is used to buy restaurant premises, usually with a substantial deposit.

Merchant cash advance

An advance repaid from card takings. It requires existing card sales, so it suits restaurants that have been trading for a while rather than pre-opening funding.

Government-backed lending

Beyond Start Up Loans, the Growth Guarantee Scheme supports lending through accredited lenders, which can help where security is limited. Check the British Business Bank for current availability and eligibility.

If you are opening a franchised restaurant rather than your own brand, the franchisor's published costs shape the loan. Our Subway franchise finance guide works through Subway's figures in pounds.

Franchised restaurants are funded differently, with the franchisor setting a minimum personal contribution; our McDonald's franchise finance guide works through the repayments on the bank-funded share.

04Bank loans vs alternative lenders

High-street banks can offer competitive rates, but usually want trading history, security and a significant personal contribution, and decisions can take longer. Alternative and specialist lenders may be quicker and more flexible, often at a higher cost. Compare the total cost, fees, term and any personal guarantee, not just the rate.

Hire purchase or leasing spreads the cost of ovens, ranges, refrigeration and furniture over monthly payments.

05What lenders look for in a new restaurant

• Business plan: concept, target market, competition, menu and pricing, marketing, staffing and detailed financial forecasts.
• Financial projections: start-up costs, month-by-month cash flow, break-even point and how repayments will be met.
• Personal contribution: putting in your own money shows commitment and reduces the lender's risk.
• Credit history: personal credit files for all owners.
• Experience: kitchen, front-of-house or management experience. If you lack it, show how an experienced chef or manager fills the gap.
• Premises: lease terms, location and any planning or licensing requirements.

06How to apply step by step

1. Work out your total funding need, including a contingency and working capital for the first months.
2. Write your business plan and financial forecasts.
3. Check your credit files and correct any errors.
4. Gather documents: ID, proof of address, bank statements, tax returns, quotes for fit-out and equipment, and the heads of terms for your lease.
5. Compare lenders and products, matching each cost to suitable finance.
6. Apply, answer questions and review offers carefully before signing.

07If you have bad credit

Adverse credit narrows the options but does not always rule you out. Asset finance, a larger personal contribution or a business partner with a stronger profile can help. No lender approval is guaranteed, so focus on showing affordability and a credible plan.

08After you have the funds

Spend on the essentials first: kitchen, compliance and the guest experience. Keep a cash reserve, track spending against budget, and watch cash flow closely in the early months. Build repayments into your monthly budget and speak to your accountant about tax and VAT planning.

09Can you get a Start Up Loan for a restaurant?

Yes. A government-backed Start Up Loan can be used to start a restaurant, and according to GOV.UK it provides £500 to £25,000 at a fixed interest rate of 7.5% a year, repaid over 1 to 5 years. It is an unsecured personal loan for business use, so you are personally liable for it, and successful applicants get up to 12 months of free mentoring and help writing a business plan.

Who can apply

• You live in the UK and are 18 or over.
• Your UK-based business is planned or has been fully trading for less than five years.
• You pass a credit check, because the loan is personal and unsecured.

How it fits into a restaurant budget

For most restaurants a Start Up Loan covers part of the cost rather than all of it, because a fit-out, extraction, kitchen equipment and a lease premium together usually cost more than one personal loan provides. It tends to work best for smaller items with no resale value, such as pre-opening marketing, licences, training or opening stock, alongside finance that suits the larger costs.

Tell any other lender about the Start Up Loan: it is borrowing, so it counts towards affordability and usually does not count as your own money in the project. Our page on start-up business loans compares the wider options for new businesses, and our guide to commercial kitchen equipment finance covers leasing the kitchen.

10How we help new restaurant owners

11Restaurant business loans once you are trading

Once a restaurant has been trading for a while, the choice of finance widens, because lenders can see real takings rather than a forecast. Established restaurants commonly borrow for:

• A refit or refurbishment of the dining room, kitchen or bar
• New kitchen equipment, through asset finance
• Opening a second site or buying another restaurant
• Stock and working capital through quieter months
• Spreading a VAT or tax bill with a VAT or tax loan

A merchant cash advance becomes an option once you have regular card takings, and term loans and revolving credit open up once you have accounts. Our restaurant loans page covers finance for trading restaurants in more detail.

Our independent eatery case study shows how follow-on facilities can be added as a new restaurant builds a trading record.

12How much can you borrow to open a restaurant?

There is no standard figure. Lenders size borrowing for a new restaurant on what your forecast shows you can repay, how much of your own money is going in, and what security is available. In practice the total is often built from several pieces:

• A government-backed Start Up Loan: GOV.UK sets these at £500 to £25,000, at a fixed 7.5% a year over 1 to 5 years.
• Asset finance: sized on the cost of the kitchen equipment, furniture and tills on your supplier quotes.
• A term or secured loan: for fit-out costs, where your forecast and contribution support it.
• A commercial mortgage: if you are buying the freehold, based on the property's value and a deposit.

Write down every start-up cost with a contingency, then match each cost to the finance that suits it, as in the table earlier in this guide.

13Licences and registrations lenders expect to see

A lender funding a new restaurant will want to know the legal steps are in hand, because without them the restaurant cannot open on time.

• Food business registration: GOV.UK says you must register a food business with your local authority at least 28 days before you start trading.
• Premises licence: in England and Wales, a business that sells alcohol on a permanent basis needs a premises licence, usually from the local council, and a designated premises supervisor who holds a personal licence.
• Lease and planning: the heads of terms for your lease, and confirmation that the premises can be used as a restaurant.

Showing these in your business plan, with dates, makes the timetable credible to a lender.

14Getting restaurant business loan quotes

When your plan, quotes and figures are ready, you can see which lenders on our panel fit your restaurant in minutes with Instant Quotes. We search the market, including lenders that consider start-up hospitality businesses, and set out the options for each part of your budget. Any broker fee depends on the lender, with nothing to pay upfront.