Any small-scale entrepreneur who is planning to set-up a restaurant business would require financing for interior designing, kitchen equipment, aesthetics, cutlery and other furniture. Usually, equipment shares a substantial portion of the entire cost of setting-up of a restaurant. An entrepreneur must carefully choose which amenities would help in running the restaurant operations smoothly. There are several options available in the market to finance restaurants and their related kitchen equipment. In this article, we will look at the various kinds of financing options available in the market. The restaurant owner can use the appliances as collateral while taking a loan. Therefore, these kinds of loans secure the financiers since they have a backup in case of default of payment.
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for processing Equipment Loan:
For a restaurant to access capital for taking equipment loan, the following details are required to furnish (not necessarily in the same order every time though).
Past 3 – 5 years of Turnover
Restaurant incorporation/establishment date
Profit and loss statement and
Bank statement, attached to restaurant billing and accounts
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Types of Financing Options
There are different kinds of loans offered based on the requirement
Working Capital loan
Secured loans are collateralized with some assets with resale value. The equipment loans can be categorized in these kinds of loans. Working capital loans are to manage day-to-day operations and purchase raw materials from vendors and pay advances in case of any requirement. Term loans are for capital expenditure, which may involve extended gestation returns on the investments envisaged. Sometimes, equipment loans are taken using term loans also.
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Methodology for Equipment Loan Issuance:
Sometimes, the financiers may also check the background details and credit score details of the promoter to ensure credibility. It secures the loan offered for equipment of restaurants while ensuring returns on capital to the loan provider. The interest rates of financing vary from one financier to another depending upon the credit profile of the equipment loan borrower. Sometimes, the lender may also see the payback period of the equipment loan offered to the restaurant owner and calculate the risk of capital. The lender calculates risk-adjusted returns to arrive at the cost of financing. The financiers usually follow these metrics in a standard format, which is a common practice across various industries. If the restaurant is entirely new and the owner has no experience of running a business, then the chances of borrowing cost going up are higher.
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Importance of Payback period and Return on investment:
Assets that have a longer life span are financed through equipment loans. So, before choosing a financing option, the restaurant owner has to consider the lifetime value of the asset which is going to be procured. Besides, it is a common practice to estimate the return on investment along with the payback period. By calculating these fields, the restaurant owner can make decisions on which equipment to be selected to run the operations. For example, if the restaurant product’s pricing points are meagre, then the owner should choose equipment that can provide payback quickly along with return on the investment. The low price of food items has to compete fiercely with other competitors in the market. Whereas, if the restaurant is offering lavish cuisines, then the equipment loans can be on the higher side. It all depends on per-customer pricing of the restaurant. Also, the restaurant owner can do some market research and find out about the equipment that is most efficient to run restaurant operations. Based on these inputs he can make a decision.
Online Financial institutions like Indifi offers personalized service to the borrowers by filling up the loan form in an online portal. The process would be seamless and straightforward in very few steps. They also offer various schemes and discounts to the customer and provide suggestions on which one would yield the best results. This unbiased and customized advisory helps the restaurant owners to take loans for the equipment.
Before the loan is disbursed, there involves some documentation and paperwork as per guidelines laid out by the regulator. Sometimes the restaurant owners also require additional credits for expansion, and they can also apply for the same. There are several government initiatives to support small and medium scale industries to grow, which adds a lot of value creation to the society in the form of employment. It is therefore advisable to check before taking any equipment loan. Overall, for any restaurant entrepreneur taking an equipment loan, the parameters considered are the cost of financing, return on investment and payback period.