The correct loan type can help restaurants complete a successful expansion or renovation project by providing them with the funds they need to avoid financial difficulties. Their daily operations can continue, and any upfront finances that would otherwise be used to pay for the expansion or renovation can instead be funded by a loan and paid back across a term period.

There are many loan options available to restaurant owners, each offering different ways to fund an expansion or renovation, so if you would like some options to consider, keep reading, and we’ll expand on a number of popular facilities currently available on the market to give a picture of what can be done with them, and why they are beneficial during an expansion or renovation.

Loans to Consider for an Expansion:

If you are looking to expand your hotel brand and start a chain, or you more simply want to expand on your current premises, there are a number of ways you can get targeted finance to support your growth prospects. There are many reasons for an expansion, whether it’s to accommodate new customers, or expand – adding something like a private dining section to your establishment. As soon as you know what you need the funds for, you can start to look around for a facility that will best suit. Let’s look at some common loan types that can best support or provide for a restauranteur during that expansion period:

• Commercial Mortgages: When purchasing a new location, or you are looking to heavily expand your own, the safest facility on the market is to either take out a new mortgage, or remortgage your existing property. You will find the best terms through a mortgage, particularly if the economy is doing well, and with the repayments being spread over up to 35 years you can make steady predictable repayments, reaping the benefits of the upfront purchase with a loan type that is manageable.
• Asset Finance: If you are expanding your current premises, alongside the funds needed to complete construction, you may also require new equipment to function in your expansion. In this case, asset finance essentially works like a mortgage but for products, whereby you can secure the asset, then use it to pay itself off. This can be particularly useful if your funds are tied up in your expansion.
• Inventory Finance: Similar to the reasons for securing asset finance, if you have opened up a new section for a bar, or food service, you might be short on the products that will be getting sold from the new location. In this case, inventory finance can be used to secure the goods that you will be selling on without tying up your daily operational cash flow.

A restaurant expansion can entail many things, from a small extension to accommodate new customer space, to an entire acquisition of a new property, and also the equipment that will be required to fill those new spaces. Depending on the situation, you should consider the different loan options available on the market, and if you are unsure, we stress again the importance of speaking to your accountant or financial advisor to discuss your options in depth.

How an Expansion Impacts Revenue:

When completed in the right conditions, expanding your restaurant’s capacity, or opening up a new site to bring in an entire new audience, will see a direct increase in revenue. There is always risk when investing in an expansion, however, which is why it is so important to do your due diligence, and weigh up whether it will be able to bring in more cash than it costs.

Loans to Consider for Renovation:

A renovation project might be something as small as updating the decor in the dining area of your restaurant, or you might need an entire new kitchen upgrade, including equipment and staff. Whatever your intentions are, it should be to enhance your customer’s experience, and ultimately increase your cash flow. Let’s take a look at some of the more versatile loan options that can support both large and small renovation projects.

• Short term Business Loans: For minor updates to your premises, or a small equipment upgrade is needed for a quick turnaround, short term loans can make for the ideal choice. It means you can access funds quickly, and repay them over a shorter time period, accessing the funds needed for your upgrade, and not being burdened over the long term with additional finances.
• Equipment Leasing: If your renovation plans involve upgrading your kitchen space or updating appliances, equipment leasing can be an ideal way to access high quality equipment without needing to pay a large upfront payment, which is ideal if you have already committed large amounts of funds to other parts of your renovation. In most cases, leased equipment will pay for itself, too, as you can use the additional income made from it to cover your repayments.
• Business Lines of Credit: Lines of credit offer your business a source of funds that can be drawn on to support your renovation, and you will only need to repay and pay interest on the amount you use from the fund source. This loan option can be particularly useful for phased projects, where you may be refurbishing different areas of your restaurant in progression to ensure you can continue trading throughout.

Making the correct choice of loan before you start your renovation project will ensure that you both make the most of the funds available, and also ensure you don’t end up needing to make unnecessary repayments.

How a Renovation Impacts Revenue:

Upon completing your renovation project, you will be able to attract new patrons and ideally increase your customer base. If you don’t have the upfront funds to complete this, it makes a restaurant loan the ideal choice, and when picked correctly, and utilised well, can be an extremely profitable venture. If you are considering pursuing a loan for a renovation, we reiterate the importance of first speaking to your financial supervisor to be certain that you select the right loan option for the right reason.

The eligibility criteria for restaurant owners hoping to secure a loan include a number of standard factors, most prominently being a business’s creditworthiness and financial stability. All lenders will evaluate these factors, plus a number of others depending on the lender.

For restaurant owners who have been considering a loan, we advise that before making decisions you first speak to your accountant or financial advisor to get a complete picture of what information and documentation you will need to gather before approaching a lender. With that said, below, we’ll break down the most important factors that you can expect to find are required across all lenders, whether they are traditional banks, or alternative lenders like us at Nucleus.

Creditworthiness:

You’ll find that all lenders will assess your credit score, and depending on the type of lender, lean more or less heavily on it as a determining factor towards your ability to secure a loan. Traditional banks are the most rigid, however at Nucleus we prefer not to let a singular number determine eligibility, and like to take each business as a unique case. In most scenarios, a lower score will result in poorer rates as the risk for the lender is higher.

Business credit scores in the UK range between 0-100, with anything below 20 being considered ‘high risk’, and above 80, excellent / ‘low risk’. Many unexpected events can result in a business being unable to avoid its credit score falling, however to build up to or maintain a low risk score, you should ensure you make timely payments to creditors and maintain a balanced debt to income ratio, this way you will avoid falling into arrears.

Financial Status and Trading History:

For any lender, being able to see that you have a stable cash flow will be important, and having, in most cases, a minimum of 3 months business accounts available for scrutiny will help a lender determine this. It essentially tells us that you’ll have enough monthly earnings to be able to cover your new loan. Well utilised loans can be extremely useful for developing the success of a business, however if debt is taken on to avoid falling into arrears, or has a negative return on interest, it can become an uphill battle to survive. This is why it’s so important to discuss your finances with your accountant before approaching a lender.

Another factor that many lenders will look at is your trading history, unless they are specifically offering a loan for startups. For example, at Nucleus, we require a minimum of 6 months trading, however there are lenders on the market who expect up to 1 year. Through this history we can get a better understanding of your ability to generate consistent revenue, and can help build trust, especially if you have a long and healthy trading history.

Nucleus Loan Eligibility Examples:

There are many lenders and loan options on the market today, all of which might suit restaurant owners in different ways, and should each be considered carefully depending on the needs of your business. To illustrate an example of what you can expect to find with regards to eligibility criteria, below is both our revenue based, and unsecured business loans, each with their own requirements, as you can expect to find in different facilities offering specific options.

Revenue Based Loans eligibility criteria:

• Minimum 4 months trading history
• Minimum 10 transactions per month
• At least one UK based director
• Open Banking access required for revenue verification
• Flexible with credit scores—we focus more on your revenue consistency

Unsecured Business Loans:

• Positive business credit score
• Minimum 5 months of trading history
• At least one UK based director
• Personal guarantees from business owners or directors
• Open Banking and Open Accounting access for financial transparency

Sector Specific Considerations:

As a restaurant owner you will know that restaurants present their own unique financial profiles, whether that is due to location, restaurant type, or simply the customer demographics, and it can all have an impact on loan eligibility. As an example, fine dining restaurants (which we will discuss in more depth in an FAQ below), might have a lower daily turnover, but much higher margins than a fast food business that will generate more frequent, but smaller transactions. As a prospective borrower, you should consider these discrepancies as it can help you determine what kind of a loan is most suited to your business model, and potentially save you a lot of money in the long term.

Having a good grasp of what factors will impact the eligibility of your restaurant loan can make the entire application process smoother and increase your chances of a loan approval, and it should also help you determine what type of lender and loan product you choose. More importantly, keeping your financial records in good order, and working to build or maintain a positive credit score will also help your business when it comes time to approaching a lender, as you will have the documents to prove your trustworthiness from the offset, and can secure the funding you need to continue on the path of success.

Beyond the necessary proof of ID and licences to trade, the majority of the documents that lenders will need to see from a restaurant owner will revolve around their finances, including bank statements and past tax returns. Some lenders will require a business plan, and there may be more niche requirements, such as proof of ownership if you are using equipment as security.

Depending on the facility you are seeking, the amount of documentation you will need to gather may seem overwhelming, so it can be a good idea, after discussing the matter with your accountant of course, to consider them as sections of documents that can be gathered in preparation before approaching a lender. If you are unsure of the documents required for restaurant financing, below we’ll break down what you can expect to produce.

Basic Financial Documentation:

Lenders will typically require a few essential financial documents as part of their loan application process. With these we can start to get an idea of your ability to reliably repay a loan so that neither your business nor ours as a lender ends up financially worse off, and it also helps us get an overview of the health of your business. These usually include the following:

• Financial statements: With these documents we can see a snapshot of your restaurant’s financial performance, to see how profitable your business is and how well you are managing your expenses. Your profit and loss (P&Ls) and cash cash flow statements, as well your balance sheet, will give us lenders proof that you are consistently bringing in revenue, and that your expenses are under control before we consider doing business.
• Business tax returns: Depending on the lender, you can expect to produce the past one to three years of your business tax returns, and this helps us verify reported income to further assess your business financial stability. Tax returns are used to get a reliable picture of your restaurant’s annual earnings, and together, tax returns and the previously mentioned financial statements can be used to verify each other.
• Bank statements: Most lenders will also require a certain number of months of backlogged bank statements, and will typically be between 3 and 6 months. With these we can get an insight into your business’s cash flow patterns, including whether you function around a seasonal trading model.

Additional Documents to Consider:

As previously mentioned, beyond proof of your financial stability, many lenders will have different requirements, and the loan type you are seeking will contribute to this. In many cases a business plan will be requested, and also for larger loans cash flow projections. Let’s take a closer look at both:

• Business Plan: With a thorough plan you can outline your goals with the funds you seek, and it also allows you to build trust with your intended lender as you can demonstrate your knowledge, noting things like target market, and your long term strategies for growth with those funds. The clearer your intended use is, the easier it will be for them to understand the purpose and will be more likely to lend. Whether your prospective lender requires a complete business plan or not, it can still be a very good idea to make one anyway, as it can be used as a roadmap to ensure you’re using your funds as you originally intended once they are received.
• Cash Flow Projections: Lenders may also require cash flow projections of your business to see how you plan on managing repayments alongside your other expenses—if and when you receive your funds. This will be particularly relevant if you are planning on a major investment because your projections can help show if the facility will generate enough revenue growth for you to be able to pay it back.

Both a well written business plan, and thorough cash flow projections, can help show lenders that you’ve carefully considered the impact of your loan, and also that you have confidence in your ability and strategy to repay it.

Further Considerations for Restaurants:

There are many loan types that can benefit restaurants, and depending on your intentions, you may need to submit specific documents related to each of them. If you think you may need to produce additional documents, you should run it past your accountant. Some examples of these things are as follows:

• Lease agreements: In many cases, restaurant premises grounds are leased, and a copy of the lease may be required if you’re seeking funding for things like a renovation. This helps us as lenders to understand if the location where you are trading is stable in terms of lease periods.
• Licences and permits: Proof of valid food and drink service licences will typically be expected by any lender, and also things like health permits, confirming that your restaurant is in compliance with the necessary regulations. These things will be important for financial risk assessments, ensuring you can trade and repay your loan in the long term.
• Proof of Ownership for Equipment: When any equipment is used for a loan type, you will need to provide proof of ownership for that piece of equipment, particularly if it is being used as collateral. The documentation will help us verify that value of the equipment and verify the possible value of the loan.

Basic Application Prep Tips:

After speaking with your accountant, or approaching your prospective lender to get a full understanding of exactly what they’ll expect from you, you can start organising the documents. Ensure your financial statements are up to date, that your tax returns are filed, and that your licences or proofs are valid. Lenders will appreciate that you are well prepared, and it will also reduce the delays through the entire process.

You will find that online lenders like us at Nucleus have a more simplified loan application process, however even traditional lenders in the current year use online portals for verifying documentation. For this reason, any digital copies you have should also be organised, that way, whenever something is requested, you’ll have it on hand, again reducing the chances of any delays in the process.

Open Banking:

Many lenders, including us at Nucleus, require access to Open Banking, and this allows us to directly view your business’s bank account data, bypassing the need for excess documentation exchanges. It provides us with instant access to real time revenue, expenses, and cash flow patterns that allows us to confidently, accurately, and securely deliver such a fast application process turn around.

Open Banking allows us to verify your average monthly income, any high revenue periods you might experience, and any irregular cash flow patterns, making it especially beneficial for restaurant owners who experience seasonal fluctuations in income, and for all business models, grants a complete financial view of your performance.

In all, the more prepared you can be before you approach a lender, whether that’s by being thorough with your documentation, or ensuring your business is integrated with Open Banking systems, the more likely you will be to succeed in your application, accessing the funds you need to continue achieving growth and success for your business.

Depending on the business model of your restaurant, you will find a need for different types of loan products, and in almost all cases, you will find a loan product specialised to your needs. Whether you run a high end restaurant, or are a fast food seller, if you are finding financial success in your niche, you will be able to access funding, further helping drive growth.

Many lenders will offer specialised loan types, or will be flexible in the facilities they offer allowing you to use the funds for what you need. Below, we’ll look into the numerous types of businesses functioning in the food and drinks industry, and consider what they could find most useful in their funding types.

Restaurant Specialisation Considerations:

Where you invest in your restaurant business will depend on its operational category, and you will also consider your financial dynamics. We can use a fine dining establishment to illustrate, where you would need to invest in premium furnishings for your interiors, and finer ingredients for your dishes. The pace and structure of high end establishments also work in contrast to say a fast food restaurant, as you will have far fewer diners, but your transactions will be far more expensive. Creating an ambience that appeals to your niche clientele, and focusing on tastes that reflect the expected atmosphere, will also reflect on the type and size of loan you need.

Quick service restaurants are more reliant on high customer turnover, so your business would need efficient equipment that can handle large production volumes quickly, turning your focus away from spending on the aesthetics of your establishment, and more so on the efficiency of the equipment in your kitchen. Choosing the right financing for your business model can make a large difference in how effectively you can repay it, too, and also how it can support your restaurant’s chances of continued growth.

Loan Types that Could Benefit Different Restaurant Types:

Almost all lenders, including us at Nucleus, offer unsecured business loans, which could be more suitable for fine dining restaurants where they need frequent and more substantial investments in decor, staff training, and marketing to ensure they continue to reach their target demographic. Unsecured loans offer amounts that don’t need to commit borrowers to long term periods, for example our unsecured loans run between 3 months and 6 years, making them ideal for the continued update work in updating and maintaining decor or training staff. The funds can be used and paid off in the short to medium term, reaping the rewards while maintaining regular operations.

Our revenue based loan option on the other hand may be more suitable for restaurants with more variable income, such as fast food restaurants or high turnover cafes, where intake is less significant, but small and frequent sales keep the business running. Since repayments are tied to your future revenue, it can help smaller businesses who experience unreliable or fluctuating cash flow, or ones who experience higher sales during periods like the holidays and weekends.

Restaurants of all types need to invest in kitchen equipment, whether that is a fryer or refrigerator, and with facilities such as asset finance or equipment leasing, this specialised option allows you to access the equipment you need without having the upfront capital to purchase. Equipment of all kinds can be accessed, too, so regardless of the size or type of your restaurant, you will be able to secure helpful equipment for your operation.

Sector Focused Lenders and Programs:

We always speak about the importance of discussing a potential loan with your accountant or financial advisor first, as they will be able to advise you on more specialised and niche lenders, ensuring you get the best rates. You will find that some lenders specialise in financing solutions that are tailored to specific restaurant needs, and these sector focused programs can offer additional benefits such as faster approval of funding for popular franchises, more flexible terms for seasonal businesses, or lower interest rates if you are looking to purchase an entire new premises and expand.

Researching lenders that have experience in your particular niche is a great place to start, as they will be more familiar with your unique cash flow patterns and operational challenges. You should also consider aligning the loan type to your restaurant’s needs. If you are intending to open up a new location and you don’t have the capital to purchase it outright, a commercial mortgage will be the safest route to go down. If you need new equipment, the previously mentioned equipment leasing can help in this. In almost all cases you will be able to find a facility that is more suited to your needs.

The different specialised loan options available on the market can be used to target the support you need for your business to succeed in its goals, and regardless of the business model of your restaurant, you will be able to find a facility that suits. By first considering exactly what you need funding for, then discussing your intentions and options with a trusted advisor, you will be able to gain the resources needed to thrive in your industry.