Restaurant Mortgage Basics

Eating out now accounts for around one pound in every three being spent on food and drink in the UK. These statistics have huge implications, not only for the restaurant industry in general, but also for those considering taking out a mortgage to set up a new restaurant or to consolidate an existing restaurant business. 

The potential scope is considerable within the restaurant sector, with mortgages available for a wide variety of restaurants ranging from fine dining establishments serving gourmet cuisine to fast food outlets.

Finance For Restaurants
As a guideline, banks and specialist commercial mortgage lenders are usually prepared to lend up to 85 percent of the value of a restaurant, if the numbers in the business plan add up.

Restaurant Mortgage Business Plan
When preparing a plan for a restaurant business, the potential lender will require details of the following:

  • Full accounts for the previous 2 years trading or, for a new enterprise, detailed income projections
  • Amount of your own money that you intend to invest
  • Location of restaurant
  • Amount of additional money required to refurbish or upgrade premises
  • Your experience of the catering trade, including your understanding of food hygiene and other relevant regulations

Restaurant Start-up Costs
New restaurant ventures have a notoriously high failure rate, a fact of which financial institutions are well aware. If the income generated fails to cover expenses including loan repayments, the business can quickly get into difficulties. Because restaurant prices have risen more slowly than house prices, in recent years, many budding restaurateurs have been tempted to sell their homes and purchase a restaurant. Away from central London (where £1 million restaurants are not uncommon) many restaurant premises are available from between around £70,000 and £150,000.

Equipping a new restaurant is not cheap. You should budget at least £5,000 for kitchen equipment such as refrigerators, dishwashers and ventilation systems and something similar for tables, chairs, crockery, cutlery and soft furnishings for the dining area.

Summary

  • Eating out accounts for one third of UK food and drink sales
  • Lenders will expect a detailed business plan before granting restaurant finance
  • Restaurant start-up costs should not be underestimated
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