The Best Loans for a Restaurant in Australia

The Best Loans for a Restaurant in Australia

The average cost of opening a restaurant in Australia is around $650,000. With such a price tag, many business owners will require the right kind of loan to set themselves up for success.

This article will delve into everything there is to know about restaurant business loans. That way, you can make an informed decision about which is best for you.

We've got you covered with our comprehensive guide to increasing sales in your cafe. We'll cover the top methods to help old and new businesses thrive.

What is Restaurant Finance?

Restaurant financing refers to the various manners in which a venue can obtain funding. Financing options for a restaurant can include:

  • Banks
  • Private investments
  • Personal savings
  • Crowdfunding efforts
  • Investments from venture capitalists
  • Loans from alternate financial institutions 

Why is Restaurant Finance Needed for Success?

Restaurant financing is the foundation for a business's success. Without sufficient funding, a restaurant will not be able to maintain operation costs.

Financing options should consider the long-term costs required for running a business and seeking out future opportunities. They should be capable of covering:

  • Expansion costs: Expenses that arise from growing a business, such as opening a  new location.
  • Operating expenses: Daily operational costs, such as rent and wages.
  • Startup costs: The initial costs of  a restaurant, such as leasing or buying equipment.

The movement of money in and out of a business over a given time period is known as cash flow. A positive cash flow is crucial for maintaining the financial health of business, preventing costs from ballooning uncontrollably.

How to Prepare for a Restaurant Loan Application

We’ve assembled the following steps to help guide through the restaurant loan application process.

1. Business Plan & Financial Plan

Prospective investors in your restaurant generally require you to provide a business plan. This business plan is a guide to your restaurant's targets, goals, and business strategies. Check out our business plan template for more guidance.

You must also create a financial plan to indicate to investors how much you will need in funding and what it will be used for. Map out the costs through every area of your restaurant.

2. Personal Credit

Lenders generally require access to your personal financial history. Be sure to get your credit score in a good position ahead of time. You can do this by paying off any outstanding debts and ensuring all payments are made on time.

3. Financial Documents

Finally, you must gather other required financial documents. These files are evidence of your (potential) business's financial health and security. These documents can include:

  • Financial statements
  • Personal income statements
  • Tax returns
  • Forms of identification
  • Lease agreement if available

How to Improve Your Chances of Approval for a Restaurant Loan

You can further help your chances of approval by:

  • Ensuring consistent cash flow.
  • Look into specialist restaurant business loans.
  • Ensure your business name is registered.
  • Prepare to offer collateral in case you are not able to meet repayment terms.

The Best Types of Loans for a Restaurant in Australia

The best type of restaurant loan is one that suits the particular needs for your business.
We have outlined the most popular means by which restaurant owners choose to borrow money, as well as their pros and cons.

1. Business Line of Credit

A business line of credit, also known as a business credit card, works similarly to a personal credit card. There is a set amount of funds that a restaurant has access to, with a limited predetermined line of credit. Your business can borrow and repay these funds for as long as possible, so long as you remain within the set credit limit.

Lines of credit can be obtained through lenders such as banks or credit unions. They are typically used to finance short-term needs.

Lines of credit tend to only require businesses to pay interest on the amount borrowed rather than the entire line of credit, making it a stable source of cash for many.

2. Merchant Cash Advances

Merchant cash advances are upfront lump sums. When an amount is provided by a lender, a restaurant repays the borrowed cash through its future credit and debit card sales, along with a standard expenses fee.

This financing option differs from traditional bank loan products as it tends to have a shorter repayment period of 6-12 months. However, the amount of money offered generally depends on a business's sales and scale. This option tends to fall between a few thousand and a couple of hundred thousand dollars in cash advances.

Merchant cash advances can be flexible and easily accessible. However, they often come with higher fees and interest rates than traditional loans.

3. Government Funding

The NSW Government has a range of grants and support on offer for small businesses, which many restaurants can be eligible for. Meanwhile, the New Zealand Government offers country-wide similar grants and government support.

Although many of these grants are applicable to specific scenarios in a small business, your restaurant may meet the eligibility requirements of one or more. You can help save money and support the success of your business by checking in with your government.

4. Business Plan & Financial Plan

Equipment loans are often offered by online retailers to help grant restaurants the funds needed to cover costs associated with equipment.

This financing option may be offered as a lease or rental plan. The downside is that you do not own this equipment until the end of your leasing period. 

However, it has the benefit of spreading the costs of the equipment across multiple months.

5. Business Plan & Financial Plan

This short-term financing option only covers the cost of a customer's purchase. That is, restaurants that offer catering or events can cover the cost of organising an event ahead of time.

Lenders offer enough to cover the ingredients or resources needed to fulfil a customer order. Once the customer pays for their event, those funds can be used to repay the lender, along with fees and interests.

6. Business Plan & Financial Plan

Business overdrafts allow you to run a negative balance on your business transaction account to gain usable income.

Overdrafts are available as secured overdrafts, wherein you only pay interest on the funds used plus monthly fees, or as an unsecured overdraft, which has a higher interest rate but lower borrowing power.

This financial option is typically only used for short-term funding. It tends to improve restaurant cash flow.

How to Compare Restaurant Loan Options?

 Here are some aspects to keep in mind when comparing loan options:

  • Consider the complexity of a lender's process and how long you will have to wait before funds have been approved.
  • Ensure there is enough funding offered for your business’ needs.
  • Look for competitive interest rates in the market and find one that suits your finances.
  • Always ensure you are eligible for the loans you are considering.
  • Carefully look into the terms for both the loan as a whole and the repayment schedule. Also check if your loans offer early repayment options or fees for late payments.

ResDiary: The Support You Need for Your Restaurant’s Success

Support your restaurant’s  success with a restaurant booking system that streamlines everyday processes. ResDiary allows you to unlock your restaurant's full potential by providing easily integrated software that suits any venue. 

Manage tables, reservations, takeaway orders and more with our easily accessible system. Your new restaurant business loan is sure to be put to good use when it has the backing of such an intuitive resource.

If you are interested in expanding your restaurant's success today, book a demo and get started!

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