Getting a bank loan isn't an easy process. Be it a two-wheeler loan, car loan, home loan or a business loan. Any kind of loan consists of a tedious process such as collection of financial documents, personal details, and verification.
In this article, we will take you through the step by step approach of getting bank loan for your restaurant business with or without guarantee. Yes, you can secure a bank loan with no minimum guarantee or collateral guarantee.
The Ministry of Small Medium Enterprise has come up with the solution for the next generation talented entrepreneurs who have an ambitious business plan under Credit Guarantee Fund trust for Micro and Small Enterprises popularly known as CGTMSE Scheme.
1. Forming a Business Entity:
First and Foremost step is to select the format of food business which will decide the kind of business you want to pursue and investments you require. Based on the restaurant format and ownership, the person should get his/her company registered in any of the forms – Private Limited, Private
Partnership or Sole Proprietorship. Post registration and getting a legal approval of starting a business one should make the solid business plan.
2. Business Plan:
Preparing a business plan isn't the easy step, it is advised to take professional help to prepare a business plan. The business plan should have Vision, Mission, Business Model and Financial forecast. Based on your business plan the bank approves or disapproves the business loan application. So, the business plan is the most important document of all other documents required for a business loan for your restaurant.
3. Obtaining Bank Loan Sanction:
After completing the business plan, the person must compile all the financial documents in the file. Documents required:
(a) Profile of the loan applicant,
(b) Income Tax Return of last three years (Personal or Business firm)
(c) PAN Card and ID/Address Proof
(d) Documents of Collateral (Property or Fixed Deposit papers).
If the loan is not covered under CGTMSE Scheme below are the pre-requisite to get the loan
(i) Primary-Hypothecation: In this borrower pledges an asset as collateral for a loan, while retaining ownership of the assets and enjoying the benefits therefrom.
(ii) Collateral Documents: For loan Up to Rs.10 lakh- Nil subject to coverage under CGTMSE Scheme. Above Rs.10 lakh- EM of immovable property (premises of Hotel / Catering Unit) equivalent to 100% of the loan amount.
In case third party properties are offered, a guarantee of the third party shall also be obtained. After proper verification of documents, the bank may sanction the loan for your restaurant business subject to you eligibility.
Tip: It is advised to apply for your business loan where you already have an account or have a long-standing relationship with the bank.
4. Getting loan under CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises)
Once the bank loan is sanctioned, the bank will further apply to CGTMSE scheme cover at CGTMSE organization. After the approval, the loan seeker or borrower will pay CGTMSE guarantee and service fee.
a) How much loan you can get under this scheme
From Rs 5 lakhs to Rs 1 crore based on the requirement. b) What is the Maximum Risk Cover under the scheme?
Of the credit facilities extended by MLIs, Trust shall guarantee, in case of default by the borrower, up to 75 percent (85% for select category of borrowers), of the defaulted principal amount in respect of term credit including interest on principal for one quarter and / or outstanding working capital advances (inclusive of interest), as on the date of account becoming NPA, or as on the date of filing the suit, whichever is lower. Other charges such as penal interest, commitment charge, service charge, or any other levies/ expenses shall not qualify for the guarantee cover.
C) What is the Loan Tenure?
(i) Based on the bank and its terms the loan tenure can be between the a maximum period of 5 to 7 years for the term loan.
(ii) One year for the working capital which can be renewed on a yearly basis.
d) What should be the personal contribution in the total investment?
(i) 25% of the total investment for Kitchen equipments/Furniture & fixtures.
(ii) 35% of the total investment for purchase/construction/
e) What is the rate of interest?
Average 11 percent -13 percent depending on the bank.
f) Who all are eligible for the loan?
(i) Midsized hotels / restaurants/bakeries/fast food outlets/motels/High way inns /kiosks /mess /canteens.
(ii) Units in own premises/units in leased premises with un-expired lease covering the repayment period.
(iii) Units having valid license to conduct Hotel business/Catering from Municipal/Local Administration
(iv) New Startups
List of Banks providing business loan under CGTMSE:
2. Vijaya Bank
3. Indian Bank
4. Axis Bank Limited
5. Andhra Bank
6. HDFC Bank
7. ICICI Bank
8. Induslnd Bank
9. IDBI Bank
10. Yes Bank