How to raise funds to start a restaurant

18 Jan 2022

Starting a restaurant business isn’t for the faint-hearted or uncommitted. On paper, it looks easy - find the premises, give the place a fresh lick of paint (you can roll your sleeves up too) and get new flooring. Then buy a new cooking range, plates, pots, pans, utensils, cutlery and uniforms. Hire a mix of permanent and part-time staff, place a few local ads, create a buzz on social media, and voila! You’re good to go. If only it were that easy.


Starting a restaurant business  

Restaurants are one of the most complex start-ups you can contemplate. It involves detailed planning of every aspect of the project and a lot of challenging work before you can begin to plan that spectacular opening night. But if you have a passion for hospitality and entertainment, the rewards and satisfaction can be hard to beat. 

 Because the margins on food are high, it’s also very profitable, particularly if you get suitable funding in place from day one. That funding can involve blending assorted options, such as working capital, asset finance, business credit cards and overdrafts, and later, we’ll discuss this combination in more detail.  

Create your restaurant business plan 

The business plan is essential and will help you secure funding for your restaurant. Without it, you might struggle to raise funds because most lenders will assume you’ve developed a detailed plan to underscore your professionalism. 

The complete project plan helps you work out where you’ll allocate the funds you raise. It should also forecast how you’ll grow over the first three years and include elements like: 

  • The concept

  • Target market

  • Competition

  • Marketing plan

  • Overheads

  • Financial forecasts

  • Start-up funding

 The concept 

The choice is vast nowadays for Mexican, Asian, Middle Eastern, European cuisine, and even upmarket burger bars have proven a niche in the UK. So it would help if you established where the local gap is and how you intend to seize the opportunity. The menu and pricing are also crucial for a conceptual restaurant to work.  

Target market

Who are your customers, why will they choose to eat at your restaurant? You’ll need to engage in some meta marketing analysis to discover who your customers are and why they might eat at your restaurant. 

Please don’t lose sight of repeat customers because they’re your best advertising medium bar none. If they enjoy the experience and the food, they’ll rate you on review sites and spread the word on social media.  


Let’s suppose you’re determined to open a Lebanese restaurant; where is your nearest competitor? If they’re far enough away, why not have a friendly chat to see how they’re progressing? 

If there’s another Middle Eastern restaurant close by, all is not lost because it could reveal the type of food popular in the area, and you could still develop your unique selling point.  

Marketing plan

How you market and advertise your business are critical to your potential success. In the marketing plan, you can begin to calculate your ROI – return on investment. Part of the first funding you raise will almost certainly need spending on marketing and advertising before word-of-mouth spreads.  

Your use of social media can have a tremendous impact. Don’t forget, social media is arguably the best free marketing tool you can use; spreading the reputation by word of mouth after food to the mouth can work wonders.


It would be best if you listed all the monthly costs you’ll incur. Wages, rent or commercial mortgage payment, utilities, insurance and the produce are just some of the costs. Don’t forget you have fixed (set) and floating overheads. Set overheads would be the rent, and floating overheads would be wages, stock cost and utility bills, which increase with activity.  

Financial forecasts

It would help if you prepared realistic cash flow forecasts because these will form the pivot for your request to borrow funds. Itemise your monthly overheads combined with any capital and interest repayments you may have to pay. Lenders will be looking for realistic activity in the early months.  

Start-up funding

You need to be clear and precise about the amount you need to borrow and how it’ll get used. You might need funds to decorate the premises, buy equipment or cover wages until you begin to break even.

It’s worth thinking about what finance you might want before you begin the application process with us; overdrafts, working capital, and leasing finance are examples of niche financial products for specific purposes. 

Our knowledge hub can help with this decision making. You can see what funding options are available and then organise a discussion with our Team of Finance Experts to establish which is the most appropriate and get a detailed explanation of how each solution could work.

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Your various funding options explained 

Restaurant start-up costs are high before the first customer sits at the table, so getting your finances organised at the outset makes sense. Even if you have ambitions for a Michelin star, it’ll be a high-volume business; you need many customers to make a decent profit.  

Although the margins on the actual food products are high, the profit margins can be low compared to other business ventures, and many restaurants take a couple of years to break even, so cash flow is something you must keep your eye on from day one. You’ll need finance sourced to cover premises, a possible refit, new equipment, wages and operating expenses.  

Let’s consider four available funding options and how to apply them for the specifics of a restaurant start-up. You could use a combination of these finance options to completely fund your restaurant from the start through the first couple of years of operation.  

  1. Working capital finance 

  2. Asset finance 

  3. Flexible overdraft 

  4. Business credit card 

1: Working capital finance 

Working capital finance helps boost the available capital a business has available to spend, and it’s sometimes referred to as liquid cash because it’s freely available to put to work where you think it can have the most impact.  

This type of loan could be the ideal starting point for a restaurant because lenders don’t necessarily apply the loan criteria to one aspect of the business. It’s a capital sum covering many early trading expenses. 

Lenders try to establish what the business can safely spend. Some lenders use a basic calculation of current assets minus current liabilities to determine what working capital you might need and can afford to pay back. For instance, what is the current cash and assets (like invoices) situation versus what expenses are due within a year?

2: Asset finance  

The heart of any restaurant is the kitchen, and it can be a make-or-break decision because it underpins the quality of the cooking and, ultimately, the overall success of the venture. So, you might want to absorb some high costs when you create your kitchen. You could use asset finance to fund the purchase of a cooking range, including the complete fitting.  

Asset finance includes finance products such as leasing and hire-purchase. The lending terms are typically one to seven years, although expensive equipment often gets financed over extended periods.  

3: Flexible business overdraft  

A flexible overdraft can be an excellent method to solve short term issues; however, it can be an expensive long-term option due to the interest payments for simply financing the overdraft. If you’re a seasonal restaurant business, it could form part of a complete solution to smooth short term cash flow issues. 

Knowing you have an overdraft agreed at the outset sitting alongside other longer-term financial solutions, even if you don’t tap into it, can be a comfort. You know you can cover an unexpected expense or a surprise bill.  

4: Business credit card  

You could consider a business credit card as an alternative to an overdraft. You’d have a limit on the card, and if you’re disciplined and pay the entire balance each month, you’ll pay no or close to zero in fees and interest. 

You can add multiple employees and cards to a single account with business credit cards enabling you to keep track of expenses. A card could also be an ideal choice for a restaurant to pay for food products while watching your outlay continually. 

The credit limits vary, usually from £1,000 to £10,000, depending on the business’s creditworthiness. The interest rate, an interest-free period, or rewards are conditional on the credit report. The downside to business credit cards is if you don’t clear the entire balance every month, they work out expensive. The APRs tend to be around 9.9%, so the interest can quickly accumulate if you let the balance carry over.  

Combining several business loans and credit options

Obtaining several business loans and credit options can create an excellent financial base to start and grow your restaurant. You could finance a kitchen range with asset/leasing finance and get a working capital loan to cover day to day running costs. You can keep that overdraft ready to take care of any unexpected or worthwhile expenses and use a credit card to buy the food and other products, making sure you pay as much off the card each month.  

Why Funding Options?

If you’re ready to begin exploring your financial options to bring that foody concept to the high street, why not contact us today? Our team of Business Finance Experts are on hand to discuss what options may be available for your business needs. 

Our record from first enquiry to money in the bank is 18 minutes, while our record from enquiry to approval is 20 seconds. Most lenders usually reply within 24 hours. Paperwork permitting, you could secure finance within a day or two.  

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Joe Morley
Joe Morley

Head of Unsecured Lending

Joe has worked in the alternative lending space since 2015. During this time he has helped hundreds of SMEs access millions in essential funding ranging from long-term asset-backed lending to short-term unsecured revolving credit lines and beyond. In his role, Joe manages and supports a large team of Credit Finance specialists.

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