How to get a loan to open a restaurant in France?
Thinking about diving into the restaurant business? Well, besides having some experience in the food industry, you're going to need quite a bit of capital to get things rolling for your restaurant. Having a solid financial partner is key to the success of your restaurant venture, given the hefty investment required. And when it comes to that, bank loans become particularly crucial.
Thinking about diving into the restaurant business? Well, besides having some experience in the food industry, you're going to need quite a bit of capital to get things rolling for your restaurant. Having a solid financial partner is key to the success of your restaurant venture, given the hefty investment required. And when it comes to that, bank loans become particularly crucial.
Since the Covid-19 crisis in 2020/2021, the restaurant industry has faced significant challenges. With numerous failed restaurant ventures, banks have become more cautious than ever. Here, we'll outline 6 key points to maximize your chances of getting a loan to open your restaurant.
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Table of Contents:
- Experience in the Food Industry
- Reasonable Down Payment
- Savings
- Estimating Turnover for Loan Applications
- Valuation of Business Assets (Fond de commerce)
- Employee Wages
1. Experience in the Food Industry
Competition in the food industry is fierce, and amateurs have slim chances of success. While there are exceptions where amateurs have made it big, especially with the rise of new consumption trends driven by internet companies, in France, when it comes to negotiating a loan for opening a restaurant, having experience in the food industry is paramount.
As part of opening a traditional restaurant, it's even strongly recommended to have chefs involved to ensure stability among key personnel.
Opening a fast-food joint might not necessarily require kitchen experience, but knowledge of pace and organization is indispensable. That's why experience in the food industry is highly recommended.
2. Reasonable Down Payment
As long as your restaurant project has manageable risks and a high chance of success, your bank will likely be on board. Sometimes, if your project gets rejected for a loan, it might not be a bad thing, as it could save you from substantial losses. So, in terms of down payment (equity + partner's account),
In general, a down payment of 25% of the total amount is necessary.
For example, if a shop is selling for €300,000, then you'd typically need a down payment of €75,000.
Note that this ratio might vary depending on the project's risk level.
3. Savings
Opening a restaurant is a challenge. Typically, finding a location, doing renovations, securing loans, opening for business, and gaining customer awareness and loyalty all take time. Generally, for the first few months (6 months to 2 years) of running a restaurant, there's no income. That's why having some savings to buffer yourself and your family from significant impacts on your lifestyle is crucial.
Having some savings also ensures that in special circumstances, especially when the restaurant business takes a severe hit, you can inject funds to tide over tough times.
4. Estimating Turnover for Loan Applications
To secure a loan for opening a restaurant, you'll need to craft a business plan. This plan is crucial and should particularly focus on two aspects:
Stable components | Investment and financing. My advice is to carefully estimate costs, especially those related to renovations, to avoid imbalances during project implementation and launch.
Recurring components | Turnover and daily expenses. While regular expenses can be estimated with some reliability, turnover estimation is often tricky. It's best to plan for regular but small-scale growth in turnover to forecast short-term cash flow needs. From experience, a restaurant's financial balance usually appears 6 to 12 months after opening.
5. Valuation of Business Assets (Fond de commerce)
The valuation of business assets, Fond de commerce, is essential data. It occurs on two fronts:
- The business constitutes assets that the bank can use as collateral for its loan. If it's overvalued, the collateral becomes invalid, and the bank might be less willing to follow you in repurchasing the project.
- The business is one of the investments awaiting financing. Hence, it monopolizes cash (equity or borrowing), enhancing profitability and profitability objectives. Therefore, it's crucial to ensure that the purchase price of the fund corresponds to its market value and that the investments made have sufficient profitability.
6. Employee Wages
Wages are a significant item in the restaurant's cost structure. For well-managed businesses, wages should represent around 30% of the restaurant's turnover. However, be cautious; during the establishment phase, this ratio might be much higher due to slow growth.
Three factors must be considered when seeking credit:
Staffing: Don't overstaff or plan to recruit apprentices in January when the academic year starts in September.
Social security charges: Besides the total wage bill, remember to estimate social charges and all ancillary benefits (mutual insurance, transportation, medical examinations, etc.).
Cash flow: Social charges related to your employees are paid in two installments per month. Remember to consider the timing concept (related to expenses) that affects cash flow.
Interested in applying for a bank loan?
France opens nearly 20,000 restaurants every year, and the industry is experiencing strong enthusiasm, with 2/3 being fast-food joints. Financial partners have strict standards to limit risks when it comes to restaurant financing. However, these standards might vary depending on individual circumstances and project nature.
If you're planning to open a restaurant, feel free to reach out to us anytime.
Micco is your ticket to swift, streamlined financial management tailored to the pace of modern entrepreneurship. Experience the difference today and embrace a future where efficiency reigns supreme.
