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Can I get a commercial mortgage to buy a restaurant?
Yes, if you're looking to open your own restaurant or remortgage, getting a mortgage is the most common financing option.
Lenders will be interested in your experience in the industry, your track record of running a successful restaurant business and your business plan. If the restaurant is an existing business, they will want to understand the historical financial performance and will ask for a minimum of two years accounts.
At Teito, our team of experts have helped many people like you to find the best deal for their restaurant mortgage. As a whole of market broker, we have access to more than 100 lenders, including those who specialise in restaurant mortgages. If you're ready to get started, complete our simple online form and we promise to make your mortgage journey as stress-free as possible.
Who is eligible for a restaurant mortgage?
Prospective lenders will be interested in various factors when choosing whether to approve your application. The best chance of approval comes with engaging an experienced mortgage broker who specialises in commercial mortgages for restaurants. Not only will they be able to recommend and approach the most suitable lenders and help to improve your application, but they will also be able to find the best rates, potentially saving you thousands.
Lenders will primarily be interested in your experience and track record in running a successful restaurant business. You should also be able to demonstrate you have a robust business plan that will put the restaurant in the best position to succeed.
Your application will be assessed on a case by case basis, taking into account the following:
- The loan to value (LTV) ratio of the loan
- Your credit rating
- Your experience in the industry
- The affordability assessment of the loan
- Financial performance
- The restaurant location
How much deposit will I need for a restaurant mortgage?
As with all commercial mortgages, you can expect to contribute a larger deposit for your restaurant mortgage than for a residential mortgage.
The reason for this is to mitigate some of the risks associated with lending to business rather than to individuals. Restaurants can be seen as more risky than some other businesses, so you can expect to contribute between 30-45%, depending on the lender and specific circumstances.
If you can demonstrate a high level of experience and capability, the lower the deposit requirements and potentially, the more favourable the rates offered.
If you are not able to contribute a cash deposit, you may be able to secure the mortgage against another property that you own, assuming that you have sufficient equity. You should consider this option carefully as it could mean lead to multiple repossessions if you default on mortgage repayments. Our advisors can provide guidance and more details on this.
How much experience do I need for a restaurant mortgage?
Prospective lenders will be particularly interested in your track record. Depending on the lender, they will generally be looking for a minimum of 2 to 3 years of trading history. However, some will lend based on less experience but may offset some risk by offering less favourable rates and requiring a higher deposit.
An experienced mortgage broker can help with this. They can suggest the most suitable lenders based on your situation and level of expertise in the sector. It may be that you have transferrable skills that could be accepted by a lender; your mortgage broker can advise on this.
How much can I borrow for a restaurant mortgage?
There is not one single calculation for working out how much you can borrow with a restaurant mortgage as each lender will have their own practices.
However, they will all assess the affordability of the loan taking into account previous trading and forecasts. Some may allow you to disclose extra income, such as rental income to improve the affordability evaluation.
Can I get a restaurant mortgage with bad credit?
While it is certainly more challenging to get a restaurant mortgage with bad credit, it is not impossible.
Not all bad credit is assessed equally, and potential lenders will consider the age and severity of the credit issue when making their decision. Each application is assessed on a case by case basis, and even if you have been turned away by one lender, it doesn't necessarily mean you will be rejected again.
If you have a bad credit history, it can be particularly helpful to use a mortgage broker as they will be able to enhance your application and advise on lenders who are more agreeable to credit issues.
Other finance options for restaurants
There are a few alternative finance options for restaurants.
Bridging loans
Bridging loans are a kind of flexible, short term finance that can be organised very swiftly.
If you're purchasing a restaurant at an auction, for example, bridging loans can be helpful to ensure you have the funds within the short timeframe required.
Unlike with a mortgage, you can also get a bridging loan to buy an uninhabitable property, which could be a useful if you're buying a restaurant that needs refurbishment to bring it up to standard.
As you may assume with a short term finance option, the rates tend to be higher, and you will need a defined exit strategy for when the term finishes; which is likely to be a standard mortgage.
Development Finance
If you're looking to finance a restaurant development project, either a new build or refurbishment, development finance could be a viable option to consider.
With development finance, the funding is released in phases to align with the project, and you will only pay interest on the amount deposited so far. As with bridging finance, development finance is a short term option, and you will need to consider the future financing of the project once it is complete; typically a mortgage.
How can I learn more?
As a whole of market broker, our team have access to more than 20,000 mortgage deals, including those offered by lenders specialising in restaurant finance. Get started today, and we promise to make your mortgage journey as stress-free and straightforward as possible.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.
