Before you borrow: what every F&B business owner should know

For most F&B operators, taking on debt is the simple reality of running a business. But having a clear plan and putting it into practice isn’t always so simple. Here’s how to make debt work for you rather than the other way around.

Sourcing external finance is a fundamental part of the operating model for many hospitality businesses, be it to fund growth, cover a VAT bill or bridge seasonal trading gaps. According to a Zempler survey of 101 hospitality operators, only 14% say they haven’t needed it or aren’t comfortable taking on debt. The remaining 86% have applied for or drawn on overdrafts, credit facilities, loans or government-backed schemes at some point in the past two years. 

Used well, debt is a legitimate tool to both run and grow your business. The skill is in knowing your capacity before you commit, understanding the true cost of what you’re taking on and keeping the full picture of your repayment obligations in one place.  

Ultimately, responsible borrowing isn’t just about accessing funds—it’s about ensuring that any debt taken on supports sustainable growth without putting the long-term health of the business at risk. 

Stuart Dawson, director of partnerships at 365 Finance, which has been helping fund independent F&B businesses with merchant cash advances for over a decade, sees the full range of how operators approach borrowing. “A lot of businesses don’t have accountants, they don’t have a CFA, a finance director or a team of people behind them,” he says. This, in his view, makes forming the right habits all the more valuable: the operators who go into borrowing with a clear picture of their capacity and repayment obligations are the ones who can use finance as it’s intended, to help their business grow rather than constrain it. 

Know your real debt capacity first 

The most useful number to establish before approaching any lender is how much of your revenue is already committed to repaying your debts. Dawson’s rule of thumb is that if more than a third of your card revenue is already allocated to repaying existing loans, there’s no room to add more. “If a business already has around a third of its revenue committed to other lenders, it becomes difficult for us to support further funding.” With this level of incumbent repayment, taking on additional finance will only compound rather than solve a cashflow problem. 

Working out your business’s debt capacity is straightforward. Add every monthly loan, advance and repayment obligation your business currently carries, including bounce-back loans still being repaid, merchant cash advances, overdraft and credit card repayments. Divide this figure by your average monthly card revenue. If that figure is approaching or above 30%, your priority should be managing existing debt before adding to it. 

The second number worth knowing is your new borrowing costs per week relative to your weekly card revenue. Loan offers are frequently presented as headline amounts with annual percentage rates or factor rates that are hard to compare and understand relative to real world cashflow. Converting the cost to a weekly figure – what comes out of the business each week to cover the loan repayments – puts it in the same terms as your takings and helps you understand if it’s affordable. 

Beware of debt stacking 

Steve Alton, CEO of the British Institute of Innkeeping (BII), says that some operators currently carry a debt load accumulated from several different sources: the tail end of bounce-back loans taken during the pandemic, His Majesty’s Revenue and Customs (HMRC) Time to Pay (TTP) arrangements covering tax payment shortfalls, and more recent borrowing covering cost increases that couldn’t be passed on to price-sensitive customers.  

Each of these debts is a rational response to a specific problem, but cumulatively they can create an overwhelming repayment burden. “HMRC Time to Pay is not a sustainable position going forward,” notes Alton. 

Dawson describes seeing 365 Finance members take advances from multiple sources without realising how the combined obligations will affect their cash position. “All of a sudden they’re paying out three Direct Debits and our percentage-of-card-sales deduction that they didn’t have three months ago,” he explains. “Then their grasp on their cashflow starts to loosen because they’ve onboarded too much debt too quickly.” 

The most effective way to stay on top of this is to maintain a single document listing every obligation, the monthly cost of each and the total as a percentage of revenue. Build it before you approach a lender, keep it current as your obligations change, and it will become the most useful financial tool you can have – a clear, consolidated view of your position that puts you in control of the conversation with any lender. 

If the lender says no, act quickly 

Funding approval rates for F&B businesses have tightened significantly in recent years. Mark Hughes, director of growth at CreatePay, puts the scale of that shift plainly, “You would see on average 50% to 60% of hospitality businesses being approved for funding in some capacity three years ago. That figure is down to about 15% now.”  

Among those declined, the majority close within six months not necessarily because the business was unviable, but because time ran out to find another form of funding. That makes acting fast critical.  

The productive response is to understand specifically why your application was denied and address it before applying again, be that for a different product or with a different lender. Is the problem your credit history, debt-to-revenue ratio, trading period, documentation or something else? Merchant cash advances, for example, are assessed on card revenue rather than credit profile, which makes them accessible to businesses declined for a traditional loan. The terms and cost structures may differ (so you’ll need to research them thoroughly) but options exist. 

The data makes it clear that the window between a decline and a closure is short for businesses that don’t act. Knowing your numbers before you apply, understanding what a decline means, and having a clear next step ready will keep your options open and perhaps help your business stay afloat and flourish. 

Zempler Bank works with hospitality businesses across the UK. We support restaurants, cafés, pubs, food trucks and more. Our business accounts come with built‑in tools to help you stay on top of cashflow – from £0 per month.

👉 Check our business accounts.

Four steps to take before you borrow

• List every loan, advance and repayment obligation in one place and calculate the total monthly cost. Don’t forget things like bounce-back loans and HMRC time-to-pay repayments.
• Divide that total by your average monthly card revenue. If it’s over 30%, deal with your existing debt before adding more.
• Convert any new loan offer into a weekly cost relative to your weekly takings to see if it’s affordable.
• If you’re declined, find out why and act on it quickly.