A subordinated loan can be crucial for restaurant starters who don't have enough personal savings for their business plan. It's money you borrow from family, friends or investors, but the lender only gets repaid after the bank is repaid. This article explains when this is useful and how to set it up properly.
What exactly is a subordinated loan?
A subordinated loan is money you borrow from someone (often family or friends), but the lender only gets repaid after all other debts are settled. For the bank, this money counts as 'equity', because the risk is lower.
💡 Example:
You want to start a restaurant and need €150,000:
- Personal savings: €30,000
- Bank loan: €90,000
- Subordinated loan (parents): €30,000
To the bank, you look like you have €60,000 in personal funds (30k + 30k subordinated).
Why banks value subordinated loans
Banks want you to have enough equity — usually 20-30% of the total amount. A subordinated loan helps you reach this percentage without having to have all the money yourself.
- You have more 'equity' on paper
- The bank sees less risk (you also have something at stake)
- You can get a larger loan
- Often better interest rates because the risk is lower
When is a subordinated loan smart?
This is especially useful if you don't have enough savings but do have a solid business plan. Many restaurant starters are in this situation.
💡 Example situation:
Sarah wants to start a bistro for €120,000:
- Personal savings: €15,000 (12.5%)
- Bank wants at least 25% equity
- Her parents lend €15,000 subordinated
- Now she has €30,000 in 'equity' (25%)
The bank will now approve the €90,000 loan.
How do you arrange a subordinated loan?
The most important thing is to document everything properly in a contract. Even if it's family, make sure you have clear agreements about interest, repayment, and what happens if things go wrong.
⚠️ Important:
Always include in the contract that the loan is only repaid after all other debts. Otherwise, it won't count as equity for the bank.
What should be in the contract?
A good contract prevents problems later. Have it drawn up by a lawyer or use a standard template from the Chamber of Commerce.
- Amount: How much is being borrowed
- Interest: Often 0% with family, but can be more
- Term: When does it need to be repaid (for example after 10 years)
- Subordination clause: Only repay after other debts
- Early repayment: Is it allowed and under what conditions
Alternatives to subordinated loans
If you don't have family or friends who can lend, there are other options to increase your equity.
💡 Other options:
- Crowdfunding (people invest small amounts)
- Business angels (investors who get involved)
- Subsidies for starters (municipality, province)
- Microcredits (small loans for starters)
Risks and pitfalls
A subordinated loan doesn't solve your money problem — it just postpones it. You still need to earn enough to repay all loans.
⚠️ Important:
If your restaurant goes bankrupt, the money from the subordinated loan is usually lost. This can strain family relationships.
How do you arrange a subordinated loan? (step by step)
Calculate how much you need
Make an overview of your total investment and how much personal money you have. Calculate the difference between what you have and what the bank wants to see as equity (usually 25-30%).
Find a suitable lender
These are often family, friends or acquaintances who believe in your plans. Explain honestly what the risks are — the money can be lost if the restaurant doesn't succeed.
Have a contract drawn up
Make sure you have a legally correct contract with a subordination clause. This must make clear that repayment only happens after all other debts. Have a lawyer review it.
Discuss with your bank
Talk to your bank advisor about the subordinated loan before you sign the contract. They need to confirm that they'll accept it as equity for your loan.
✨ Pro tip
Start arranging a subordinated loan early. Banks want to see the contract before they approve your main loan, so make sure everything is in writing.
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In the KitchenNmbrs app you can do this in just a few clicks. 7 days free, no credit card.
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Frequently asked questions
Do I have to pay interest on a subordinated loan?
That depends on the agreement. With family it's often 0%, but you can also agree on interest. Keep in mind: interest makes your monthly payments higher.
What happens if my restaurant goes bankrupt?
Then the bank gets repaid first from the proceeds. What's left goes to the subordinated loan. Often there's nothing left.
Can I repay a subordinated loan early?
Only if that's in the contract. Usually it's allowed, because it improves your cash flow. Discuss this beforehand with the lender.
Does a subordinated loan always count as equity?
Only if the contract has a real subordination clause. The bank always checks this. Without the proper clause, it doesn't count.
How much subordinated loan can I get?
That depends on what people are willing and able to lend. Usually you see amounts between €10,000 and €50,000 with family. Larger amounts are rare.
📚 Sources consulted
- EU Verordening 852/2004 — Levensmiddelenhygiëne (2004) — Official source
- EU Verordening 853/2004 — Hygiënevoorschriften voor levensmiddelen van dierlijke oorsprong (2004) — Official source
- EU Verordening 1169/2011 — Voedselinformatie aan consumenten (2011) — Official source
- NVWA — Hygiënecode voor de horeca (2024) — Official source
- NVWA — Allergenen in voedsel (2024) — Official source
- Codex Alimentarius — International Food Standards (2024) — Official source
- FSA — Safer food, better business (HACCP) (2024) — Official source
- BVL — Lebensmittelhygiene (HACCP) (2024) — Official source
- Warenwetbesluit Bereiding en behandeling van levensmiddelen (2024) — Official source
- WHO — Foodborne diseases estimates (2024) — Official source
Food Standards Agency (FSA) — https://www.food.gov.uk
The HACCP standards shown in this application are for informational purposes only. KitchenNmbrs does not guarantee that displayed values are current or complete. Always consult the FSA or your local authority for the latest regulations.
Written by
Jeffrey Smit
Founder & CEO of KitchenNmbrs
Jeffrey Smit built KitchenNmbrs from 8 years of hands-on experience as kitchen manager at 1NUL8 Group in Rotterdam. His mission: give every restaurant owner control over food cost.
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