At the Asian and Oriental School of Catering at Hackney Community College, east London, students serve the public in real restaurants while taking their skills up to NVQ level 2 (GCSE-equivalent).
Cyrus Todiwala, who owns Cafe Spice, remortgaged his home to help fund the school, which cost pound;1 million to start. He now fears that all Learning and Skills Council funding, which comes through the college, will stop.
"The hospitality industry is worth pound;7.2 billion to the Exchequer each year and employs one in ten people," he said. "London has 9,000 vacancies a year because of skills shortages.
"We have a duty to train. The Government was keen to do something about the skills in the Asian restaurant industry, and it was easy to get funding because it involved ethnic people. But it is as if that is no longer fashionable."
Mr Todiwala says the school, has put 800 people into jobs since its launch in 2001. As well as teaching students how to prepare food, it also covers areas such as health and safety and hygiene, increasingly important in a highly-regulated business.
Helen Brown, manager of the training centre, said: "We are in a moral dilemma because we have taken these people on in good faith, assuming their funding would continue.
"It is very complicated. To get funding from the various sources available, students have to fall into certain categories, such as asylum-seekers, black ethnic, or women returners to work."
The school says most restaurants are small businesses, unable to afford Pounds 3,000 to train staff who they may not then retain.
A spokeswoman for London East learning and skills council said: "We do not fund the school directly so this is not the result of a decision we have made."
Hackney Community College says it has had to rethink its budgets as a result of the Government's focus on education for 14 to 19-year-olds. Like many other colleges, it has had to divert money into subsidising school pupils taking courses under the Government's "increased flexibility"
Margaret Andrews, lifelong learning director at Hackney Community College, said the school was seen as a way of bringing training closer to the needs of employers in the industry.
The college and the catering school are discussing a possible rescue package and there have been talks with Ken Livingstone's office since he was given a new role in planning adult education for London. The Mayor of London will chair a new body responsible for advising on the funding of adult education and is expected to appoint a vice-chairman from the business world.