Where Can I Get a Business Loan for a Cafe or Coffee Shop?

Obtaining a Cafe or Coffee Shop Business Loan

Being the owner of a coffee shop or cafe is a dream come true for many people. However, you are aware that opening and operating a coffee shop requires a lot of hard work—and a lot of money—and that you may need a business loan for coffee shops to cover all of your expenses. You’ll most likely be able to discover a business loan for your cafe that helps you reach your goals, depending on what you want to spend it on.

You may get a business loan to create a new shop, expand to a new location, acquire a new drum roaster, or buy that expensive-but-so-worth-it lot of rare green coffee from your supplier.

We’ll go through the main possibilities for cafe and coffee shop business loans, as well as several instances in which they’re beneficial.

The Good News About Coffee Shop Business Loans

If you’re seeking a business loan for a coffee shop, the good news is that you have alternatives.

To receive clearance, you don’t even have to be lucrative. Instead, lenders are interested in statistics such as your credit score and your company’s cash flow, which disclose your debt-paying history and how likely you are to repay your loan, respectively. It takes a long time for a company, mainly a coffee shop, to become profitable. Fortunately, lenders are aware of this.

As a result, you might consider applying for a term loan with BankruptcyHQ, especially cred isn’t, as good or you don’t have much company experience, you might take a different approach. For example, you are obtaining a company loan to purchase café equipment.

Cafes & Coffee Shops Get the Best Business Loans

Let’s look at the possibilities with that in mind. This list isn’t complete of the sorts of business loans available to cafes and coffee shops, but anything on it will probably meet your needs:

SBA Loan is the best coffee shop loan for a new restaurant.

The SBA loan is regarded as the gold standard of company lending for a good reason. The US Small Business Administration guarantees up to 85% of these loans granted by lenders, primarily small banks. That implies the lender is at a more negligible risk in a borrower failure. And the good news is that they will pass that information on to you.

SBA loans are the most generous in terms of financing (up to $5.5 million), term length (up to 25 years), and interest rates (basically the lowest available). For a coffee shop owner, the lender is at a lower risk. The lender is at lower risk is the perfect circumstance to qualify for these loans, which typically need excellent credit (usually 680+), many years in the company, and solid revenue and financials.

Borrowers using SBA 7(a) loans, the most common program, have a lot of freedom in how they spend their money. You may use the funds to pay off past debt, use it as working capital, and so on. Assume, though, that you’re seeking to purchase a building for your coffee business. Consider an SBA 504/CDC loan designed primarily to buy big fixed assets, such as commercial real estate. The second-most popular program among small company owners is this one.

Many of the top coffee shops are committed to giving back to their communities by providing programming, education, and charitable work, among other things. If this describes you, you could be eligible for an SBA microloan. These loans are reserved for younger enterprises with less experience, and they only go up to $50,000. Businesses that positively influence their communities to support underprivileged groups or are managed by women or veterans are often honored.

Another key fact regarding SBA loans is that obtaining one takes a significant amount of time and work. Translation? There’s no fast remedy here. However, if you feel you qualify, it’s worth the effort to apply since SBA loans are hard to match for conditions that benefit company owners.

Another way to fund a new coffee shop is to take out a term loan.

Don’t worry if you like the concept of an SBA 7(a) loan but don’t have the financial criteria to be approved. Term loans, which are usually what you think of as “conventional” company loans—a lump amount placed into your business bank account for you to utilize as flexible working capital—might still be an option.

It’s worth noting that certain company term loans need you to have worked in the industry for a certain amount of time. But what if you want to create a second coffee shop as a side business, or if you need financing to do so? A term loan can be a good option for you.

Another advantage of term loans, particularly medium-term loans, is that repayment terms vary across lenders. So, if you want to make monthly payments rather than weekly, you may be able to locate a lender that can accommodate your needs.

Equipment Financing is the best business loan for cafe supplies.

There’s no getting past the reality that coffee businesses need various large and small equipment to operate. Cups and plates, for sure; seats, tables, and sofas; sound systems; espresso machines and brewers; dishwashers—we’re sure you know what we’re talking about.

Equipment financing can be a better option if you don’t need the flexibility of general working capital and only need the money to acquire the La Pavoni you’ve always wanted. With this form of cafe supplies business loan, you’ll get an estimate from your vendor and offer it to a possible lender, who will then provide you with the funds to complete your purchase after you’ve been authorized.

Equipment loans provide many advantages, including being somewhat more straightforward to secure than term loans. However, equipment financing is also “self-collateralizing,” which implies that the supplies you buy with the money will act as collateral for the loan if you fail. If you don’t pay, the lender may take your La Pavoni, for example, but you won’t have to put up any further collateral.

You can also receive speedy approval for these coffee shop loans, so if your refrigerator breaks, you may be able to acquire funds to replace it quickly.

Another excellent cafe supply loan is a business line of credit.

Perhaps you don’t need to spend as much money on that espresso machine or refrigerator. Consider the case when you need a dozen new tables or all-new dishware. It’s more than you’d want to charge on your corporate credit card.

A company line of credit might come in handy in this situation. It functions similarly to a company credit card in that you have a line of credit to spend against, but it also resembles a typical term loan in that you must apply to a lender for approval. Then, when you wish to “draw” from it, i.e., spend against it, you may have the company line of credit available. Unlike other types of loans, you only pay interest on what you utilize.

The flexibility of this kind of business credit appeals to many coffee shop proprietors. It’s beautiful for last-minute purchases, but it’s also fantastic for capital-intensive prospects (like that once-in-a-lifetime, deeply discounted Probat roaster currently on sale from your competitor who just went out of business).

Invoice Financing is the best coffee shop financing for cash flow.

Maybe you owe money to your green provider, but you don’t have the funds to pay them. That event you catered to last month, for which you’re still waiting for payment? They’re in the same boat as you, and they can’t afford to pay you.

If your cash flow is inconsistent and you have unpaid bills, invoice finance might help you bridge the gap. With this sort of coffee shop financing, you negotiate with a lender to get up to 85% of the outstanding invoice paid upfront, and when you eventually get paid, the lender will give you the remaining 15%, less their costs. No, giving up any part of a payment isn’t ideal, but it’s frequently necessary if you need cash.

Poor Credit Coffee Shop Financing: Merchant Cash Advance

Let’s get one thing straight: merchant cash advance borrowing is one of the most costly types of coffee shop business loans. However, if you need money right now and your credit isn’t great, this sort of financing allows you to get cash in return for a portion of your daily credit and debit card sales.

However, many coffee shops and cafés rely heavily on credit cards, some even cashless. A merchant cash advance is an alternative for a short-term loan if you earn a substantial proportion of your daily income and can afford a daily deduction from your cash flow.

If you don’t want to take out a business loan, you have another option for financing your coffee shop.

We’ve been talking about debt-based financing, which is not the same as equity-based financing. These are methods for taking on debt and returning it at a higher rate while keeping ownership of your café.

You do, however, have the option of looking into something like angel finance. You’ll give up some ownership in your coffee business if you hire an investor, but you won’t have to take on debt.

To be honest, most entrepreneurs, regardless of the kind of firm they operate, don’t have this choice. Finding investors is difficult! However, suppose you believe that someone in your community would be interested in investing in your company or have a unique business strategy (like a coffee shop-laundromat hybrid, which does exist! ). In that case, you may be able to attract an investor.

When dealing with an investor, keep in mind that you’ll have someone interested in your finances and frequently want to give you advice. Partnering with an investor requires a high level of accountability. And, on occasion, having someone else with skin in the game is beneficial. However, it is a shift in how you may be accustomed to working, so keep that in mind.

Remember: Before you begin, figure out why you need a coffee shop loan.

Above all, remember that in coffee shop company finance, it’s critical to match the why to the how—that is, you need to know why you’re looking for money before you can figure out how to acquire it. Not every sort of company loan will be able to help you finance your project.

The urgency with which you want funds and the time and work required to prepare an application are both variables, as is your creditworthiness. Check your candidate profile to ensure that your expectations align with the realities of small business funding. It will thus be much simpler to match your objectives to the form of financing that is both good for you as an entrepreneur and suitable for your company.

But, as we’ve always stated, you can achieve your objectives—and the proper mechanism for funding cafes and coffee shops exists. Knowing what you have to work with is half the fight.

About Jeffery L. Parker