Best Business Loans for Cafes and Coffee Shops
It’s no secret that coffee shop owners have had difficulty getting financing for their businesses over the years. Whether you are a member of a credit union or national bank, it is challenging to get many types of coffee shop financing or any bank loan, for that matter. However, these are new times and the demand is high. According to the National Coffee Association, 67% of U.S. consumers drink coffee daily. With the growth and increased demand from the number of coffee drinkers and new alternative lending sources, the coffee industry has more access than ever before to get small business funding. It seems almost everyone drinks coffee these days and wants to see the latte art, single-origin pour-overs, acai bowls, or even grilled sandwiches and other edibles at their local coffee shop.
Coffee shop financing options can be a tricky process. Traditional lenders view coffee shop business loans as risky, which means qualifying for loans is a severe burden. These lenders won’t give coffee shop loans out to just anyone; they’ll likely require a candidate with a great credit score, robust business plan, and significant amount of assets in business. Some could even ask you about your relevant hospitality experience as well.
AdvancePoint Capital offers the best financing options that you can take advantage of to get the funding you need through various products.
AdvancePoint Capital has been experienced in loans for coffee shops for years and can help you access the best alternative business lending products. We understand the difficulties of operating a coffee shop and the need for business funding to support it. Our job is to provide the best business funding products to you to run your business effectively. Whether you’re looking to purchase equipment, need some working capital, or are expanding operations — we have the best funding solutions you can rely on.
The 7 Best Business Loan Options for Cafes and Coffee Shops
Long-Term Business Loans for Cafes and Coffee Shops
Long-term loans are always the most desirable as they offer the most extended terms to repay, typically ranging from 2 to 7 years. Long-term loans are a lump sum provided upfront with an interest rate that starts around 7% with monthly payments over a fixed period. These loans require high credit standards for established businesses with at least two years in business and a significant amount of paperwork for approval.
- Low-interest rate starting at 7%
- Term loans from 2 to 7 years to repay
- Accommodates a more significant loan amount
- Monthly payments
Short-Term Small Business Loans for Cafes and Coffee Shops
Short-term loans are term loans that provide a fixed amount of money that is repaid over terms of 6 to 18 months. When approved, you get a set amount for a fixed amount you have to pay back. The difference is the cost with a fixed payment auto-deducted from your bank account monthly, bi-weekly, weekly, or in some cases daily out of a bank account. Limited paperwork is required, with only a 1-page application and bank statements. The credit requirements for a short-term loan are more lenient than that of banks or traditional term loans due to the reduced risk.
- Excellent to poor credit score considered
- A business loan amount as little as $10,000 up to $500,000
- Term loans for 6 to 18 months to repay
- Lower monthly or annual revenue requirements than those of traditional loans
- Fast and simple application process with same to next day funding
Business Line of Credit for Cafes and Coffee Shops
A business line of credit is a small business financing option that offers a flexible feature that a short-term loan does not. It works like a credit card in that it is a revolving credit line and allows you to draw money out and then repay at any time with you only paying principal and interest on your outstanding balance. Lines of credit have a credit limit that you cannot exceed and are set at the time of consummation. This product is not considered a term loan.
- Ability to draw money at any time from lines of credit, making it best for flexibility
- Allows borrowers to spend the money, repay it, and spend it again
- Principal and interest rates starting at 5% for lines of credit
- Lower costs and fees than most other financing products
Equipment Financing Loans for Cafes and Coffee Shops
Coffee shop equipment is the core of the operation. The equipment, like an espresso machine, can be pretty expensive and costly. Equipment funding usually comes in the form of leasing or a term loan. The equipment is used as collateral, and decisions are also made based on the personal credit of the coffee shop owner(s) and the health of the company’s financials.
- Simple 1-page application
- Limited financial paperwork
- Repayment terms from 1 to 5 years
- Term loan or lease
- Monthly payments
Small Business Administration (SBA) Loans for Cafes and Coffee Shops
Small Business Administration (SBA) loans are administered by the Small Business Administration federal agency and set the guidelines that must be followed to ensure the loan for participating approved SBA lenders. The Small Business Administration (SBA) works with lenders to provide loans to small businesses and does not lend money directly. A Small Business Administration (SBA) loan is a term loan with fixed interest rate financing at desirable interest rates and terms. Although popular, the process is lengthy with extensive paperwork and may require collateral and high credit score standards.
- Interest rates from 4% to 7%
- Term loans from 3 to 25 years to repay
- A variety of acceptable uses of funds
SBA Paycheck Protection Program (PPP) loan – The United States Small Business Administration (SBA) has established the SBA Paycheck Protection Program loan that will provide term loans to United States small businesses to include the cafe and coffee shop industry who have been affected by the COVID-19 crisis and are in need of financial help. Contact AdvancePoint Capital for additional information about PPP term loans.
Merchant Cash Advance for Cafes and Coffee Shops
Merchant cash advance or future receivables purchase and sale agreements provide an upfront lump sum of money to the business in exchange for a fixed percentage of the company’s future sales. Repayment is typically made daily or weekly. Either ACH payments are auto deducted from a business bank account, or the percentage is taken out of future credit card sales until the payback obligation is met. Terms are expressed as a future sale, so you are given a fixed amount and then are responsible for paying back a more significant amount through a fixed percentage of future sales. The difference between the amount given and the amount paid back to complete the agreement is your fixed cost. The estimated time to repay merchant cash advance is typically 6 to 18 months, but there are no term limits as the repayment is based on future sales, and this product is not considered a term loan.
- Flexible repayment terms attached to future sales
- Excellent to poor credit score considered
- Provides funds to owners with subprime credit
- Payments fluctuate to future sales controlling the margin of profit
Business Credit Cards for Cafes and Coffee Shops
Business credit cards are revolving credit with a credit limit with a minimum monthly payment requirement typically lower than a small business loan. You are issued a plastic business credit card with an account number that can be used online and in person for any purchases. You only pay interest based on the current principal. This product is not considered a term loan.
- It can be used 24 hours a day, seven days a week
- No limitations on the use of funds
- Flexible monthly payments payments
- Principal and interest rates
The fast, convenient, and straightforward way to get the funding you need for your business – now!
Get your business a quote and more information today by filling out the simple form on our website.
Benefits of Coffee Shop Financing
|Cash Flow or Working Capital Loans||Operating small businesses like a coffee shop is a complicated venture with many moving parts to it. Various issues can impact the company’s cash flow, like seasonality, holidays, location, changes in food trends, and competition. Meeting payroll is not an option, so it’s essential to have a working capital loan to control the ups and downs of the business and stabilize cash flow. From working capital to seasonal needs, coffee shop funding is a sound option.|
|Business Facility Expansion and Renovations||Your coffee shop may need upgrades or repairs to the facility. Upgrades and repairs can spruce up the interior décor, exterior appearance to maintain and attract customers and keep a competitive edge. Or, maybe you’re choosing to add a new location. In some cases, a new concept for outdoor seating may present the need for funding. With so many financing options available, growing your coffee shop can come in many forms. These coffee shop financing options can be used to purchase additional inventory, lease more space, expand marketing efforts, buy new equipment, or even open up another operation.|
|Advertising||The internet marketing landscape has become a must and has added additional costs to coffee shop owners. That’s why coffee shop financing for advertising is so popular. Having a presence on the internet with various sources such as Google, Yelp, and Trip Advisor and maintaining a social media presence with Facebook and Instagram is very important for success. Your coffee shop website and work on search engine optimization help keep your small business on the top of Google searches. Additional costs for the growth of 3rd party delivery services like GrubHub, DoorDash, and Uber Eats can be viewed as advertising costs and can diminish the bottom line. Additionally, more traditional sources like mailers and flyers are also advertising mainstay and costs to operate. So, coffee shops may need financing as an effective way to pay for a wide range of marketing channels.|
|Point of Sale Systems, Software, and Technology Upgrades||The point of sales systems are continuously improving and providing efficiencies to coffee shop operations. You must make sure eventual investments in this area are a foregone conclusion and know financing may be needed due to the cost. Coffee shop financing can be used to update systems and create more efficient processes within your operation. Coffee shop owners are always looking for new ways to keep their tables and lobbies full. Improving the customer experience with easier processes and systems for staff can make a significant impact.|
|Maintenance and Repair of Kitchen Equipment||Equipment financing allows coffee shop owners to repair or replace essential equipment at the core of the coffee shop. These can be expensive endeavors, and a coffee shop loan that improves kitchen equipment and costly parts is often needed.|
|Purchase of New Coffee Shop Equipment||New equipment can be expensive. Loans for coffee shops to purchase much-needed equipment might be essential when a repair is not an option.|
|Food Costs||You might want to consider buying bulk non-perishable food items, and loans may be necessary depending on business needs.|
Frequently Asked Questions
How much money do you need to open a coffee shop?
Again, this depends on which coffee shop loans you’re considering. Different coffee shop loan options will have varying application requirements — so there’s no one size fits all solution to this question. However, there are some typical avenues that many business owners take to open up a coffee shop. Make sure you have a sound coffee shop business plan, projected financial statements, ownership and affiliation documents, business certificates or licensure, loan application history, income tax returns, and a resume available. All could play a vital role in opening up a new coffee shop. Depending on your lender, you may need to offer up a down payment or real estate as collateral for your coffee shop loan.
How profitable are coffee shops? Will I be able to get a loan?
Did you know that coffee shops don’t have to be profitable to get financing? It helps if they are, but it is not required by some coffee shop loans to provide tax returns.
What business category is a coffee shop?
Coffee shops fall under the category of the restaurant and hospitality industry.