How to Get Business Loans for Cafes and Coffee Shops

Getting a Business Loan for a Cafe or Coffee Shop

• Best Coffee Shop Loan for a New Cafe: SBA Loan

  The SBA loan is considered the gold standard of business loans—and that’s for a reason. These loans are issued by lenders, usually small banks, but guaranteed up to 85% by the U.S. Small Business Administration. That means that in the case of a borrower’s default, the lender has a lower risk. And the great news is that they pass that on to you.

  SBA loans lead the pack in terms of their funding amounts (up to $5.5 million), term length (up to 25 years), and rates (basically the lowest available). It’s the ideal situation for a coffee shop owner. Of course, you’ll have to be able to qualify for these loans, which require very strong credit (generally 680+) as well as several years in business, plus good revenue and financials.

  SBA 7(a) loans—the most popular program—enables borrowers quite a lot of flexibility with how they spend their cash. You can refinance old debt, spend as working capital, etc. But say you’re looking to buy a building for your coffee shop. You might want to look into an SBA 504/CDC loan, which is meant specifically for buying large fixed assets, including commercial real estate. This is the second-most popular program with small business owners.

  Many of the best coffee shops really give back to their communities, offering programming, education, charity work, and more. If that sounds like you, you might also be a candidate for an SBA microloan. These loans only go up to $50,000, but they’re meant for newer businesses with less established history. They’re also often awarded to businesses that make an impact on their communities, serve underserved populations, or are run by women or veterans.

  The other important thing to know about SBA loans is that these loans take quite a bit of time and effort to get your hands on them. Translation? No quick fix here. But they’re worth the work to apply if you believe you’re qualified, because with their business-owner-friendly terms, SBA loans are hard to beat.

• Another Option to Finance a New Coffee Shop: Term Loan

  If you’re loving the idea of an SBA 7(a) loan, but you know that you don’t quite have the financial qualifications that you need to find approval, don’t worry. You may still qualify for term loans, which are what you think of as “traditional” business loans, probably—a lump sum deposited into your business bank account for you to use as flexible working capital.

  It is worth noting that some business term loans do require you to have time-in-business history. But say you’re looking to open up a new coffee shop as a second business, or need capital to open a second location? A term loan could very much work for you.

  Another general benefit to term loans, especially medium-term loans, is that different lenders have different repayment structures. So, if you’re looking to make monthly payments instead of weekly, for instance, you might be able to find a lender with terms that suit you best.

• Best Business Loan for Cafe Supplies: Equipment Financing

  There’s no way around the fact that coffee shops require equipment, big and small, to keep things going. Cups and plates, definitely; chairs, tables, and couches; sound systems; espresso machines and brewers; dishwashers—we know you know.

  If you don’t need the flexibility of general working capital because you know you simply need the money to buy that La Pavoni you’ve been dreaming about, you might be better served by equipment financing. With this type of business loan for cafe supplies, you’ll get a quote from your vendor and present it to the potential lender, who’ll then give you the capital to make your purchase once you’re approved.

  There are many nice things about equipment loans, especially that they’re slightly easier to obtain than term loans. But equipment financing is also what’s called “self-collateralizing,” which means that the supplies you purchase with the money serve as the collateral for the loan in the case of default. If you’re unable to pay, the lender will repossess that La Pavoni, for example—but you generally do not have to put up additional collateral.

  You can also find fast approval for these coffee shop loans, so if, say, your refrigerator breaks, you may be able to get pretty quick approval for the capital to replace it.

• Another Great Business Loan for Cafe Supplies: Business Line of Credit

  Maybe you don’t need to make quite as big of a purchase as that espresso machine or fridge. Let’s say that you need a dozen new tables, or all new dishware. It’s more money than you want to put on a business credit card.

  This is an instance in which a business line of credit can really help. In many ways, it’s like a business credit card in that you have a line of credit to spend against, but it also has characteristics of a traditional term loan wherein you apply to a lender to get approval. Then, you can have the business line of credit ready when you want to “draw” from it, aka spend against it. But, unlike other traditional loans, you only have to pay interest on what you use.

  Many coffee shop owners like the flexibility of this kind of business loan. It’s great for emergency purchasing, but also for seizing opportunities for which you need capital (like that once-in-a-lifetime, deeply discounted Probat roaster currently on sale from your competitor who just went out of business).

• Best Coffee Shop Financing for Cash Flow: Invoice Financing

  Maybe you owe your green supplier money, but you don’t have the cash on hand to do it. Funny enough, that event you catered last month whom you’re waiting on your payments from? They’re in the same situation and can’t pay you.

  If your cash flow is spotty and you have invoices outstanding, you can choose invoice financing to bridge the gap for you. With this type of coffee shop financing, you work with a lender to front you up to 85% of the outstanding invoice, and when your finally receive payment, the lender will give you the remaining 15%, minus their fees. It’s not ideal to give up any piece of a payment, no, but it’s often worth it if you need liquidity.

• Coffee Shop Financing for Poor Credit: Merchant Cash Advance

  Let’s get this out of the way: Merchant cash advance financing is one of the more expensive kinds of coffee shop business loans. But if you need help quickly, and your credit isn’t strong, this type of financing enables you to access cash in exchange for a percentage of your daily credit- and debit-card sales.

  However, many coffee shops and cafes are very dependent on credit cards—some are even cashless now. So, if you make a large percentage of your daily revenue, and can afford a slight daily deduction from your cash flow, a merchant cash advance is an option for a short-term loan.