Why you might need a business loan for your café
If you’re running a café you probably face the same major challenge as most small business owners in the hospitality industry – making sure you have enough cash available to buy stock and pay your staff, as well as covering all your regular fixed costs (rent or mortgage payments, insurance, tax, utilities), while your income fluctuates from day to day.
Even if your café is popular and highly profitable, income may not always match expenditure – and cash flow troubles are the number one reason café businesses fail.
A business loan could give you the back-up you need to keep the coffee flowing during slower times, or when your working capital takes a hit from unexpected expenses.
Trends and customer preferences move fast in the café sector and competition is extremely fierce, so it’s important to keep on top of what your customers want.
A business loan could help you buy new kitchen equipment, hire a new chef or a top barista, or refresh your décor or branding to help you stay competitive and appeal more to new and existing customers.
If your café is thriving and you’re considering branching out, you may need a business loan to cover the costs of setting up a new café, or even starting a franchise.
What are the requirements for getting a business loan?
Getting a business loan can be easier than you think.
While you can still expect to be knocked back by the big banks unless you have a solid trading history, a top-rate credit rating and collateral to offer, there are plenty of alternative lenders out there willing to offer business loans to cafes.
Each lender will have their own criteria when it comes to things like credit rating, how long you’ve been in business, and how high your turnover is.
If you’re higher risk (e.g. if your credit score is low) you may still be able to get a business loan, although you can expect to pay a higher rate of interest to compensate for that risk.
The most important factor ALL lenders will look at is your capacity.
Lenders need to know that you will have enough cash – after all your expenses – to cover your loan repayments.
How to apply for a business loan
If you are applying to an alternative lender for a business loan, the process is usually quick and easy:
1Create a business case to check how much you can afford to borrow.
2Prepare your supporting documents – expect to be asked for:
3Choose your lender and loan product – be sure to shop around, because costs, terms and conditions vary. Be sure to find out about hidden fees and compare all the costs of each product, not just the interest or factor rate.
4Complete a simple online application form and upload your supporting documents. Most lenders will respond within days or even hours. Some will even give an on-the-spot decision.
Grow your café businessSee if you qualify
What options are available to cafes?
There are several types of small business loans you could consider, to support or grow your café business.
Unsecured small business loan
A short-term option, unsecured business loans are usually for between 3 months and 2 years.
You can use the funds for any purpose. Many lenders will let you set a repayment schedule to suit your trading patterns.
A specific-purpose business loan secured on the equipment you are buying, such as a new state of the art coffee machine.
The term will often be tied to the lifespan of the equipment. You will not be able to sell or upgrade the equipment until you have repaid the equipment finance.
There are several types of business car finance you can use to buy vehicles for business use, including car loans, hire purchasing and leasing.
While your work vehicles are under finance you will not be able to sell or upgrade them.
Business line of credit
A business line of credit is similar to an overdraft facility, giving you access to cash up to an agreed limit, often with the right to draw, repay and redraw funds as you need them.
You only pay interest on what you borrow, but there are often set up and admin fees.
Business credit card
Business credit cards are great for covering day-to-day expenses and making purchases, but unless you clear the balance each month the cost can be extremely high.
Before entering in to any business loan agreement, be sure to seek professional advice. It’s also important to ensure you understand all of the costs (including all fees). You can get a head start by using our business loan calculator.