Financing Your Cafe Business

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Financing Your Cafe Business

The majority of cafes and coffee shop owners will tell you that the toughest part of starting your business is actually getting it off the ground to begin with. So where can you find the money to get your cafe or coffee shop business started?

Well, the good news is that there have never been so many financing options for start-up businesses as there are today. With the growth of the high street, new businesses are popping up all over the place and hospitality is undeniably gaining ground.

So where to start? We’ve gathered a few different financing options to show you the various financial routes that are available for you.

Credit and Bank Loans

Bank loans are one of the most secure ways for small businesses to gain funding, however, they can be a hard way for new businesses to find the money. Banks like to see a history of a business making money and want to be reasonably certain that your business will be able to repay the loan to them.

However, if you ensure you have a good business plan and have personal assets you can offer them as collateral you are more likely to qualify for a loan even if it is a brand new business.

Banks can provide you with the following funding to options for your cafe or coffee shop:

  1. Loans: Providing you with an explicit amount of credit which is repaid to an agreed schedule or via monthly payments. The interest rates are normally fixed for the life of the loan.
  2. Equipment funding: If you need to invest in expensive equipment for your cafe this could a sensible option. There could also be other financial benefits to this option such as tax deductions and depreciation.
  3. Property lending: Loans provided to buy property or land.
  4. Business overdraft and lines of credit: Allowing you to borrow up to your credit limit whenever you need to. These are however normally used for periodic financing.

The DIY Approach

If you are in a position to consider this as an option, the main benefit is that no interest needs to be paid and you will have no obligations to anybody else. It is common for small businesses to self-fund until other options become available.

In most cases, traditional funding can be difficult to find until you can turn a solid profit. Investing your own money also lets future investors know how serious you are about your business.

If you are thinking about starting or taking on a cafe business, you should really have some money set aside but there are other things worth considering such as savings accounts, zero interest credit cards as well as the leveraging of other assets.

Government Grants and Small Business Loans

The government has various schemes and initiatives to offer new business owners when starting up businesses. The government does offer loans which are normally provided directly or through publicly funded organisations. Contacting local small business organisations will help you to administer government loans and inform you what type of financial options are available.

The following are some of the funding initiatives the government can offer small businesses:

Enterprise Finance Guarantee (EFG)

This is a loan guarantee scheme that is provided to facilitate additional bank lending to UK-based SMEs that are viable, however lack sufficient to secure a normal commercial loan.

Regional Growth Fund

The fund supports projects and programmes which are currently dependant on public sector investment that is creating economic growth and sustainable employment.

Start-Up Loans

These are initiative provided loans, mentoring and support for small start-ups with potentially viable propositions but are unable to attract investment from banks

Business Finance Partnerships

This initiative also allows business to directly apply for finance with several non-traditional fund managers and lenders.

For further information about governments grans and loans, visit GOV.UK

Angel Investors and Venture Capitalists

An angel investor is someone who invests their money into a small business in exchange for shares in their business. Mentoring and advice are usually involved with this type of financial agreement due to the investor wanting to see their investment becoming a success.

This is a popular source of finance for start-up businesses and those focused on expansion. Investors usually work with businesses that are at an early stage of development. Be aware however that they usually require significant equity in the business for investment return but is it a gamble that has the potential for a considerable payoff.


Crowdfunding is fast becoming one of the most popular ways to raise equity in today’s market and has big potential for the hospitality industry. Peer-to-peer lending has really taken off and equity crowdfunding is now becoming much more mature.

Crowdfunding involves obtaining finance from a large pool of investors and allows businesses to attract funding through pitching on public websites.

You can therefore end up pitching to thousand of potential backers instead of just asking one or two individuals for money. Founders, therefore, pledge for money online in return for rewards when the project is funded.

Most importantly, this source of finance uses an all or nothing approach. Either the funding goals are reached or it isn’t and the projects receive nothing. It’s a particularly good option for businesses who have poor credit ratings or those who have struggled in recent years due to the recession.

Not all businesses manage to raise funding via crowdfunding however this doesn’t mean you have to give up on the idea entirely. A successful example of this is the unique Cereal Killer Cafe in Shoreditch. Despite the owners of this niche cafe only raising £1,025 of its campaign target of £60,000, the founder explained that the crowdfunding exercise gave them the exposure they needed.

Well, known crowdfunding sites include, the UK based Crowd Funder, the larger US-focused site Kickstarter and Indiegogo, a smaller but more internationally supported site.

Friends and Family

Relying on friends or family for finance is a popular option for short-term funding solutions. This is an option, however, should always be approached with caution. The simple reason for this is that business decisions should always be based on rationale and involving individuals with who you have relationships could run the risk of emotional decisions being made.

If you do choose this funding option, make sure you have a clear written legal document that explains your agreements and ensures both parties know where they stand.

The advantage of using friends and family as a funding option is that it is likely to be a low-cost source of funding however the risks that need to be considered are an emotional liability as well as financial. It can be especially difficult if the individuals you are borrowing from don’t have any business experience.

Do Your Homework

It is important to realise that no one funding application will interest a wide variety of potential investors. Think of it in a similar way to applying for a job. Tailoring your application to the role and organisation will increase the likelihood of being invited to interview. Likewise, tailoring your application to the funding body you are approaching will significantly increase your probability of success.

Doing your research and testing out different financial scenarios to be clear about what funding your business requires is also essential. Weigh up the advantages and disadvantages of your options and ensure you are aware of the implications each one will have on your business. Taking the time to fully evaluate all your options will allow you to select a funding option suited to your business needs.

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