Besides having a coffee shop business plan, you need to have your funding source(s) defined when starting a coffee shop˳ There are many options available for you, but we will talk about the most common˳
SBA – So many sources push SBA loans, SBA LOANS, SBA LOANS! Let me first say, the Small Business Administration loan program is awesome, if you can get approved˳ Although they have loosened up some of the requirements lately, it is still somewhat tough to get approved˳
First of all, the government does not loan the money˳ The standard program is a bank loan though there are some micro loan programs available that use funds from capital groups˳ Most of these loans are normally collateral loans, and they are backed by the US government similar to HUD and FHA home loans˳ What that means is that if you should happen to default on the loan, the government will reimburse the bank for certain percentage of the loan amount˳ That is good for the bank, and good for you if you can qualify for one of these loans˳ They are tough to get I’ll say again, and there is a lot of paperwork to fill out and file˳ You also have to have good credit, very good assets, low debt to income ratio, and unencumbered collateral˳
Some SBA loans can take some time to get approved and then funded, but if you are approved, they usually have up to a 7 year repayment period and a favorable interest rate˳ It’s best to talk to an approved SBA lender for particular details, as the bank calls the shots, the SBA only backs the loan˳ You can work with a local SBA office as well for details or go to http://www˳sba˳gov
Personal – This is the easiest form of financing, but less likely for most people˳ Try to put all you can into this venture from your own pocket without ruining your marriage, family or jeopardizing your home˳ If you do get financing, you will be required to pitch in at least 25% of the total you need to start your coffee shop anyway˳ The more you have in, the more the bank knows how serious you are and more likely they are to fund you˳ They also know the more you have in personally, the less likely you are to run when the times get tough˳
Cash is king˳ Liquid assets are a great source of funding˳ Liquid assets are assets that can be converted to cash quickly like stock, bonds, or a 401(k)˳ I only recommend any retirement plan as funding as a last resort˳ This is what I did when I ran into capital problems and could not get a loan because I was maxed out˳ It’s best though to leave this money alone and search out other options˳
Real estate equity – This is a good source of funding if you have enough equity in your home or another piece of real estate˳ The interest rates are usually favorable as well˳
Friends and family – if you cannot put in as much as you need to, friends and family are a good way to raise additional capital˳ Just be sure it’s clear how you structure the money deal: are they investors, partners, both? Are you issuing them stock in your corporation? Whatever the deal, get a contract attorney to draft the paperwork to make it legal˳ It will cost you about $500-1000 or so for this service and when it’s done, you will be glad you did it˳ Spell out all details˳
I once saw a guy invest in a restaurant and the owner wanted a loan only, so they had a repayment plan but not any written contract stating what was what˳ The investor assumed he was now a ‘partner’, as in part owner and started showing up daily, scheduling meetings, wanting to rearrange the store and making menu change suggestions˳ That was not a pretty situation!
Investors – most high dollar investors want to see success before they pony up cash to someone they do not know˳ However, it can happen at the beginning though˳ You need to surround yourself with PWM: People with Money˳ This can also be the friends and family route˳ Ads online and in the paper are ok, but will most likely bring you more weirdoes than real investors˳
Join local business organizations, talk with the Economic Development Corporations and chambers of commerce in the areas you are looking to open and ask them for investor referrals˳ A lot of investors shy away from seeding food and beverage related businesses unless it is a liquor establishment but they are out there˳
Non-traditional lenders – aka private equity firms, capital groups fall into this category˳ Their guidelines are less stringent but again, most want existing businesses looking to expand˳ They also are not normally looking for food industry investments because the risk is too high and search out tech type companies that have a higher return˳ However, this is again certainly not the law˳
Banks – traditional lenders, they are tough ones to get on your side if you have NO money to kick in or marginal to bad credit, and no collateral˳ Sometimes just a lot of work, a lot of talking and an awesome coffee shop business plan may just be the thing you need to get them to help you˳ A banker on your side that believes in you, and you have established a relationship with could be what stands between you and a funded loan˳ Treat them like gold˳
Credit Unions – usually most do not do much in the way of business financing, but for those that do, their guidelines are slightly more relaxed than a traditional bank, like those for personal financing but you will still have to qualify˳
Credit Cards – I am not recommending this option! If you do use them, be sure they are a very low interest rate, even 0% with some of the introductory rates some banks give˳ You may want to have back up cash in case you run into problems with one˳
Be careful, however because after the intro period is over, the rate may go higher than you think if you are still carrying a balance˳ Also, if you are late one time, you run the risk of getting rate-jacked˳ That is when the credit card company jacks the interest rate to the default rate, as high as 29%! Yes it should be illegal but unfortunately for us, it is not˳ They can also raise the rate whenever they want regardless if you are in default or not˳ It’s in your agreement with them; i˳e˳ the fine print˳ Once the rate is up there, it is very difficult to get it lowered again˳ Chase is the most famous for this˳ Just be careful!
Credit cards are good for purchasing however, if you get the rewards points or airline miles programs˳ I have several I use for purchasing and have gotten several airline tickets and thousands of dollars in gift cards for using the cards and getting points˳ Besides that, you can effectively buy more time for your accounts payable if you plan the billing dates correctly˳
So whatever source(s) of funding you choose for starting a coffee shop, be sure you know what you are up against˳ Do your research and talk to the people that can help you˳ Stay focused, and well informed regarding your planning stages˳ Be sure your prospective lender gets a copy of your coffee shop business plan˳ All lenders will want to be sure you know what you are up against! Good luck˳
Source by https://ezinearticles˳com/?Starting-a-Coffee-Shop—Funding-Sources&id=1263921
