There are various outgoings to consider when opening a new cafe business such as staff, equipment, and the physical premises. Some cafe owners may use their savings or borrowed money to set up their coffee shop business plan but there are other avenues to pursue. It is worth checking if you are eligible for a business loan or grant to help get your business started. You may also be eligible for:
The Startup Loan is a government-backed scheme, where you can borrow up to £25,000 with a fixed interest rate of 6% p.a.
Start-up loans are for new businesses but have slightly different eligibility. You should also consider how you will keep track of your savings and finances. It’s best practice to use a business bank account to separate your personal and business expenses and income, and you’ll have to if you’re starting a limited company.
Credit and Bank Loans
Bank loans are a reliable financial option characterized by lower interest rates compared to alternative loans. However, securing a bank loan can be challenging. Most banks prefer to grant loans to local businesses, with a proven track record of profitability and financial success, as this instils confidence in their ability to repay.
To improve your chances of obtaining a bank loan, it’s imperative to present a comprehensive and well-thought-out strategic plan. This plan demonstrates your commitment to the venture and showcases your meticulous planning.
Many banks extend small business owners with loans, often with the potential to borrow up to £25,000. Additionally, some banks offer valuable support in strategizing for your business’s success and even provide mentoring programs. The presence of fixed interest rates in bank loans is advantageous, as it ensures predictability in your repayment obligations.
When applying for a loan from a bank, expect them to inquire about:
- You and Your Business: A thorough understanding of your personal and business background.
- Investment Plan: Details about your planned investment and how it aligns with their contribution.
- Purpose and Financing: The intended use of the borrowed funds and your financial options.
- Loan Amount: The specific sum you seek to borrow.
- Loan Repayment Period: The timeline over which you intend to repay the loan.
- Creditworthiness: An assessment of your credit score.
Additionally, banks will likely request supporting documentation, including:
- Security and Assets: Information on any collateral or assets you can offer as security in case of repayment difficulties, such as guarantees, property, or other valuable assets.
- Cash Flow Forecast: A projection of your business’s financial performance, demonstrating a thorough understanding of your business model, revenue generation, and the timing of cash inflows and outflows.