October 24, 2022 By Max Freedman

As a bakery owner, you’ll find that opening the doors to your shop – and growing your customer base – generally requires a lot of money. While your revenue can help you meet the costs of running your business, there are times when you’ll likely need a little extra money. Figuring out how to get a loan for a bakery may help you get off the ground and keep growing.

Apply for an SBA Loan

What types of funding are available to finance a bakery?

Below are a few of the financing options available to small business owners in the bakery industry.

1. SBA loans

SBA loans are the federal Small Business Administration's business financing program. While the SBA doesn’t lend out money, it acts as a guarantor for typical bank loans, repaying the lender if the borrower defaults.

Because SBA loans are guaranteed by the government, there may be more paperwork required than with other loans. Even so, the low rates and long repayment terms make the time and effort worth it.

  • Loan amount: $30,000 to $350,000
  • Interest rates: Typically low
  • Repayment period: 10 years
  • How long you'll wait for funding: If you work with SmartBiz®, once your application is approved by the bank, funds may be deposited into your bank account in as fast as seven days.

2. Bank term loan

A bank term loan is a traditional option where the borrower applies for financing directly from the lender. These loans’ qualification criteria may be strict, but, as with SBA loans, applying for them is typically worth your while. Term loans’ high loan amounts, low interest rates, and long repayment periods generally make them a good option for bakery owners.

  • Loan amount: $30,000 to $300,000
  • Interest rates: Typically low
  • Repayment period: Two to five years
  • How long you'll wait for funding: Varies based on the loan repayment term

3. Equipment financing

Equipment loans are generally helpful when your bakery needs new equipment or money for equipment repairs.

It’s often easier to qualify for equipment financing than traditional bank loans. That’s because any equipment you purchase with the funds is your collateral. If you don’t repay your loan, however, the lender may seize your equipment.

  • Loan amount: 80% to 100% of expected equipment costs
  • Interest rates: Low for borrowers with good credit and high for borrowers with poor credit
  • Repayment period: Three to 10 years
  • How long you'll wait for funding: Typically seven days or less

4. Business line of credit

Unlike more traditional financing options, a business line of credit provides borrowers with revolving funds. That means you can use part or all of the loan, and your funds typically become available again once you repay them. Also, you’ll generally only pay interest on the funds you actually use.

It’s often easier to qualify for a credit line than a small business loan, though loans may give you more funding. That generally makes credit lines better for short-term needs than expensive long-term projects.

  • Loan amount: $2,000 to $1 million
  • Interest rates: May be high or low depending on the borrower's qualifications
  • Funding lifetime: Six months to four years
  • How long you'll wait for funding: Varies by lender, though often speedy

5. Merchant cash advance

Merchant cash advances don’t work like typical loans, though the lender still gives you cash to use immediately. After that, though, the lender will typically take daily or weekly repayments from your bakery's daily credit and debit card revenue. While an MCA generally provides quick and convenient money, your APR may be quite high.

  • Loan amount: $2,500 to $500,000
  • Interest rates: Usually very high
  • Repayment period: Three months to three years
  • How long you'll wait for funding: Typically one to seven days

6. Invoice financing

Once your bakery is reliably fulfilling e-orders, you might start using invoices to bill your customers. An invoice financing company may be able to advance you around 80% to 90% of the money you’re owed and collect a portion of the funds when customers pay their bills. Note that this can often get expensive if the client delays payment for a long time.

  • Loan amount: 80 to 90% of your invoices’ total
  • Interest rates: Usually low
  • Repayment periods: You’ll repay your invoice financing loan once your clients repay you
  • How long you'll wait for funding: May be as little as 24 hours
 See if you pre-qualify

Choosing the right loan option

Below are a few factors you may want to consider before deciding which loan is best for your bakery.

Your bakery’s growth plan

If you’re looking for loans to grow your business, you will want to better understand what is needed for success. Creating a growth plan may help. It’s a step-by-step outline of your business's short-term goals and a plan to reach them. Knowing how you’ll grow your bakery may help you decide how much capital you’ll need to get there – and which loans might fit the bill.

Your funding needs

Are you growing your bakery? Renovating it? Restocking essential inventory? Each project likely has a different price tag. How much money you will need may help you pick the most appropriate loan.

Your credit score

Your credit score is among the main factors that lenders will look at when considering your application. The higher your score, the more confident the lender will generally be in offering you a loan. A credit score of at least 670 typically offers you the best chance of qualifying for a loan.

Your revenue

Lenders want to be sure that your bakery makes enough in sales to repay the new debt. Look at your revenue and current debts to ensure you can fit more on your plate.

How soon you need the money

In most cases, higher-quality loans have longer application and approval processes. If you need money quickly, a short-term loan or financing from an alternative lender may likely be a better option. But, if you need working capital for a long-term project, you may want to look for a bank term loan or SBA 7(a) loan.

How to apply for a bakery loan

Applying for a loan is typically fairly simple, though time-consuming. First, you may want to research lenders and their expectations from you as a borrower. You may be able to apply for some loans online, whereas others might require an in-person visit to a bank.

After finding a lender, it’s typically time to gather your paperwork. Commonly requested documents may include:

  • Personal business tax returns
  • Personal financial statements
  • Profit and loss statement
  • Balance sheet
  • Collateral
  • Other documents such as business licenses, articles of incorporation, commercial leases, or franchise agreements may be requested depending on the particular loan application

Your accountant or tax preparer can generally help you gather and file the relevant information.

Bakery success story

Sugar Twist Bakery® is an innovative, upscale bakery in Bakersfield, California co-owned by Ariya Burana. Located on the corner of a busy intersection, Sugar Twist is full service, offering a breakfast and lunch menu. As the bakery’s popularity grew, Burana and her partners crunched the numbers to determine how to move forward. They knew an infusion of capital could help them reach their expansion goals and, after finding herself unable to secure funding at two local banks, Burana discovered SmartBiz. Her $310,000 SBA loan was approved quickly and the funds have been used for working capital and to expand to a second location. Learn more about the success of Sugar Twist Bakery here.

Find a bakery loan with SmartBiz

As a bakery owner, you have plenty to do – and limited time to apply for loans. SmartBiz helps to streamline the process. SmartBiz may help you quickly find SBA loans, bank term loans, and custom financing and determine if you pre-qualify*. With SmartBiz, you can apply for the funding your bakery needs more easily than ever before.

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