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.
Below are a few of the financing options available to small business owners in the bakery industry.
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.
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.
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.
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.
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.
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.
Below are a few factors you may want to consider before deciding which loan is best for your bakery.
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.
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 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.
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.
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.
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:
Your accountant or tax preparer can generally help you gather and file the relevant information.
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.
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.