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📅 Last Updated: April 3, 2023
✏️ Written By Caitlin Wood, BA
Business Loans Coffee Shop

Coffee is beloved by many Canadians and individuals all around the world. The coffee industry is said to be a 6.2 billion dollar industry. There are currently over 5,000 independent coffee shops and cafes and thousands of franchises including Tim Hortons, Starbucks, Second Cup, and Van Houtte. According to Statista, Canada alone is expected to consume “4.85 million 60-kilogram bags of coffee” by October 2021.

Considering the level of coffee consumption in Canada, opening a coffee shop can be extremely lucrative. However, given the competition involved, it will take a lot of capital and marketing to start or grow your coffee shop. That’s where a business loan comes in. A good business loan is a versatile and advantageous credit product that can cover expenses, finance a campaign or an expansion project and more.

Check out the basics of starting a business in Canada

More Coffee Industry Trends In Canada

As mentioned coffee is very popular among Canadians. As such, understanding the trends and consumption behaviours will help you market your coffee business.  Here are some interesting finds by the Coffee Association of Canada

  • Almost three-quarters (72%) of Canadians consume coffee
  • On average, 2.8 cups are consumed by Canadians
  • Canadians under the age of 35 prefer specialty cafes including cappuccinos, macchiatos and americanos. 
  • 20% of coffee drinkers have used a loyalty card when purchasing their coffee.
  • Many Canadians are interested in owning a brewing machine:
    • Keurig (64%)
    • Tassimo (20%)
    • Nespresso Dolce (35%)
    • Gusto (12%)
    • Verismo (3%)

Business Financing For Any Industry

Own a business in another industry? Click here

What Kind of Cafe Related Expenses Can a Business Loan Cover? 

If you’re the owner of a coffee shop, you know there are plenty of areas that can benefit from a little financing. Here are just some of the ways you can use your loan to better your business:

Coffee Shop Supplies

Before opening up your shop, you’ll need to purchase typical coffee supplies like mugs, disposable cups, lids, sleeves, napkins, plates, utensils, menu boards, and other coffee shop supplies. If you plan on selling items such as coffee machines, espresso machines, and other coffee-related items, you’ll need to purchase and stock your shop. You may even want to stock your shop with onsite activities and items such as chess boards, records, books, and other entertainment activities. 

Check out the best ways to manage your small business inventory

Coffee Ingredients

In order to have an edge over your competition, you’ll want to get your hands on the best tasting coffee/coffee beans on the market. You’ll also need to buy complimentary coffee ingredients such as creamer, half & half, soy, almond and regular milk, brown sugar, white sugar, artificial sweetener and more. Coffee shops often serve baked goods and treats, so you’ll need to purchase the ingredients for that as well. 

Coffee Shop Renovations and Design

Depending on your vision, you may want to hire a designer or renovator to do repairs, renovations, or other modifications to the space. You may also need to furnish your indoor/outdoor areas including the coffee ingredient to-go station, tables, chairs, stools, table umbrellas, heat lamps, potted plants, shelving, and more. 

Thinking about renovating your space? Check out why leasehold improvements are helpful for many aspects of a business. 

Coffee Shop Equipment

There are many expensive pieces of equipment needed to successfully run a coffee shop.  This includes equipment like the stove/oven, fridges/freezers, tables, chairs, sofas, and ice machines.

Payroll

Depending on the size of your cafe, you’ll need a team of employees to run your shop. This includes baristas, cooks, and cleaners. For the backend of the business, you may need experts to help you with other areas of your business like accounting, marketing, or logistical support. 

Check out this guide on how to set up payroll for your small business

Marketing Your Cafe or Coffee Shop

As previously mentioned, the coffee industry is quite competitive, so you’ll need to market yourself well to stand out and bring awareness to your brand. Coupons, marketing ads, radio ads, and other marketing efforts require a lot of time and money, but it is one of the most important aspects of gaining customers. 

Best Business Loan Providers for Your Coffee Shop

AmountAPRTerm (months)
SharpShooter Funding1k-300kFee-Based: Starting at 9%12- 60 Learn more
OnDeck5k-300k8% – 29% 6-18Learn more
Lending Loop1k-500k+5.9%3-60Learn more
Thinking CapitalUp to 300k8%-22%6-12 Learn more
Merchant Growth5k-500k-6-18Learn more
BDC100K +6.05% +60Learn more
IOU Financial5K-100k15%+12-18Learn more

Importance of Calculating and Understanding the Cost of Your Business Loan

While a business loan can help you cover your expenses, it can also lead to unmanageable amounts of debt if you misjudge your ability to repay it. When taking out a business loan, it’s important to consider the following factors: 

  • Loan amount – Always evaluate your costs and apply for no more than what you’re able to afford. Borrowing excessively can lead to late and missed payments which can affect your credit score. Moreover, the higher your loan amount, the less likely you’ll be able to qualify for a lower rate. 
  • Interest rates – As with any loan, the interest rate is the most important factor in determining the cost of your loan. The higher the rate the more interest you’ll pay and vice versa.
  • Fees –  Before signing your loan contract, inquire about their fees such as origination or administrative fees. Charges like these can easily add hundreds if not thousands of dollars to your bill. For example, a loan origination fee can be anything between 0.5% to 8% of your total loan cost. As such, a 30,000 business loan can lead to additional fees of $150 – $2,400 dollars. 
  • Term length – When choosing your loan repayment plan, don’t choose a term based on length. That is, don’t choose a term that gives you the lowest possible monthly payment, choose a term that you can comfortably afford. Reason being, the longer your term, the more interest you’ll pay, and vice versa. 
 

Short-Term Loan

Long-Term Loan

Loan Amount

35,000

35,000

Interest Rate

8.5%

8.5%

Term

3 years

7 years

Monthly Payment

$1104.87

$554.28

Total Paid

$39,775.09

$46,559.26

Total Interest Paid 

$4775.09

$11559.26

Requirements to Qualify For a Business Loan 

Whether you choose to apply with a bank, credit union or alternative lender, the requirements to qualify will vary. However, there are several common factors lenders use to evaluate your ability to repay debt. 

  • Time in business Statistics have shown that more than 50% of new businesses fail after 10 years. As a result, lenders often take your business age into consideration when approving you for a loan.
  • Assets – If you’re providing collateral to help secure the loan, the lender will require proof to verify the value of the asset. In general, you can use your equipment, inventory, accounts receivable and other business assets as collateral.
  • Revenue – Lenders will require your yearly income or monthly sales to evaluate your ability to repay debt. If you have a good consistent flow of revenue, lenders will be more inclined to approve you.
  • Cash flow – Your business cash flow is another indicator of your ability to repay debt. Lenders look for strong positive cash flow as a negative cash flow means you’re spending more than you are earning. When that happens, businesses are less capable of repaying debt, as the revenue they are generating isn’t enough to even cover their current expenses.
  • Credit score – Lenders often check both your personal and business credit score to determine your creditworthiness. However, if you’re a fairly new business, lenders will direct their attention to your personal credit score alone.
  • Business Plan – Many lenders require young and small businesses to provide a business plan. A business plan is a report that details your business needs, goals and future financial projections. It’s a way for lenders to gauge your business viability and ability to repay the debt.

Alternative Ways to Cover Your Coffee Shop Expenses 

Equipment Loan

The equipment required to run a cafe can be very expensive. Moreover, qualifying for a huge sum of money without collateral can be very difficult. An equipment loan works just like a business loan except for the equipment you purchase acts as collateral. This security makes it easy to qualify for and you’re able to get lower rates. 

Merchant Cash Advance

As a coffee shop, you can take advantage of a merchant cash advance as the majority of your sales are likely made through card payments. A merchant cash advance provides a lump sum of cash in exchange for a portion of your future card sales. This form of credit is very convenient due to the minimal requirements and quick funding process. However, it is an expensive way to borrow, so you should only use it for emergency expenses. 

Business Line of Credit

Whether you need to repair your espresso machine or purchase new tableware, a business line of credit is great for covering all your small business expenses. It is a revolving form of credit that you can withdraw from at any time. Interest is only paid on the amount used, and you regain access to the funds as you repay it. The flexibility and accessibility it provides make this a valuable credit for many coffee shop business owners. 

Canadian Small Business Loan Program (CSFBP)

The Government of Canada offers a number of financial services to help small Canadian businesses thrive. One of the most popular options for small businesses is the Canadian Small Business Loan Program or the CSFBP for short. The program offers loans up to $1 million and up to $350,000 for equipment and leasehold improvements.

Check out more government finance programs for businesses in Canada.

Frequently Asked Questions

Can I get a business loan for my coffee shop if I have bad credit?

Yes, you can still get a business loan for your coffee shop with bad credit. In particular, you can get a business loan with bad credit with an alternative lender. Alternative lenders base their approval on more than just your credit score. They evaluate other financial aspects of your business to determine your ability to repay debt. This includes your revenue, monthly sales, cash flow, assets, time in business, and more.

How do I increase my chances of qualifying for a business loan for my coffee shop? 

Improving your credit score, paying down debt and enhancing cash flow are key ways of increasing your odds of approval. However, if you need cash quickly, you can increase your chances of approval by reducing your risk as a borrower. You can do so by securing the loan with an asset or by getting a co-signer

How long does it take to get a business loan? 

Depending on who you apply with, it can take as little as one day to a couple of months to get a business loan. Banks typically have a long underwriting process and require a lot of paperwork and verification. On the other hand, alternative lenders utilize an online application process that is usually partially automated, which leads to faster approvals and quick funding.

Putting Your Business and Your Customers First 

Running your own coffee shop can be extremely demanding. Therefore, it’s best if you don’t have to wait for weeks to get the right financing when you need to cover an expense. Using our network, you’ll get set up quickly and will be able to spend more time focusing on the success of your shop. With a completely online process from application to funding, you’ll also be able to access flexible payment schedules that work for you and competitive, adjustable rates. Fill out an application today and get to work on creating the coffee shop you’ve always wanted.

Caitlin Wood Priyanka Correia Lisa Rennie Bryan Daly Cris Ravazzano Margaret Johnson Kale Havervold Liz Enriquez Sean Cooper Veronica Ott Corrina Murdoch Chrissy Kapralos

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