In urban India, coffee shops are often busy places. A coffee shop attracts people from all walks of life: college students have a go-to coffee place to relax, freelancers use them as a workspace, and professionals often meet up with their clients, colleagues, or friends over a cup of coffee.
No wonder cafes and coffee shops are romanticised in pop culture, with one-liners like, “a lot can happen over coffee.”
Many people also dream of owning and running a café. But opening your own coffee shop comes with several challenges, such as financing your business. If this is your dream, too, but you have no idea where to start, here is a step-by-step guide on finding the right business loan for your coffee shop.
Step 1: Decide on the type of coffee shop
First, you must decide on the kind of business you want to start. There are three primary business models:
1. You could purchase a franchise of an already-established brand. This would provide the brand recognition initially needed for any new business.
2. You could buy an existing business and transform it according to your wishes.
3. You could start your coffee shop from scratch, shaping each element to your taste right from the start.
How you take your idea for a café forward hinges on this step, so do your research thoroughly, talk to other business owners and stakeholders, consider all your options, and make an informed choice.
Step 2: Assess your business needs
The primary business needs for a coffee shop include location, staff, suppliers, equipment, and décor.
These could change based on the kind of business you are going for. For example, if you are renovating an existing venture, your location and possibly staffing and supplier needs are taken care of. In the case of a franchise, you may get help with suppliers, equipment, and sometimes even décor.
Here are some things you should keep in mind while assessing these needs:
1. Location
You have to check the accessibility, visibility, and affordability of your location. For example, if you want to open a café for youngsters to frequent, you should consider a locality where you can find many of them, like near college areas.
2. Staff and suppliers
You will need different kinds of staff like baristas, servers, chefs, a manager, cleaners, etc. You also need to look for a high-quality supplier for coffee beans, milk, produce, and more.
3. Equipment and décor
Your décor is going to be the attraction factor for your new café. So, it has to stand out. Based on the kind of coffee shop you want, your décor could be thematic, from a different era, mutedly elegant, and so on.
Once the décor attracts the customers into the café, your equipment is what makes them stay. Have the right equipment so that your staff can be more efficient.
Now to the most significant factor of all, money. To provide for all these basic needs, you need money. Once you have a clear picture of what you will need, you can get a rough idea of how much money you will need.
Step 3: Research loan options
There are many small business loan types offered in the market. Some major types are:
1. MSME/SME loans
2. Working capital loan
3. Term loan
4. Overdraft loans
Today, you can approach several banks and lenders for a loan for your small business. Each loan option has its own advantages and eligibility criteria, loan terms, and credit score requirements.
Take stock of your business loan requirements before choosing your franchise financing options. Consider various components like loan amount, interest rates, repayment terms, tenure, and EMI options. You can also use a business loan EMI calculator to estimate your monthly EMI. Research meticulously to find an option that best fits your business loan requirements.
Step 4: Prepare your loan application
Now that you’ve finalised your lender and type of loan, get started on your loan application. Your loan application should demonstrate your credibility to your lender. When you show them that you’re trustworthy, your loan application has a greater chance of being approved.
You can follow these simple steps to ensure that your application sails through successfully:
1. Business plan
Your business plan can make or break your application. So, have a strong, well-researched, and robust business plan. Provide specifics about how you plan to use the loan amount and leverage the small business loan benefits. Project your cashflows. Estimate timelines for these cashflows. Be transparent about your financial situation and tell them how you plan to repay the loan.
2. Credit score
Each of the small business loan types has its own credit score requirements. Ensure that you satisfy them for hassle-free loan processing. If you don’t, work on improving your credit score before applying. You could do this by clearing off existing debts, paying credit card dues, etc.
3. Necessary documents
You have to be prepared with all the necessary documents. If you’re going with online lenders, make sure you have soft copies of the same ready.
Step 5: Apply for the loan
With online lenders and their attractive small business loan benefits, the end-to-end business loan application process has become much more manageable.
Once you have all the requisite information and the necessary documents, apply for your business loan. Remember to fill in the application form very carefully and provide all the details correctly. If there is a mismatch between the details on your documents and the details you fill in on the form, your application may be rejected.
Using the loan proceeds
After thoroughly considering many franchise financing options, you’ve settled on one that meets your business loan requirements. Careful preparation has helped you get your loan approved. Now how should you use these funds?
The smartest way to put the money to use efficiently is to stick to your business plan. You have curated it, taking various factors into consideration, and your lender also has confidence in it. So, follow the plan as much as possible and let your coffee shop slowly take shape.
You must always keep track of your business expenses. When you monitor expenses closely, you can easily plug leaks that could drain your money. This will ensure that your money is being put to optimal use.
In conclusion
Running your own business, be it a coffee shop or a billion-dollar start-up, is no easy feat. It involves a lot of financial planning and management. So, when you decide to get monetary help for your venture, it is important that you choose a lender who values your passion and vision.
At Tata Capital, we offer several loan options that can help you with different business requirements, like machinery loans, working capital loans, SME loans, and business loans specifically for women entrepreneurs.
We believe that everyone can achieve their dreams if they have enough drive and support. So, you can get a loan with us without pledging any collateral and at competitive interest rates.
With our hassle-free application process, quick approval, and fast disbursal, you can turn your dream coffee shop into a reality in no time.
For more details on our business loans, check our website or call us today!
27 February 2023
7 mins read
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