Loan for Business

How to Find the Right Business Loan to Open Your Coffee Shop Franchise

By Tata Capital
05 January 2026
11 mins read
3407

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. Hybrid Term Loan

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.

Business loan eligibility criteria for coffee shops in India

Before applying for a business loan, coffee shop owners should understand the common requirements lenders look for to assess eligibility:

Minimum business vintage of 1–2 years for regular business loans

Startups may qualify under government or NBFC startup-focused schemes

Annual turnover or income generally starting from ₹2–3 lakhs

Credit score of 650 or above for better approval chances

A clear business plan with revenue and expense projections

Valid trade license issued by local authorities

GST registration, if applicable

Bank statements for the last 6–12 months

PAN, Aadhaar, and address proof of the owner

Collateral or guarantor for higher loan amounts

Option for unsecured business loans for smaller funding needs

Stable cash flow and repayment capacity

No major loan defaults or legal issues

Meeting these criteria improves approval chances and helps secure better loan terms and interest rates.

Important documents required for café business loan

Lenders evaluate café loan applications based on a standard set of documents that establish identity, business credibility, and cash flow:

KYC documents: PAN, Aadhaar, and address proof of the owner

Business registration certificate or shop establishment license

Trade license issued by local municipal authorities

GST registration certificate, if applicable

Bank statements for the last 6–12 months

Income tax returns for the past 1–2 financial years

Profit and loss statement and balance sheet

Business plan with revenue projections

Rental agreement or property ownership proof of the café premises

Photographs of the café outlet

Loan application form duly filled and signed

Submitting complete and accurate documents helps speed up loan approval and improves your chances of securing better terms.

Coffee shop startup costs: Funding breakdown

Planning a coffee shop requires a clear understanding of where your initial investment will go:

Rent and security deposit for the café space

Interior design and furniture, including seating and counters

Coffee machines and equipment such as grinders and brewers

Raw materials like coffee beans, milk, syrups, and packaging

Licenses and registrations including trade license and FSSAI

Staff hiring and training costs

Utility setup for electricity, water, and internet

Point-of-sale (POS) systems and billing software

Marketing and branding expenses for launch promotions

Working capital to manage daily operations and inventory

Contingency fund for unexpected expenses

A clear funding breakdown helps avoid cash shortages and ensures a smoother café launch.

Government schemes and MSME loans for coffee shops (India)

Here are several government-backed schemes and MSME loan programs designed to support small businesses and startups:

Pradhan Mantri Mudra Yojana (PMMY): Offers collateral-free loans in three tiers (Shishu, Kishor, Tarun) suited to micro and small enterprises, helping with working capital and setup costs.

Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE): Provides credit guarantees so lenders can offer loans without collateral, up to several crores.

Prime Minister’s Employment Generation Programme (PMEGP): Credit-linked subsidy scheme supporting new business creation with a government subsidy on the loan.

Stand-up India Scheme: Targets women and SC/ST entrepreneurs with loans from ₹10 lakh to ₹1 crore for new ventures. However, the scheme ended on March 31st, 2025.

PSB Loans in 59 Minutes: Digital MSME loan portal offering quick approvals (₹1 lakh to ₹5 crore) with minimal paperwork.

Registering under Udyam/MSME can improve access to these schemes and incentives.

Also,read: –CGTMSE Scheme: Full form, Features and Eligibility

Common mistakes to avoid when taking a coffee shop loan

Before signing up for a coffee shop loan, being aware of common pitfalls can help you avoid financial stress and long-term repayment issues:

Underestimating startup and operating costs

Borrowing more than the café’s actual repayment capacity

Ignoring interest rates, fees, and hidden charges

Choosing an unsuitable loan tenure

Not maintaining a healthy credit score

Skipping a detailed business plan or cash-flow forecast

Mixing personal and business finances

Overlooking working capital requirements

Failing to compare multiple lenders and loan options

Missing documentation or compliance requirements

Delaying repayments, leading to penalties and credit damage

Avoiding these mistakes helps ensure smoother loan management and long-term café profitability.

How business loan EMI calculators help plan your café

Business loan EMI calculators help café owners estimate monthly repayments before borrowing, making financial planning easier and more realistic. By adjusting loan amount, tenure, and interest rate, you can understand affordability, plan cash flow, and avoid over-borrowing. EMI calculators also help compare different loan options and choose a suitable repayment period without straining daily operations.

For accurate estimates and better planning, try the Tata Capital Business Loan EMI Calculator to check your EMI instantly and plan your café finances with confidence.

Tips to increase coffee shop loan approval chances

Following a few smart steps can significantly improve your approval prospects:

Maintain a good credit score and clear past dues

Prepare a clear business plan with realistic projections

Show stable cash flow through bank statements

Keep all licenses and registrations updated

Apply for a loan amount aligned with turnover

Maintain separate business and personal accounts

Compare lenders and choose the right loan product

These steps help lenders assess risk better and speed up approvals.

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!

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FAQs

What is an unsecured business loan and how does it work in India?

An unsecured business loan is collateral-free financing. Lenders approve funds based on creditworthiness, business performance, and financial history, ideal for startups and SMEs needing quick capital.

Which NBFCs are best for unsecured business loans in India?

Tata Capital offers some of the best unsecured business loans, with flexible repayment terms, competitive interest rates, and quick approval through unsecured business loan online application processes.

What are the minimum eligibility criteria for unsecured business loan approval?

Eligibility includes 2-3 years of business operation, good credit score, positive cash flow, PAN card, and GST registration, ensuring lenders can assess repayment capability.

How can I apply for an unsecured business loan online?

You can apply for unsecured business loan online via lender websites or mobile apps by submitting identity, address, and business financial documents for verification.

What are the main differences between unsecured and secured business loans?

Unsecured loans require no collateral, have higher interest, and quicker approval. Secured loans need assets, offer larger amounts, lower rates, but take longer for verification.

What documents are required to apply for an unsecured business loan?

Key documents include identity proof, address proof, PAN, business registration, GST certificate, bank statements, and income documents to ensure smooth loan processing.

Can I get an unsecured business loan with a low credit score?

Approval is challenging with a low credit score. Lenders may reduce amounts, increase interest, or require co-applicants. Improving score enhances chances for best unsecured business loans.

What type of loan is best for a coffee shop or café business in India?

Term loans or MSME business loans are best for coffee shops in India, offering working capital, equipment funding, and manageable repayment options tailored to small businesses.

Can I get a business loan for a coffee shop franchise in India without collateral?

Yes, you can avail unsecured business loans or MUDRA loans for a coffee shop franchise in India, though eligibility, loan amount, and interest rates depend on creditworthiness and turnover.

What is the minimum credit score needed for a café business loan?

The minimum credit score needed for a café business loan depends on the lender and their specific eligibility criteria.

What are the main documents required to apply for a coffee shop loan?

The main documents for a coffee shop loan include KYC proofs, business registration, trade license, GST certificate, bank statements, income tax returns, and a detailed business plan.

Is government or MSME loan available for opening a coffee shop in India?

Yes, government and MSME loans are available in India for opening a coffee shop, including schemes like MUDRA, PMEGP, and CGTMSE-backed loans.

How can I get my café business loan approved faster?

To get your café business loan approved faster, maintain good credit, complete documentation, a solid business plan, and clear financial statements.

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