Starting your own coffee shop is one of the biggest of all the steps that you can possibly take towards a life of financial freedom. After all, coffee shops are not just places where you can enjoy a nice cup of Joe and hang out with your friends, but they are also great places where you can have meetings and get deals done.
Who doesn’t like the ambiance of a good coffee shop? Do you have a nice and very pleasant aroma of coffee beans, light acoustic music, the patter of feet as people make their way towards the line to have their orders taken, and the light buzzing noise of conversation filling the air?
In order for you to get your coffee shop dreams from concept to creation, however, you are going to need a very decent amount of funding. After all – it is true for every business that in order to make money, you have to have money in the first place.
If you are new to the coffee shop industry and you do not know where to begin to get funding, here is a very comprehensive guide that will help you get the funds that you need to finally make your coffee shop dreams a reality.
Coffee Shop Funding Options
Finally, we are ready to explore all the options that are available to you as a potential coffee shop business owner to secure funding.
To maximize your success, you need to be able to explore each and every one of these options and take none for granted. You need to list down all of these methods in order of application to your own personal situation. There are a lot of variables that you need to consider such as — how wealthy your family is, how good your credit is, and how much savings you have in the bank. You should also consider whether or not you have other businesses in operation, how high-paying your current job is, and how relaxed interest rates are in the United States at the time you plan on starting your coffee shop business.
So without further ado, here are the ways you can secure funding for your coffee shop venture:
- Friends and Family
The best place to start is always with your friends and family. After all, this is the least technical out of all the funding messages that you can explore because you do not have to worry about credit scores, interest rates, payment terms, or pitch decks.
Your friends and family members are already well aware of the type of person that you are and whether or not you have the potential to truly make a coffee shop business work. They, unlike a bank, would not be as cynical about not getting their money back because, since they are your friends and family, they are already well aware of your character and what type of person you are.
Getting funding from your friends and family doesn’t require that you create a formal pitch deck so that you can present your business idea to them. But you do want to make the occasion as formal as possible. This will give them the impression that you were actually taking this seriously and that you do not just want them to give him money for no reason.
Try to bring them out to either lunch or dinner, and tell them about your plan to open up a coffee shop. Try to lay out as much of the cost as possible, but do not overwhelm them with this information. Try to explain to them what other methods you have taken to secure funding and how their investment can help you.
You should also communicate your commitment to paying them back their money with an interest rate, even though you probably do not have to. This will demonstrate that you respect the fact that they invested in your coffee shop and that you are willing to repay them handsomely for their patronage.
If ever this option appeals to you, here is the way that you can do it. Prepare a short presentation on your laptop and really try to highlight why you have chosen a coffee shop out of the other possible business ventures that you could pursue. Even though they are your family members, it is important to show them that you were not randomly choosing a coffee shop as a way to get into business.Just like he would to an investor or a bank officer, show your family members your business plan and assure them that you are going to be cash positive in a reasonable amount of time.
it is quite understandable that your friends and family members will be hesitant at first. If ever some of them have any objections, it cannot be stressed enough how important it is that you handle their objections with grace and poise. Remember you do not want to lose favor with someone that loves you over a business, no matter how important you believe it is for you.
If ever you do get objections from your family members, try to address their concerns in a calm and concise manner. Do not be aggressive in trying to rebuke their doubts.
Unless you come from a rather affluent family, you also should not expect to get as much money from your family members as he would from an investor or a bank. As a matter of fact, funding from your friends and family should not be the only choice that you have for funding because it is expected that they will be a little bit strapped for cash just like you are.
- Small Business Loans
The next funding options you can try are small business loans. Now, small business loans are a little bit trickier because you are going to need to assemble a lot of the documents that they require in order for you to have a realistic chance of being approved.
First of all, if you have an already operating business under your belt and this coffee shop it’s just under the same business name, it will be a lot easier for you to secure a small business loan. If you have three years of profitability under your belt, just bring your tax returns and all of your income statements to a bank and tell them that you want to venture out into the coffee shop business. This will put their doubts at ease and will make it easier for you to be approved.
Let’s be honest though, that probably does not apply to a lot of the people who are going through this guide. It is more likely that you probably have no experience with business at all, and you will not have the necessary income documents to prove that you are worthy of the loan that you will be getting from the bank.
Don’t let that discourage you, however, because there are things known as SBA loans. SBA loans are a very good option for potential coffee shop owners who do not have a business track record because these loans are actually backed by the United States government. An SBA partnering institution will be quicker to approve your loan because they are confident in the fact that they will be getting their money back since this loan is guaranteed by the US government.
When getting a small business loan for your coffee shop business, it is also important that you educate yourself about how these loans work, how different types of interest rates work, and the benefits of having longer versus shorter terms.
Just like most loans – she will have the option of having fixed or variable interest rates. Choosing between one or the other depends on how quickly you plan on being cash positive and whether or not you can tolerate Paying a larger amount each month so that you can chip away at the loan and get it fully paid quicker.
You should only go for a fixed interest rate loan if you want to pay off your loan balance at a slower and more steady pace. Fixed interest rate loans often go with longer terms in order to fully maximize the benefit of a fixed amount. Variable rate loans, on the other hand, should be chosen for shorter terms because you do not want the capital markets where the interest rates are based to work against you overtime.
In other words, fixed interest rate loans protect you against market volatility while variable interest rate loans can give you a chance to pay off a lesser amount as long as you are committed to paying it off quicker to avoid the effects of market volatility.
- Home Equity Loan
Getting a home equity line is also a very common option for people that want to start coffee shop businesses, but this should be your absolute last resort. This is a lot riskier than the other funding options, because you are essentially using your house as collateral.
It is actually usually easier to get approved for a home equity loan compared to a traditional business loan. You were essentially leveraging the value and equity of your house in order for you to get funding. You absolutely have to make sure that your business plan is foolproof because you do not want to have a complete disaster under your hands should your coffee shop fail.
- Getting Funding From Investors
Perhaps one of the best options for you to get funding for your coffee shop business without putting your personal assets at risk is to find an investor to give equity to for your coffee shop.
There are a lot of different types of investors that can potentially grant you the funding that you require, funding that you do not ever have to pay back. What you will be giving in return, however, is a small percentage of your business.
Before you consider this option you should really think about whether you want to own a small but sustainable coffee-shop or a multinational corporation. If you want to scale your business into something truly global, giving equity to an investor might turn out to be an exceedingly expensive choice.
One way that you can potentially get an investment with very reasonable terms is if you belong to a marginalized demographic. There are a lot of angel investment and venture capital groups out there that want to invest money into minority-owned businesses, for example, so it would work greatly towards your favor if you can do your research and try to find one that fits your background.
Even if you are not a minority but you belong to an impoverished community, you can still find investors that cater to people who hail from one of these areas. Take your time and do your research on these firms.
A lot of people will think that this is a much better option than getting a loan, but that is not always the case. Consider if your coffee shop business ends up becoming a very large multinational corporation. You could potentially give up millions of dollars worth of equity to your investors. Otherwise, you could have just paid a few hundred thousand dollars to pay back the initial loan for the business.
There are a lot of different types of investors that you can try to pitch your coffee shop business idea to. First, there are individual angel investors. Angel investors are basically individuals that have a minimum net worth of $1 million and a consistent income of at least $200,000. Angel investors are not exactly corporate entities, but often just regular wealthy individuals that want to expand their portfolio by getting equity from potentially successful businesses.
Then, there are also venture capitalists. Venture capitalists are very similar to angel investors, but they are actually corporate entities that have a pool of money from different external investors. It is no secret that venture capital firms prefer high-growth technology companies. But if you have a very innovative business plan for your coffee shop business – there is no reason why you cannot pitch to them to get a reasonable term sheet.
It is no secret that finding investors for your coffee shop would not be as easy as it would be if you were a technology company. If you are willing to be perseverant about finding these investors, however, it is certainly not impossible.
A great place to find potential investors is LinkedIn. After all, LinkedIn has become known as the social media platform of commerce. What you should do first is try to write a short and very concise spiel for you to send to potential investors. You do not want this to sound very demanding or very desperate. Really make it sound like you are out to do something great and these investors have a chance to be part of it.
Also remember that you are selling the benefits of your coffee shop, not just the features. don’t spend too much time telling these investors that you were going to have a library, a bakery, and some of the most exotic coffee beans known to man, because all of that will just leave them to ask the question — so what?
Instead try to tell them that you expect your coffee shop business to scale faster than a regular coffee shop because of the enhanced amenities that it features. Not only will your coffee shop be a destination for people to enjoy your unique blend of items, but also engage in some of their hobbies, like reading.
- Starting a Coop
If two are better than one – how about 10? Perhaps the easiest way to open up a coffee shop for a person with limited funds but with a robust network of colleagues. Form a coffee shop corporation with people who have similar interests and face similar challenges.
In a cooperative, each and every member contributes whatever they can in order to make the business work. Then, they get a fair amount of equity depending on the contribution and the role of that person please and trying to make the coffee shop a reality.
Of course, cooperation is not just the path between friends but an actual business structure. You should really consider doing your research on your state’s laws for cooperatives before pursuing such a venture.
Together with the members of your cooperative, you can do things such as develop an airtight business plan. This will wow potential investors and loan officers and open up new opportunities depending on each member’s personal network and previous capacities. It will account for a lot of the initial expenditures out of pocket, undetermined each and every role that the members of the cooperative should take.
Just like finding investors, utilize social media to your advantage when it comes to finding cooperative partners. it is an absolute must that you go with people that are like-minded because you do not want your visions to clash. You do not have to agree on everything, but you should have similar ideas of what your ultimate goal for the coffee shop is.
You also have to be very clear about how each of you split the equity. This can be very tricky because, obviously, every member of the copper if you would want a bigger slice of the cake so to speak. One thing that you can do is hire a business development professional to help determine the equity split between all of the members of the cooperative. Not only will you get a professional opinion, but you can be confident that there won’t be any bias involved.
Make sure you do as much due diligence as possible when you find potential members of your cooperative. It would not hurt to look in social media websites like Facebook or even Reddit— but similar to finding investors, using more professional platforms like LinkedIn would be more ideal.
- Using Crowdfunding Websites
Crowdfunding is a very new way of getting funds for any kind of business— not least among them or coffee shops. Crowdfunding works the same way you would pitch your business to a potential investor or pool of investors. Here is the cool thing though, you do not have to pay the people who will give you the money to find your coffee shop operation with crowdfunding.
People who give money through crowdfunding do not exactly expect anything in return except for the bragging rights that they were part of the inception of something great. Many of the most unique companies in the world such as MVMT watches got their initial rounds through crowdfunding. You simply need to be aware of your unique selling points and why people should give any amount of money for you to accomplish your goal.
Think about it – why should people invest in your coffee shop business? What makes your coffee shop business different from others? If you cannot answer these questions – you simply will not fare very well with crowdfunding because to potential investors, you are exceedingly ordinary.
If you wanna get money through crowdfunding, you should be as unique as you possibly can. It would not hurt to have some sort of theme connected with your coffee shop such as the book shop or the bakery that we mentioned earlier. Having a strong online presence would also be very good in order for your company to have a more “tech feel” to it, which investors always enjoy.
There are two major crowdsourcing websites the people turn to when they try to get this form of funding. These are Kickstarter and Indiegogo. The type of crowdfunding campaign that you were able to do on kick starter are slightly different from the ones on Indiegogo because, usually, you have to set a realistic amount for you to try to achieve with your campaign and if you do not reach that far to come out within a specific time, you could end up losing all of it altogether.
The advantage of going with Indiegogo instead is that whether or not your funding goal is met, you will be able to keep most of the proceeds after you pay the platform their fees.
- Business Lines of Credit
A business line of credit is separate from a business loan because when you have a business line of credit, you are simply borrowing the amount of money that you need specifically. Think of it as a credit card. These are very beneficial because you do not have the risk of overborrowing or under borrowing. If you borrow more money than you actually need, such as how you could when you apply for a business loan, you are paying an excessive amount of interest for that business loan — that is something that may cost you dearly in the end.
- Personal Savings
If all other avenues of funding fail, you are going to have to rely on your personal savings. This is the purest form of getting funding for a coffee shop.
The best thing about having a coffee shop business is that you do not have to be in a rush such as you would if you operate a tech company, for example.
There is nothing new about having a coffee shop so you do not have to blitz your way into entering the marketplace as fast as possible.
Starting a coffee shop using your own savings means you do not have to give up any equity and you do not have to pay back any loans. You’ll be able to run your coffee shop business and keep all of the profits either for yourself or to expand your operations.
If you want to make this arrangement work, you have to consider applying for multiple side jobs so that you can save up the money quicker. The great news is there are a lot of freelancer websites that are available to you so that you can leverage your skills to earn extra money for you to be able to save up the funds for your coffee shop business at a much more rapid pace.
Creative Coffee Shop Funding Options
Of course, there are a lot of other options that you can try to reduce the overall cost of having your coffee shop so that you do not have to worry about the actual amount of funds that you have.
One way, as we mentioned earlier, is to piggyback off of another business. You could partner with a co-working space, for example. Sell your coffee there and you will simply be paying them a flat fee every single month and not have to worry about paying for real estate yourself. Not only that but you will have access to a lot of workers. They will undoubtedly need your coffee as the grind of going to work each and every day eats away at their energy.
There’s also the option of starting off with an online delivery coffee business. After all, it takes a lot less money to operate in digital space than it does to operate in a physical retail space. This could be a very good starting point for you. Have a coffee shop website instead of an actual coffee shop initially, and partner with delivery services so that you can just send your coffee out to your would-be customers as they order from your platform.
Final Takeaways on Funding Your Coffee Business
So these were the options that are available for you for securing funding for a new coffee shop business. It should already be fairly obvious that this will require a lot of dedication and hard work on your part. But with the right perseverance, there is absolutely nothing that you will not be able to accomplish.
It would also help if you do a little bit of research on some of the most successful coffee shop businesses in the world and try to figure out how they were able to secure funding initially. When Starbucks was first established near Pike Place Market in Seattle, how were the founders able to secure the funds to do so?
Always remember that when there is a will, there is a way. There are a lot of successful coffee shop owners out there that were once in the position that you are currently in right now. Do not make the incorrect assumption that you need to be rich to start a successful coffee shop business. With the right mindset, careful planning, and iron will, you would be well on your way to having the next Starbucks or Coffee Bean level company.
