Business Loans for Bakeries
Small Business Loans for Bakery Owners
The neighborhood bakery and coffee shop is often the heart of a neighborhood. The smell of freshly-baked bread wafts down the street, enticing passersby. People come in for a croissant and chat about the weather. Kids buy a cookie on their way home from school, and you bake their birthday cake every year.
Whether you started your bakery out of a love of baking, inherited it from a parent, or simply saw a need to fill, running a successful business requires one cup of passion mixed with one cup of business savvy. Adding the skills of running a business to your recipe book will help you launch, run, and grow your bakery.
In order to grow any business you need money. If you want to grow or expand your business we can help you get the money you need. Apply online in just a few clicks to see how much money is available for your growth campaign.
What Do I Need to Qualify?
Below is a list of the requirements to get approved for business funding with our most basic program. There may be additional factors that are considered, meeting these three requirements though gives you a very high chance of having your application approved.
How Do I Apply?
Applying has never been easier. You can either call our toll free number 24 hours 7 days a week at
Submit your online application by clicking apply below and entering a few basic details about your business.
Types of Business Loans Available
To pay for the significant capital costs of opening a new bakery, or adding a location and expanding an existing one, you will probably need to borrow money. The reason that you need access to capital will inform the type of loan that is best for your business. Here are several common small business loans helpful for bakery owners.
1. Working Capital Loans
It can take a while for a new business to break even, or for sales to grow enough to cover all your start-up costs. During this time, you will need working capital to stay afloat.
Working capital is the revenue that you can use to cover day to day operations such as rent, utilities, and payroll. It’s calculated by subtracting your current liabilities from your current assets on your Balance Sheet. If you are struggling to produce enough working capital to pay your current liabilities, consider applying for a working capital loan.
Working capital loans typically have terms from one to three years, so they are ideal for covering cash flow issues while just getting started. Alternative lenders offer working capital loans to businesses after two months of revenues, which is much less than the several years in operation that most banks require. They will also look at your credit score and require minimum monthly revenues of $10,000.
Loans that are outstanding for a longer period increase the lender’s risk of nonpayment. Therefore, Shield Lending requires a minimum credit score of 650 for their working capital loans.
Interest rates vary, but with an alternative lender, you can expect to pay between 9% to 45%. The interest rate you are charged reflects your risk, so raising either your credit score or revenues or both, will lead to a lower rate.
2. Equipment Financing
Ovens, stand mixers, commercial refrigerators, and more, a bakery requires several large pieces of equipment. Equipment financing loans can help you buy everything you need behind the counter.
The equipment purchased with an equipment financing loan serves as the loan’s collateral. Therefore, you do not need a perfect credit score to qualify for a loan. If you have a lower credit score, the lender may require you to put a down payment on your new oven, but the interest rate you pay will likely be lower than for an unsecured loan.
With an unsecured loan, the lender has no recourse if you default. With equipment financing loans, the lender can seize and resell the equipment to recoup their losses. Consider how this could impact your business when applying for a loan.
When you apply, the lender will want information on the equipment’s age, condition, and value. They could require an independent appraisal, which will delay the loan’s funding. Take advantage of the common 90-day grace period before you have to start making payments to grow your business. Typical terms on equipment financing loans last from three to five years, to align with its depreciation schedule.
3. Bad Credit Business Loans
Banks who offer small business loans will not lend unless you have been in business for over two years, can show steady cash flows and growth, and have an excellent credit score. Their stringent lending requirements made it difficult to impossible for many qualified borrowers to access capital. Alternative lenders stepped in to fill the market need.
Alternative lenders grant bad credit business loans to borrowers who cannot qualify for loans at a bank. Your inability to qualify could be for many reasons, from your time in business to your monthly revenues to your credit score. Shield Funding lends to borrowers with credit scores as low as 500. Bad credit business loans have higher interest rates, between 12% to 45%, because of their higher risk. You can take out a loan for a term of 2 to 18 months.
If you only needed a small amount of capital to cover rent or payroll, you can borrow as little as $5,000. They are a great option if you need cash in a hurry, too, as most loans can be approved and funded in less than a week.
4. Short-Term Business Loans
Short term business loans could help you out if your food vendor is demanding immediate payment, but a wholesale client has yet to pay their invoice. You need ingredients to stay in business and know money will be coming in, so a short term loan can help out in a pinch.
Short term loans have terms of six to 24 months, so they are ideal for covering a gap in cash flow but not the choice for a long-term plan like opening a new location. Need to expand your bakery operation after signing a new wholesale contract? Anticipate a few months of slower cash flow? Look into applying for a short term business loan. With Shield Funding, you can borrow between $15,000 to $1 million, rates are between 9% to 45%, and you must have a minimum credit score of 650.
5. Merchant Cash Advances
A merchant cash advance or MCA only suits your business if you do a large volume in credit card sales. When you take out an MCA, you are borrowing against your future sales. The lender is repaid from those future sales.
When you apply for an MCA, the underwriter will ask you to provide several months of credit card or bank statements. They will use these to calculate your average cash inflow and to determine how much money you have coming into your bakery and how often. How much you can borrow will be based on a percentage of these sales.
An MCA is repaid every time you swipe a credit card. The lender takes their percentage of the sale. This percentage includes their principal and profit. They will deduct from every future sale you swipe until fully repaid.
6. Unsecured Business Loans
As noted above in the section on equipment financing, one way that lenders minimize their risk is by requiring that you pledge collateral to secure your loan. Collateral can be assets such as a delivery truck, your commercial refrigerator, a business savings account, or investment and retirement accounts.
While this reduces a lender’s risk, it increases a borrower’s risk. Anything that you pledge could be seized if you default on your loan. If a lender seizes your refrigerator, it could be difficult to impossible to stay in business. If you do not have collateral to pledge, i.e., you already have loans on your equipment, or do not want to risk it, apply for an unsecured business loan.
Unsecured business loans will cost you more. Interest rates of 9% to 45% reflect the lender’s increased risk. You must have been in business for one year and have monthly revenues should meet or exceed $10,000 to qualify. At Shield Funding, borrowers can have a credit score as low as 500.
Financial Growth Tips for a Bakery
Building and growing a successful business takes time, effort, and planning. There are various methods to produce growth, from adding new products to opening a new location. When writing your business plan, decide how you want to grow but be flexible to respond to market demand. Here are a few things to think about when planning for growth.
State of the Industry
Despite low-carb diets and other fads, the bakery industry has continued to flourish. In 2018, it generated $311 billion in total economic output, and it is projected to grow by 5.5% a year until 2021. One of the strongest growth areas will be in cupcakes and small cakes, expected to increase an average of 7.2% a year to $754.8 million in sales. Customers continue to want innovative flavors and smaller, snack-sized options.
While low-fat and low-carb diets still abound, there is opportunity for bakeries in the increasing prevalence of gluten-intolerance. The number of Americans following a gluten-free diet tripled in the five years leading up to 2018, and gluten-free sales are expected to grow at 14% a year. If you are considering opening a bakery, or want to expand your product line, adding gluten-free options could help you cash in on this trend.
Bars and breads made using ancient and whole grains have also shown growth, appealing to health-conscious consumers. All-natural and locally-sourced ingredients also present opportunities to new bakeries to capture market share, compete against in-store bakeries, and distinguish themselves.
It’s an industry favorable to small business owners, 65% of all bakeries in the United States have less than ten employees, and most only have one location. While in-store bakeries in Targets, Wal-Mart’s, and other big box stores present competition, the majority of baked goods are sold from small storefronts.
Specializing in great customer service, identifying and staying on top of trends, and connecting with your community will help you capture your slice of the expected growth in bakery sales.
Costs to Running a Bakery
If you plan on opening a new bakery, count on laying out significant amounts of capital before you take your first pie out of the oven. Opening or expanding a new location will also involve many of these same costs.
Once you are ready to move forward with your plan, you will need to find the right location. Look at foot traffic and parking, and nearby businesses, of any potential site. Your business’ visibility to the neighborhood, whether it is from their car when driving by or when out walking the dog, will impact your sales.
The space should also have room for ovens and the plumbing and electrical necessary for dishwashers and sinks. You will also need room for a front counter and register, and possibly some tables and chairs. Consider how much work you will have to put into renovating the space, as the average bakery renovation costs around $100,000.
Commercial ovens, mixers, baking sheets, and racks, all of this can add up to around $100,000, as well, depending on your bakery’s size. Furniture and other gadgets can cost around $25,000. In addition to the equipment needed to run a bakery, you’ll have to pay for a business registration fee, permits, and licenses, and possibly undergo and comply with health code inspections.
Add in a register and POS system, plus utilities and payroll, and the average cost to launching a new bakery range from estimates of $10,000 at the low end to $700,000 for a full-scale operation. And that is just to begin.
Once open, it could take anywhere from three months to a year to break even. During that time, you will have to cover all of your operating costs. While you can purchase items like pastry bags and boxes ahead of time, there will be variable costs you must cover. Ingredients for your baked goods will be one of the largest, with payroll and utilities the next. These costs are difficult to predict because they will depend so much upon your business’ volume.
Before you sign a lease or apply for a working capital loan, prepare a comprehensive business plan which addresses how you will pay for all of these costs.
Know your Numbers
Bakers know that adding a teaspoon too much of baking soda can ruin a cookie. They are accustomed to balancing numbers to find the perfect combination of ingredients. If you are going to run a bakery, you will have to apply this numbers knowledge to your business.
Know your break-even point, the point at which you have generated enough revenues to cover your costs. Calculate your profit margin on every baked good you sell and know how to factor your variable costs into that margin. Invest in software that produces sales and waste reports to help you plan your baking schedule, or learn how to do it yourself in Excel.
Learning your numbers inform business decisions and will help you cut down on waste and increase profit. Increased profits can be used to fund growth in addition to capital.
Offer Different Portion Sizes
Health and weight-conscious people still want to indulge occasionally. A group of friends might want to split several small desserts so they can try a variety of treats. Offering different portion sizes can boost your bottom line.
Consider selling slices of cake or pie, rather than the whole baked good. In one survey of cake and pie buyers, 28% said that they’d be interested in buying just one piece. Add cupcakes, mini, or bite-sized muffins and doughnuts, and split the same costs between smaller items that have a higher profit margin.
Add Nutrition Labels and Ingredient Information
Transparency in business creates a feeling of confidence in consumers. Adding nutrition labels and information about ingredients shows your customers that you have nothing to hide, and helps them make healthy decisions. 61% of adults in the United States use nutrition labels to manage their weight, and adding calorie and fat information could work in your favor.
This does not mean that they will not buy your doughnuts or croissants, instead, they will feel empowered to make informed decisions about what they eat. Baking chains such as Panera saw a marked increase in sales when they added nutritional information to their menus.
Many consumers have grown conscious of how their dollars impact the local economy, so disclosing that you use locally-sourced ingredients in your baked goods is also a good idea. According to the American Bakers Association, 62% of consumers buy locally-sourced products whenever they can, and 41% said that locally-sourced ingredients influenced their decision of which restaurant or bakery to patronize. Partnering with a local dairy farmer to deliver fresh eggs and milk will both increase your quality and your sales.
Add Healthier Options to your Bakery Case
Sales of organic breads and grains grew by 8.4% in 2016. Labeling foods as having healthy ingredients, or healthy properties such as high-protein, increased their sales by 28%. Health bars, granola, breads, a bakery does not just have to sell cakes and cookies.
Expanding into healthier options means that you can sell to everyone who walks through your door. Grandpa may buy his granddaughter a cookie but need a low-cholesterol bar for himself. Experiment with adding just a few new, healthier items to your bakery case to gauge the market’s interest.
Sell Allergen-Free Baked Goods
Gluten-free, dairy-free, nut, and egg allergies, many Americans are living with dietary restrictions. Food allergies in the general population have been steadily rising since 1997. Peanut and tree nut allergies in children tripled between 1997 and 2008. These children, and adults, who have food allergies still deserve access to the best baked goods.
If you decide to offer allergy-free baked goods, disclose as much as possible. At a minimum, you will need to use separate bowls, baking pans, mixers, and baking sheets to avoid cross-contamination. If nuts and other allergens will still be stocked in the kitchen, let customers know. Be as upfront as possible and post special signage about the steps you take to produce allergy-free baked items.
Free Samples and Marketing
Tiny white cups with small slivers of cake set out on the counter do more than reduce waste and keep unsold baked goods out of the trash can. They help you sell your products. Customers love to get things for free and trying a taste before buying reduces the risk that they will not like something. It can also spark conversations about favorite flavors, which gives you a chance to both connect with your customers and inform future new products.
If you have added a new flavor, a new bar, or a new frosting, plan on giving away free samples. It should be a part of your overall marketing plan. A marketing plan reaches new customers, informs them of new additions to your menu, and attracts them into your bakery with specials and promotions.
A clean, inviting website can be just as important as a clean, inviting store. Make sure to prominently display your hours and location and that you tell the story of why you wanted to start a bakery. You can use your website as a sales tool, but if you cannot afford to constantly update it, use social media to share specials.
Maybe it is a seasonal flavor, like pumpkin chocolate chip cookies, or perhaps you are running a buy five, get one free, cookie deal. Social media can be updated in real-time to keep customers informed. Post cute pics of decorated cupcakes, or elaborate wedding cakes if you have decided to add them to your selection. Effective use of social media, within a clear marketing plan, brings in more business.
Customer Loyalty Programs
Will you be selling drip coffee with your morning pastries? Are you trying to increase your birthday cake business? Customer loyalty programs bring existing customers back into your bakery. Print punch cards and give them their tenth cup of coffee for free. Offer a 10% discount if they sign up for your mailing list. Track purchases in your POS system and sell the fifth birthday cake half off.
Customer loyalty programs increase business by incentivizing people who have already shown that they like your products to continue shopping with you.
Go After Wholesale Contracts
Caterers and restaurants often do not have the space or skills to produce their own breads, rolls, or cakes. A wholesale contract could help you smooth over bumps in cash flow and generate regular income. Talk to local companies about their needs. Bid on contracts, but be fair to yourself and respect your desired profit margin when placing a bid.
Capturing wholesale business can add nicely to your bakery’s sales, even if you do not want to operate a solely commercial bakery.
The Final Word on Business Loans for Bakeries
Opening and growing a bakery allows many small business owners to make a living doing something they love. If you plan properly and consider all the costs involved, you can operate a successful business. But it will require capital. Learning about your options, and partnering with a reputable lender, will help you make the best choices when applying for loans.
To find out more about how Shield Funding can support your bakery’s success, reach out today.