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Finance Options for Bakery Businesses

By Business of Baking Blog posted 12-09-2021 12:00:00 AM


Discover the various financing options available for bakery businesses, and learn more about the characteristics lenders typically look for when considering to loan money to or invest in a bakery business.

If you aspire to start a bakery or you want to expand your existing sweets business, don’t let a lack of funds hold you back. There are a great number of financing options available to businesses just like yours. If you’re in need of extra money to support your business’ dreams, you’re in the right place. Below you will find an overview of the financing opportunities available to small businesses.

In general, financing can come from various sources such as traditional financial institutions (such as banks), government sources (such as the SBA), venture capitalists and angel investors. However, all lenders will typically look for the same characteristics when deciding whether they will loan money to or invest in a business.

If you’re looking for money to grow your already existing business, lenders will want to know more about the history of your company. Do you have a track record of good management and positive sales performance? Do you have financial records to support your numbers? They will also dig into your credit history to check for red flags or other indicators of credit worthiness.

If you own assets, you could increase your chances of getting approved for a loan by putting up collateral. This reduces the risk for the bank in case you default or skip out on your loan payments. Also, don’t forget about your personal finances. They matter too! If you can show that you’ve invested personally into the business, lenders will have more confidence in your proposal and in your dedication to the success of the organization. They basically like to see that you have “skin in the game.”

Many small business loans are turned down due to poorly presented proposals, inadequate collateral, insufficient cash flow and a lack of management experience. Therefore, you want to make sure that you have your ducks in a row before you request money from any source. You should be prepared to answer questions about your financials such as revenue, expenses, and future sales projections. Also, be prepared to explain how you will use the money if you’re requesting to expand the business. If you’re pitching to investors, come up with a timeline of when they can expect a return on their investment. These are all important points that most investors or lenders will find of interest.

When it comes to the main sources of business financing, here is a general list of categories for small business such as start-up bakeries including storefronts, cottage businesses, cupcake trailers, food trucks and more.

1. Traditional Lenders.

Banks, credit unions, and other finance companies are the main source of loans for small businesses. Most of these institutions will have a small business department which specializes in handling small business loans. If you already have a working relationship with a bank for your business or personal needs, I recommend connecting with this institution first. Your history with the institution may give you a leg up or at least help establish your credit worthiness.

2. Government Source (i.e. the Small Business Administration [SBA]).

The SBA works in conjunction with traditional lenders to offer loan guarantee programs that reduce the risk to lenders in case of default by the business. Some of the popular SBA programs are…

a. The 7(a) loan guarantee program: This program helps businesses which lack sufficient collateral, by providing repayment guarantees ranging from 75-85% depending on the size of the loan.

b. The SBA Low Doc loan program: There is only one form to fill out for these loans and approval time is rapid (within 36 hours from when the SBA receives the applications. These loans are only for amounts up to $150,000 but they can be used for start-up businesses.

c. The SBA Express loan program: This is another quick-procedure loan guarantee program, but it covers loans up to $500,000. The SBA guarantees 50% of these loans, and interest rates in this program may be higher than in the other SBA programs.

3. Venture Capital.

These are typically private companies who seek investment opportunities in start-up companies with a high profit potential. Typically, when you take money from a Venture Capital firm, you will have to give up some ownership/control to the investors. If you want to go this route, make sure to do your research into the VC company of interest. “Read the fine print,” and make sure that the relationship will be a good fit for you and the vision that you have for your business going forward. You might need/want the money now, but you definitely don’t want to commit to losing control of the vision that you have for your company in the future.

4. Angel Investors.

These are individual investors who have extra funds and are looking for solid business opportunities to help grow their money. An Angel Investor can be someone you meet through networking, but it can also be a friend or family member who is willing to pour capital into your business because they believe in you or your business’ potential. Angels (typically) have smaller amounts of money to invest than Venture Capitalists, and their investments range from $10,000 to $1 Million+.


In summary, if you want to start or grow a business and you need extra help with the finances, there are resources out there who can help. Just make sure that you (1) do your research, (2) go prepared when pitching, and (3) don’t agree to something that doesn’t line up with your future goals.

Cyd N. Mitchell
Business Blogger, Retail Bakers of America

Cydni N. Mitchell (aka Cyd) is a Bakery Consultant and the Sweet Business Coach behind Sweet Fest®. Based in Atlanta, GA, Sweet Fest® is an online company that supports the business needs of the Sweet Community in the areas of professional development, marketing, branding and web design.

By trade, Cyd is an accountant & financial analyst with a Masters from the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. She is the Founder of the Sugar Coin Academy, an online business academy for business owners in the baking and sweets industry, and she is also the organizer of The Ultimate Sugar Show, Georgia’s Largest Annual Baking and Sweets Expo in Atlanta. She is also the Business Blogger for the Retail Bakers of America.