How to secure enough funding to open a bakery
So you've decided to turn your love of bread into a business opportunity and open your own bakery.
Embarking on a new entrepreneurial adventure is truly exciting, but it's important to keep a cool head as you assess all the elements needed to bring your dream project to fruition - especially when it comes to financing.
After the initial excitement linked to this great entrepreneurial adventure, you will quickly have to return to more down-to-earth and material considerations to secure funding for your bakery.
To help you succeed on this mission, the guide below provides detailed information on the various sources of financing at your disposal when assessing the funds needed to set up your bakery.
What items need to be funded when opening a bakery?
Opening a bakery requires the acquisition of a certain number of assets from the very beginning. In the table below, you'll find possible financing methods for each of the main categories of investment:
Item | Bank financing | Leasing | Grant / tax credit |
Property / Renovation | Bank loan (10 to 20 years) |
Leasing of property | Investment grant (in some cases) |
Equipment | Bank loan (2 to 7 years) |
Leasing (or long-term rental for vehicles) | Investment grant (in some cases) |
Stock | Hard to finance as the food is perishable | ||
TVA | Bridging loan (up to 6 months) |
||
Initial cash position | Overdraft | ||
Purchase of the business (if taken over) |
Bank loan (5 to 15 years) |
It's not only about finding funding for your bakery but also opening a professional bank account. It's the agreement linked to this account that governs its operating rules, such as authorized overdrafts.
You can apply for multiple financing instruments with a single bank. Before settling with one bank, however, it might be an idea to compare the rates of competing banks so you can receive the financing package that best suits your professional situation.
Equity as a tool to fund your bakery
The very first factor you need to take into consideration when searching for funding for a bakery, is just how much you can contribute to the project yourself.
When launching a new bakery or taking over an existing bakery, it's recommended that prove to banks that your personal contribution will cover at least 30% of your bakery's funding requirements. When setting up a bakery under franchise, a minimum amount of equity is also often required by the owner of the franchise.
To build up your equity, you'll, of course, have to dip into your personal savings, but you can also go down other avenues to fund your bakery.
First, you can solicit your family and friends by requesting what is known as 'love money'. This means collecting funds (in the form of donations, loans, or investments) from those close to you.
Your loved ones know you well and know what you are capable of, so it's often easier to convince them to support and invest in you and your business than to convince an investor you've never met before.
You can also consider crowdfunding to increase your equity contribution and find the appropriate funding for your bakery. Simply set up a campaign on a crowdfunding platform, tell your story and you'll be put in contact with like-minded individuals who wish to financially support your venture.
Here again, financing can be in the form of donations or an investment in the company's capital. You don't technically owe anything to those who donate via crowdfunding, but it might be a good idea to offer a few perks that'll encourage people to support you, such as offering your supporters free croissants or cake every Saturday for a month.
Finally, contacting private investors, such as angel investors in your area, is also a potential funding source that shouldn't be overlooked. A private investor may, of course, be seduced by the expected profitability of your business, but it's also worth noting that investing in small businesses often allows them to benefit from tax credit (such as SEIS or EIS in the UK) and reduce their bill with the tax authorities.
The importance of a business plan to find funding for your bakery
The business plan is an essential (and very large) piece of the puzzle when it comes to securing funding for your bakery.
A business plan for a bakery contains two main parts:
- A financial forecast that aims to highlight the expected profitability of the project and the initial financing required to launch the business.
- A written part that presents, in detail, your project, the team, your business strategy, and your medium-term objectives.
This document is a summary of your bakery project, and it is what's on these few pages that will determine the amount of funding you'll secure. Your business plan must therefore be perfect: synthetic, but with sufficient details and explanations, clear and readable, and well written. This exercise is not necessarily easy.
It is with the business plan for your bakery that you’ll communicate your business’s concept and plan of action to potential investors. It must therefore be precise - presenting the details of your business in a clear and engaging manner - and, ultimately, it needs to make whoever is reading it want to embark on your entrepreneurial adventure with you.
If you are not used to writing business plans, a good solution would be to use online business plan software.
There are several advantages to using specialized software:
- You are guided through the writing process by detailed instructions and examples for each part of the plan.
- You can be inspired by already written business plan templates
- You can easily create your financial forecast by letting the software take care of the calculations and financial aspects for you.
- You get a professional document, formatted and ready to be sent to your bank.
If you are interested in this type of solution, you can try our software for free by clicking here.
State aid available for creating or taking over a bakery
There are multiple schemes for the creation and takeover of businesses to help you find funding for your bakery. The trick is to know them and to know that you are entitled to them.
If you are in the UK, to find out more about the support available, you can visit the Business Finance Support Finder. Another option is to apply for the Start-Up Loans Scheme. Supported by the government, this scheme offers personal loans of up to £25,000. The interest rate on such loans is just 6% and entrepreneurs also receive access to free mentoring and business support.
In the US, the SBA works with various organisations to provide small businesses with grants. Check out their website to see if you meet the criteria to apply.
Another option to fund your bakery would be to find out about regional business start-up awards and competitions set up by your local government that reward and fund business start-up projects.
Now that our article is at its end, we hope that it has helped you paint a clearer picture of the possibilities available to you when securing funding for your bakery. If you still have any questions, do not hesitate to contact us for any questions related to the creation of a bakery.
Also on The Business Plan Shop
- Business plan template for a bakery
- Guide to enhance your bakery's profitability
- How to open a bakery with no money
- How to do market research for a bakery