What is bar financing?
Bar financing is a loan that is meant to cover bar business related expenses. The owner must be approved for the loan and the money will need to be paid back with interest.
How does bar financing work?Â
Bar loans may work differently depending on the type of loan you are getting. However, all types will have a few points in common.
The first step in getting the loan will be qualifying. Some lenders will want to see a credit report and business history. Others will want collateral for the loan such as real estate or inventory.
Once the loan is approved, it can be used to pay for business related expenses. The money will need to be paid back with interest on a daily, monthly, or weekly basis.
Types of bar financing options
There are several types of bar financing options. Here are some to consider.
- Equipment financing. Equipment financing will cover equipment only. This may include bartending tools, bar mats, glasses and so on. This type of bar loan is a good option for new business owners and those with low credit scores as business and financial history is not taken into high consideration. However, if you default on the loan, you could lose your equipment.
- SBA loans. The Small Business Administration (SBA) provides loans for businesses. They have strict qualifications and will want to see a good credit score and business history. The loans can also take a while to fund. However, these bar loans come with advantages such as reasonable interest rates and more forgiveness than bank loans for business owners that default.
- Personal loans. Personal loans are similar to business loans, but the loan is given to the person, not the business. Therefore, the person must qualify by showing their own income and credit score. The borrower is also responsible for repayment of the loan. A personal loan can be used to finance anything including personal and business expenses.
- Line of credit: A line of credit is revolving and can offer businesses a great deal of flexibility. If you have an asset to secure the line of credit with and meet the qualifications to qualify, you should consider a line of credit. They are best for recurring expenses or to help improve cash flow. A line of credit should come with a reasonable interest rate, in some cases lower than other options.
- Cash advance: A cash advance is a short-term loan that works like a credit card. It’s a good option for emergency expenses like repairs and increased payments. However, it comes with several fees.
- Crowdfunding: Crowdfunding is typically done through a social media platform. Random people choose whether they want to invest in your company. If the business owner makes enough to get their company off the ground, the people that invested will hold equity in the business and will make revenue off its profits.
Do federal grants exist for bar based businesses?Â
There are several government organizations that provide grants for small businesses. If you do some research, you will find there are thousands of grants you can apply for. Restrictions may come into play in terms of the type of business you are and other factors, but federal grants for bar-based businesses do exist.
Pros and cons of bar loans
PROS
Bar loans come with their share of pros and cons. Here are a few to consider.
- Access cash to grow your business. Businesses require a great deal of capital to start and a healthy supply of cash to operate. Business loans can help businesses grow, improve, and be successful if they are managed properly.
- Keep equity in your business. Most business loans do not require you to give up equity in your business.
CONS
- Interest rates and fees. Bar financing comes with interest rates so you will end up spending more money in the long run. However, if the loan can increase revenue, it’s probably well worth the cost.Â
- Qualifying can be difficult. Most lenders will want to see a good credit score and a strong business history before they approve you. If you can’t show these qualifications, you may need to get an alternative loan that comes with high interest rates.
Types of most common bar business expenses
Bar loans can be used to cover various business expenses including:
- Equipment: Bar equipment includes shakers, tongs, glasses, bar mats, blenders and more.
- Inventory: Inventory refers to whatever the bar sells including alcoholic and nonalcoholic drinks and possibly food and merch items.
- Building or remodeling expenses: Building expenses include remodeling, repairs and expansions done on the building in its early stages or at some point down the line.
- Payroll: Payroll is a hefty business expense. You may need bar financing so you can afford to pay your staff at times.
- Marketing: Every good business needs a strong marketing campaign. This will require marketing materials, marketing software and a marketing team.
What is the average cost to obtain financing for my bar business?
The cost to open a bar can vary depending on how big the venue is, whether you plan to make it upscale or divey, the amount of people you plan to employ, and so on. However, average costs range between $125,000 and 850,000.
To determine how much your bar financing will cost, you need to think about how much you will be borrowing and what interest rates will be.
Tips for managing your bar finances
To be successful, it’s essential to manage your bar financing well. Here are some tips that can help you achieve your goal.
- Maintain steady cash flow: You can maintain steady cash flow by keeping on top of collections and avoiding making investments you can’t afford.
- Make smart investments: Invest in things you know you need, that will work for you and that will withstand the test of time. This should yield long-term savings.
- Make a business plan: Create a smart business plan with realistic sales projections and expenses.
- Raise sufficient capital: It’s important to raise sufficient capital when opening your business. You should plan for startup expenses, ongoing expenses, and unexpected expenses.
- Don’t borrow to get your way out of doubt: Borrowing will only compound interest rates on debt. Work on devising a reasonable payment plan to get out of debt instead.
What credit score do I need to qualify for bar financing?
Most bar loans will be approved for people with a credit score of 700 or above. If you have a credit score of 640 to 700, you may be able to qualify if you have good business history.
If your credit score is between 600 and 640, you may have to go for an alternative loan that comes with high interest rates. If your score is below 600, you will have trouble qualifying at all.
How do I qualify for a business loan to open a bar?
In addition to a good credit score, most lenders will also want to see a strong business history. They will want proof that you have been in business for 1-2 years and that you have an annual revenue of around $250,000. If you are unable to meet these qualifications, you may be able to use inventory or real estate as collateral.Â
Is owning a bar worth it?
Owning a bar can be a good investment. The average net profit of a well-run bar is more than the average annual stock market return. Net profit is typically around $39,600 a year.
How to get a business loan for a bar
The bar financing process starts with finding the loan and lender that’s right for you. Once you determine your best route, you can meet or connect with lenders to find out how to move forward in the bar loans process. You may need to show documentation to prove you meet the requirements.
One of the simplest ways to get a business loan for a bar is online. By shopping online you can take advantage of the freedom to make decisions at your own pace, pressure-free. You can also compare rates and terms for yourself, rather than just having some tell you what is and isn’t a reasonable deal. When you are ready, you will start by getting pre-qualified for a loan. Taking this step can help you find out what you qualify for and what the lender needs to approve your loan.
Get pre-qualified for a bar business loan in minutes. . . get started today!
