5 Ways To Get Funding To Open A Bakery

Some people don’t want to live their life in a cubicle or an office. After all, corporate life isn’t for everybody, and that’s fine! Some entrepreneurs aren’t the “sit in an office and reap the rewards” type. You need to keep working. You need to get your hands dirty, and you don’t want to reap the rewards of your efforts- you want to taste them! However, there’s one problem; funding. How could you ever get the money you need for your bakery?

There are five main ways you could get funding to open your bakery. The first, and easiest, is using your own money. Alternatively, you could use a private investor or take on the popular method of crowdfunding. If you are open to a larger amount of money, you may open a credit line or take out a loan, but you risk opening yourself to interest charges, fees, and collateral on top of incessant paperwork.

This may seem a bit overwhelming, but don’t worry. It’s not as hard as you might think! Plus, we have all of the information that you will need to get funding for your new bakery. Without further ado, let’s get to it! Here are five of the best ways to get funding to open a bakery.

Use Your Own Money

If you have saved up some of your own money, you can use your personal funds to help fund your new bakery. Using your own money, also known as self-funding, is hands-down the easiest way to fund your bakery, or any other business venture you may decide on in the future. This ease is because you don’t need to fill out any paperwork aside from the typical paperwork required to set up a business by your local governments.

Additionally, self-funding does not invoke any late payment penalties, interest, or other fees. Remember, when self-funding, you are using your own money- you are not borrowing from another person or a financial entity, and there’s nobody who wants their money back!

Starting a bakery may cost anywhere between $10,000 and $50,000 on average, depending on your location and the size your bakery starts at. Obviously, renting a larger storefront space will be more costly than a smaller one, and a location in a larger city will cost more than a similarly-sized location in a small town.

Budgeting is more vital in self-funded businesses than with any other method. When you run out of pocket money, you can’t send an application to your wallet to request more funds like you could with a bank! Make sure that you budget properly when starting your bakery. For example, as a baker, you should budget about 3.5% of your sales to go towards rent.

One benefit of self-funding is that it is flexible. You could always use your personal cash in conjunction with a loan or a credit line to help give your new business more money to work with.

However, we know that self-funding is not a viable option for many people. Sometimes you just don’t have enough money to start a business by yourself. That’s no problem- everybody needs financial assistance here and there. Once your bakery gets started, though? You might never need to take out a loan again!

We know that money can be hard to come by. That’s why we have these other four options available for you!

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Take Out A Loan

Every major business has taken out a loan at some point in its lifespan. The Small Business Association records giving Economic Injury Disaster Loans to over four million businesses from 2020 to 2022 alone!

Loans have been a trusted way for businesses to receive necessary funds for centuries. Nationwide, hundreds if not thousands of banks and financial institutions offer business loans to help new businesses grow and existing businesses expand.

Some of these loans are backed by the Small Business Association, or SBA, with guidelines specifically to encourage growth in small businesses. As the future owner of a new bakery, these may be the best options for you!

However, loans come with some challenges and may not be the best route for everybody. After all, no bank or government will just give you free money- but wouldn’t that be nice? Then we wouldn’t have to worry about finding funding!

The first issue with loans is that they require a lengthy waiting period. Banks may keep you on edge for months as your loan request goes through underwriting, awaiting approval from the powers that be at your bank.

However, this wait time may be the least of your worries. Loans come with interest, which is an additional, percentage-based fee on top of your initial borrowed balance- you’ll pay back more money than you took out, which is how your bank makes money.

Collateral may be a larger issue. Your bank will likely request collateral against your loan; this will be some valuable form of property that your bank can seize if you default on your payments.

Open A Credit Line

Loans are popular for a reason, but sometimes, it may be too much of a commitment. This is where credit lines come in handy. In many ways, credit lines are similar to loans; you send in an application to your bank requesting a certain amount of money, and they comply with certain constrictions. The underwriting time for credit lines and loans are similar, as well.

However, credit lines and loans face a few major differences. You may be familiar with the concept of a credit line already by virtue of having a credit card of your own; your credit card is a personal credit line. However, a business credit line may have a far higher monetary limit than your personal credit card.

You must note, however, that this does not make a credit line a better alternative to a loan. Some banks may request collateral on your credit line, and if your credit score dips below a certain amount, the bank may shut down your credit line altogether. Additionally, you may face an interest fee based on the used balance of your account, and/or a flat monthly fee.

All of these requirements will vary between credit lines, which, in turn, will vary between banks. Similarly to loans, make sure that you read all of the guidelines before deciding which credit line to take out. You want to be as informed as possible!

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Crowdfunding

In recent years, crowdfunding has been a popular method for any organization to gain money. Websites such as Kickstarter and GoFundMe operate on the premise of a person collecting money from their community for a certain cause. You might not choose to use these sites, but you can certainly utilize this concept to gain funding!

Crowdfunding works when one person collects money from other people, or a ‘crowd.’ This crowd can be anybody from your neighbors to your family or complete strangers. Take a leaf from Kickstarter and consider offering benefits for anybody who chooses to fund your bakery, such as free cupcakes or bread. 

Using An Investor

Finally, we have one of the most versatile options available. Shows such as the popular Shark Tank have made the investment process transparent for everybody around the world, and you can utilize the foundation of that show to get funding.

We’re not saying to go on Shark Tank to get funding for your bakery, though you’re certainly welcome to try if your bakery is just that cool! We’re talking about taking on a private investor. You don’t need to be publicly-traded to let somebody invest in your company.

A private investor will give you a specified amount of money in exchange for certain privileges, such as a cut of your business’s profits. However, an investor may also become a decision-maker in your company, so make sure that your investor is somebody who you are comfortable with.

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Conclusion

In the end, there must be thousands of ways you could get funding for your bakery. Each of these methods we listed may have hundreds of minute variations depending on your bank, your friends, and how much money you have on hand. All we can do is list the five best methods to get funding for your bakery.

Ultimately, we can’t tell you what works best for you and your business. If you have the money, self-funding may be the way to go, but you might choose to take out a loan or open a credit line to boost your business’s credit score. Every single option varies depending on what you want, and nobody can make that decision but you.

Thankfully, we trust that you know what you’re doing. Choosing one of these methods may not be easy, but it’s a decision you have to make. Luckily for you, you’re an entrepreneur! This is what you were born to do. You know what you want, and you’re in no rush. Whatever choice you make will be the right one for you and your business, and you will have a great head start on your new journey with owning and running a bakery!

To learn more on how to plan your own bakery business click here!

Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.