Borrowing Limits 

In securing cafe finance, key factors include experience, a solid business plan, and reliable security. Here are the borrowing specifics: 

• Cafe Premises (Freehold): Secure up to 80% of the property value or up to 100% with a guarantor. 
• Cafe Business Finance: Borrow up to 50% of an existing coffee shop’s business value. 
• Potential 100% Borrowing: Achievable with additional security or a guarantor. 
• Loan Terms: Limited to a maximum of 15 years. 
• Interest Only Period: Available for up to 3 years. 
• Diverse Business Loans: Explore options for equipment, invoice discounting, and other business needs. 
• Loans Over $5,000,000: Subject to case-by-case evaluation. 
• Application Requirements: A comprehensive business plan with cash flow forecasting, coupled with 2-3 years of cafe management experience. Note that low doc loans and those for bad credit are generally not available. Interest rates are negotiable based on the strength of your situation. 

Demystifying the Approval Process 

Experience Matters: Despite cafes being considered recession-proof, the approval process is rigorous. Here’s what banks typically look for: 

• 2-3 Years Experience: A crucial factor, especially if you plan to manage the cafe yourself. 
• Educational Background: Completed courses in barista training, management, and customer service enhance your application. 
• Analogy to Job Interview: Think of your application as a job interview; the bank seeks assurance in their investment. Alternatively, if you lack the managerial experience, consider partnering with someone qualified while providing the necessary financing. 

Understanding Security: Security is a critical aspect.  

Here’s what you need to know: 

• Preferred Securities: Banks usually favor cash or residential property. 
• Business Assets Security: Typically involves a fixed and floating charge or Bill of Sale over business assets. Additionally, a director’s guarantee is required. 
• Buying an Existing Business: If you’re purchasing the business only, the bank may lend up to 50% of the cafe’s value. To cover the rest, you’ll need funds in cash or equity in residential property. Leveraging up to 80% of property equity is possible for business purposes, potentially covering 100% of the business costs. 
• Buying the Freehold: In cases where both the business and premises are for sale, the bank may lend up to 80% of the business premises’ value. In this scenario, you’ll need to provide the remaining 20% of the property value and the remaining 50% of the business value through cash and/or equity in residential property. 

Financial Evaluation: Banks scrutinize financial details to ensure you’re entering a sound investment. Here’s what they typically require: 

• Vendor’s Financial Records: The bank will want to review the last two years’ balance sheets, profit and loss statements, and assets and liabilities. 
• Tax Obligations: The last two years’ Australian Taxation Office (ATO) tax portals and Business Activity Statements (BAS) are necessary to demonstrate tax compliance. 
• Serviceability Ratio: Lenders generally expect the business turnover to be 1.5 to 2 times the proposed interest expenses, known as the ‘serviceability ratio.’ 

Crafting a Comprehensive Business Plan: Sitting down with your accountant is crucial. Your business plan should cover: 

• Cash Flow Forecasts: Detailed projections for financial planning. 
• Management Structure: Clearly outline who will be managing the cafe and their qualifications. 
• Staffing Plans: Specify the number of staff you intend to hire. 
• SWOT Analysis: Provide a comprehensive SWOT analysis, including local demographics and competitor research. 
• Marketing Strategy: Clearly articulate your marketing strategy to distinguish your cafe in a competitive landscape. 

Funding a Startup: Options and Considerations 

Equity Cash Out Loan: For startups, unsecured capital may not be available, but an equity cash-out loan provides alternatives: 

• Use of Funds: Suitable for fit-out, minor renovations, and equipment purchases. 
• Ongoing Business Finance: Explore various financial options, including equipment finance, overdraft facilities, invoice financing, and bank guarantees for securing leases. 

Government Grants: While the Australian government does offer business grants, they are limited, especially for startup capital. Exceptions exist for specific requirements, such as grants for Aboriginal and Torres Strait Islanders or those working in particular industries like energy and waste recycling or heritage projects. Existing businesses looking to expand, hire, or train new staff may find relevant grants. 

Insights into the Cafe Industry 

• Australia’s Coffee Culture: The cafe and coffee shop industry is booming and growing faster than the overall Australian economy. 
• Intense Competition: The rising number of specialty cafes brings heightened competition. 
• Profit Margin Challenges: Most cafe owners operate on thin profit margins, emphasizing the crucial role of passion for coffee. 
• Customer-Centric Approach: Repeat and referral businesses are vital; hence, excellent customer service is paramount. Word of mouth can significantly impact a cafe’s reputation. 

Key Considerations for Aspiring Cafe Owners 

• Education and Training: Undertake barista and customer service training, even if you’re not managing daily operations yourself. 
• Quality Sourcing: Emphasize the quality of coffee beans, a key selling point for regular customers. 
• Distinctive Business Premises: Make a statement with your business premises, whether through a warm and ambient fit-out or a completely unique style. 

Building Your Professional Team 

Before diving into cafe ownership, assemble a team of professionals to guide you: 

• Buyer’s Agent: Engage a commercial buyer’s agent to identify cafes for sale within your budget and negotiate on your behalf. 
• Accountant: Collaborate with an accountant to analyze the business’s financial health, identifying both opportunities and weaknesses. 
• Solicitor: Work closely with a solicitor to navigate the contract of sale (Heads of Agreement), ensuring it aligns with your interests. This includes clarifying rights and responsibilities, and you may want to include conditions for certain repairs by the vendor. 

Lease Considerations: Short-Term vs. Long-Term 

Short-Term Lease Benefits: 

• Flexibility: Avoid committing to extended leases, typically recommended for 1 to 2 years. 
• Risk Mitigation: Protects against potential liabilities in case of business failure. 

Long-Term Lease Considerations: 

• Stability: Establishes a strong and enduring business presence. 
• Risk Mitigation: Guards against relocation challenges if the landlord decides to sell the premises. 

Successfully securing cafe finance involves a meticulous approach, thorough industry understanding, and collaboration with seasoned professionals.