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How to Get a Business Loan to Buy or Start a Bar in 5 Steps

Do you want to buy or start a bar business but you don’t know where to source for capital? If YES, here is a 5-step guide on how to get a loan for a bar. Bars make for a wonderful business idea in part because they are a staple of just about every community. Bars mainly focus on serving alcohol, but the rise of America’s addiction to “pub grub” means there may be an opportunity to provide delicious food to patrons as well.

However, this business has high startup cost when compared to other industries, with an average of $500,000. Ongoing operating costs can be high too, and not just initially. In some states, the price of a liquor license can average around $400,000. As a business owner, obtaining small business financing can prove challenging.

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Bars are believed to do a significant amount of trade in cash and tend to lack the kind of collateral that other small businesses may have to secure a loan, making them appear more risky to lenders. One common misconception about financing a bar is that you are limited to banks. In reality, alternative lenders offer a convenient path to finding capital for a bar business.

There are lenders who operate in the online space, offering a variety of financing options for bar owners who might not necessarily qualify for a traditional loan, or who are in need of funding more quickly than a bank is able to offer. If you are interested in starting a bar business but lack the needed resources to make this dream a reality, read on to learn the basic needs, loan options, and process of financing your bar business dream.

Best Startup Funding Options for a Bar Business

In the United States, lenders more or less see bars in the same way as other food service businesses. Bars and restaurants are both seen as a risky industry with a lot of turnover. Nonetheless, recent reports have proven that both bars and restaurants tend to be more successful than other types of businesses.

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This growing realisation has provided bars and restaurants with a lot more financing options, but here are the best to seek when looking to start a bar business.

1. SBA Loans

The SBA 7 loan is a government-backed loan that’s provided through traditional lending institutions like banks, credit unions, and lending firms. The loan terms benefit both the lender and borrower, and the eligibility requirements are straightforward. The SBA 7 can be used for real estate or land, like buying an existing bar or building a new one.

Equipment costs can also be covered by the SBA 7—kitchens need ovens, fryers, and a grease trap; clubs need A/V gear and more. Even working capital is covered by the SBA 7; if the expense is for a legitimate business purpose, it is probably allowed by the loan program.

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Although the SBA shares a wealth of valuable information on starting and growing your small business, it isn’t in the business of lending money. This loan is offered through banks, credit unions, and other lending institutions, and the SBA guarantees the loan up to a certain amount.

Terms for real estate and land loans run up to 25 years. The maximum loan amount is $5 million, and there’s no minimum loan amount. The SBA guarantees up to 85 percent for loans of up to $150,000. For loans greater than $150,000, the SBA guarantees 75 percent.

2. Equipment Financing for Bars

If you have found a suitable location for your business but do not have the equipment to settle things in, then you can seek equipment financing to acquire these equipment and start your business. These equipment may include things like refrigerators, draft lines for beer, brewing equipment, tables, chairs, sinks, and ice boxes. Equipment financing is also a great option for entrepreneurs who either don’t qualify for an SBA loan or who need the money faster than the SBA loan approval timeline permits.

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There are numerous lenders who can provide you with up to 100 percent of the cost of your equipment, with no additional collateral required beyond the equipment itself (since the bank will repossess your equipment in the event that you can’t pay back the loan).

3. Personal Loan

In a scenario where you don’t need to purchase equipment, or your credit score denies you a SBA loan, there’s always the option of taking out a personal loan for your small business. Ideally, normal small business loans require banks to look at your company’s financial history (which includes credit and cash flow histories), require collateral, and often come with restrictions on how you can use the money.

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But personal loans rely just on your personal financials instead. And you typically don’t have to put down collateral as part of the deal. In addition, you’ll have fewer limitations on what you can do with the money once the lender approves your application.

However, personal loans are sometimes the only path for entrepreneurs who want to start or buy a brand-new bar. It is difficult to get approved for a traditional business loan if you can’t demonstrate income yet, and your bar likely doesn’t have any kind of cash flow history to submit during the approval process. Howbeit, that makes personal loans an attractive alternative. The catch is that you might not be able to get a lot of money through a personal loan.

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4. Soft Loans From Friends, Family, and Individuals

From time immemorial, friends, family, and private investors have helped many entrepreneurs start their own bars and businesses. These close folks can be quick sources of quick capital who don’t require background checks, credit reports, or elaborate business proposals.

However, you are advised to approach this option with caution. All through human existence, business doesn’t always mix well with friends and family, and if your bar goes south, you are going to owe your investors the full amount of their stake in the company. One recommended way to protect yourself and your investors is to draft up the terms of any loan or investment in writing. You can write up a simple agreement yourself or hire a lawyer.

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How to Get Startup Loan for your Bar Business

Starting your own bar business requires substantial capital to tackle the multitude of expenses that will arise. You can get funding to open your bar through the various options analyzed above. Nonetheless, here is a detailed guide to put you through the process of getting startup loan from your business.

a. Write a Business Plan and State Where the Business Loan is going

There are a variety of startup costs that you might encounter when you are getting your small business up and running. Also, so many new business owners greatly over – estimate the amount of money they need. Hence, when putting together your business plan for your bar business, make your estimates as exact as possible and justify how much you need for each purchase.

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Note that if you apply for a loan and fail to justify how you are going to spend the money, you will be rejected. But if you account for every penny in your business plan, you are far more likely to have a successful application. You should even prioritize your need for funds. For example, if you are applying for a $60,000 loan and $35,000 is for equipment, show that in your business plan.

b. Get Your Documents and Registrations Ready

Have it in mind that getting a business loan to finance your new bar can be very daunting. Traditional lenders are always slow to finance a young company with no business history and no proven revenue. However, startup bar businesses have a better shot at securing financing when the founders do some preparation before starting their search.

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You already know the importance of having a well-thought out and thorough business plan. However, your business plan should include your financial projections—future sales, profits, income, cash flow, and so on—and more qualitative goals for your business.

Before they fund your startup, lenders also want to see that you have taken the steps to make your business official. It simply means that you have officially filed your business with the necessary parties and have all the required licenses and permits needed to operate your business.

Nonetheless, your loan requirements will vary from lender to lender, but there are documents that almost every lender will require: bank statements, income statements, personal tax returns, resume, financial projections, and so on.

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c. Check Your Qualifications

After you are done with arranging all paperwork, you must check to see if you can actually qualify for the loan you need. Note that as a startup founder, you won’t necessarily have any established business credit history to prove your creditworthiness.

However, lenders will look at your personal credit score as a way to analyze how reliable you’ll be as a borrower. Have it in mind that banks will only offer financing to borrowers with credit scores of 680+. Anything below that and you’ll likely be a better fit for a non – bank lender.

Also note that your experience and time in business will count during these processes. In the eyes of a small business lender, the more time you have in business the better. Showing that you have a few years under your belt proves that you can withstand the regular ups and downs that come with running a bar business. You have established your presence.

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d. Choose the Right Startup Loan

Now that you know how to get a loan to start your own business, you are ready to start your loan search. Just like it was stated above, there are many financing options when looking to buy or start a bar business. Choose the one that best suits your needs and situation.

e. Build Your Assets

To acquire a startup loan without a lot of proven business history, lenders will more or less ask that you have some sort of collateral. As a startup, you probably don’t have a lot of business assets, like real estate, equipment, or inventory.

Instead, lenders might ask for personal assets, like a home or a car. Nonetheless, putting your personal assets on the line can be very risky. If you can’t pay back your loan, you won’t only lose your business—you might end up losing your home, car or other property.

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Lenders will also expect you to make a financial commitment to the business. They will expect to see you inject cash into your new business. If you show confidence in your new business by investing in it yourself, you will have a better chance of getting approved for a business loan.