Sell your business online with zero commissions

Sell your business online with zero commissions

How to Get Financing to Buy a Café

//How to Get Financing to Buy a Café

Two financing options to buy a café

If it’s your dream to own your own café, purchasing an existing business is a great way to minimize risk and make sure your company is on solid ground.

Buying and running your own business will require hard work, dedication, and of course, financing.

For prospective business buyers new to the game, getting finance to buy a café can seem like the most daunting and scary aspect of all. But if you know your options, you’ll be ahead of the game.

The most common finance options when buying a café — or any business, for that matter — are through debt or vendor finance. Debt financing simply means you’ll get a loan from a third party.

Vendor financing is another option for buying a café. We walk you through all three, so you can get a good feel of what’s right for you.

Getting the financing to buy a café is not as scary as it seems. Take a look at our top ways to finance a café purchase. We’ll highlight the three options with the pros and cons of each. Get one step closer to owning a café and securing the financing you need.


Option 1: Debt finance for purchasing a cafe

Debt Financing

Debt financing refers to any money you borrow from a third-party lender, usually a bank, credit union, or other financial company. To purchase a business like a café, you’ll be borrowing a fixed amount. Your interest rate will hinge on several aspects such as your credit, how much you are borrowing, etc.

However, you can also use debt finance to fund the purchase of your new café by getting the loan from a friend or family member. Like we discussed  with making friends/family equity partners, seriously take into account if the relationship can withstand the pressures.

If you think debt finance might be a good move for you, be sure to:

  1. Check your credit and improve it if needed.
  2. Thoroughly research all prospective loans and lenders, including the interest rate and time frame.
  3. Set realistic expectations about whether or not you can pay the money back according to your business plan and projected profits.
  4. Approach lenders with your bases covered. The more information you have, the better. This includes your business plan, personal income history, budget forecasts, financial records of the existing business, etc.
  5. Talk to an accountant to make sure you can afford the loan you need without putting yourself in financial jeopardy.
  6. Document the agreement in detail if borrowing from a friend or family member.

Debt Finance Pros

  • No forfeited equity– You don’t have to give up any ownership in your company. You can retain as much control as you want and will not have to share profits.
  • No relationship strain– If you go with a lending institution, you won’t have to worry about putting stress on a close relationship with a loved one.
  • Interest is tax deductible– The interest owed on your small business loan for your café is tax deductible.

Debt Finance Cons

  • The loan must be repaid– Unlike equity finance, your borrower will come for this money and have every legal entitlement to do so.
  • Interest– Even though your interest will be tax deductible, you’ll still end up paying more than what you initially borrowed.
  • Tougher requirements– Unlike an investor, lending institutions will make you jump through more hoops to get your hands on their financing. You will have to make a deposit and even put up assets such as your home as collateral.
  • Bigger risk– In the event you cannot repay your loan in the set amount of time, the bank can seize your assets lawfully.

Option 2: Vendor finance for purchasing a café

Vendor finance

Vendor financing is often referred to as owner financing or seller financing. The person or people who sell you the café also loans monies to help you get started as part of the purchase price. Vendor finance usually occurs when the buyer cannot quite afford the purchase price, and the seller is intent on selling to said buyer. The seller will basically accept an IOU from you to be paid back in an agreed-upon timeframe.

To secure vendor financing for a cafe, here’s a list of what to expect:

  • Speak with an accountant about exactly how much you need to buy the business. The accountant will help you figure out how to negotiate a loan that serves your best interests.
  • Make sure both parties fully understand and agree to the terms of the loan.
  • Have a lawyer draft a loan agreement, detailing every condition of the financing, like interest rate, financial reporting requirements, etc.


Vendor Finance Pros

  • Avoid the banks– You won’t need to jump through all the hoops as with debt financing. If your credit isn’t where it should be or you are having a hard time securing a bank loan, vendor finance could be a great option.
  • Avoid the investors– Retain your equity and the power of the business decision making. With vendor finance, you won’t have to forfeit any equity or power.
  • Get to work faster– Usually, vendor financing will put you in business substantially faster than going with lenders or investors. You’ll make your own arrangements between the two parties and be able to start making money almost immediately.

Vendor Finance Cons

  • Can be difficult to secure– Not every seller will want to provide a loan to fill the gap between the price they want and what you can afford. Vendor financing is not uncommon, but it isn’t usually preferred by the seller.
  • The loan must be repaid– Just like the good old bank, you’ll need to make a deposit and pay interest.
  • Mid-level risk– Usually, the café you want to purchase will serve as the collateral for a vendor loan. Ipso facto, the seller may take over if you miss any payments.


Next steps

Take each of these financing options into consideration and figure out which one will work for you and your business. You’ll need to take a lot into account, not just your finances. For example, you may have a friend already willing to lend you the money. But perhaps this person wants to be more involved than you’d like in the business.

Money, relationships, and your sanity are on the line, so take your time.

At the end of the day, it’s all about what you can afford and what puts you in a position to succeed. Do your research and fulfill your dream of owning your own café.


Are you buying a business in Perth? Do you have a Perth business for sale? For more information on how you can get the best results, contact Angela at