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Updated: April 3rd, 2020
Starbucks may be the most recognizable name in the coffee game but there are plenty of smaller coffee shops that are thriving alongside the big-name competition. To keep the java flowing, many coffee shop owners turn to term loans to meet their financing needs. If you’re in search of capital, keep reading to learn:
Simply put, a term loan is a loan that has a fixed repayment period and either a fixed or variable interest rate. Short-term loans have shorter repayment terms, usually lasting 18 months or less. Long-term loans usually have repayment periods of one to five years, although some lenders will extend it up to 10 years.
Coffee shop owners have numerous financing options to choose from when they need working capital. Some, such as invoice factoring, are faster in terms of funding but the trade-off may be a higher interest rate. Bank and SBA loans, on the other hand, have lower rates but they can take longer to process. That can be problematic if you need funding for your coffee shop and time is of the essence.
Term loans offer the best of both worlds. When you’re working with an online lender, the funding speed can be cut down to a matter of days. Funding Circle, for instance, is able to process loan applications in as little as 24 hours after document submission.
You’re also more likely to fare better where the interest rate is concerned with a term loan versus something like a merchant cash advance. Getting the lowest APR possible is crucial from a cost perspective because the less you pay in interest, the better where your bottom line is concerned.
Finally, getting a term loan through an online lender may present fewer obstacles for a coffee shop owner than angling for a loan from a bank. Jonathan Rubinstein, founder of the infamous New York City’s Joe Coffee, was able to secure a term loan after hitting a dead end with traditional banks.
The great thing about term loans is that they’re designed to fill a number of financing needs. That works in your favor if you need funding because:
Those are just some of the ways you can use a term loan to your advantage. Ultimately, term loan financing can help you tackle any issue that may challenge your coffee shop’s sustainability, large or small.
As mentioned earlier, getting approved for a term loan through an online lender may be less of a headache. In general, online lenders are looking for things like:
Funding Circle, for instance, works with coffee shop owners who have been in business for two years or more, and a personal credit score of at least 620. As you’re weighing your term loan options, take a look at what’s needed to qualify as well as the terms a particular lender is offering to make sure you find the loan that best fits your needs.
Funding Circle is 100% focused on small businesses, which is why we made a loan that’s faster, more flexible and made exclusively for you. To date, we’ve helped 77,000 small businesses across the world access over $10.9 billion in financing.
Samantha Novick is a senior editor at Funding Circle, specializing in small business financing. She has a bachelor's degree from the Gallatin School of Individualized Study at New York University. Prior to Funding Circle, Samantha was a community manager at Marcus by Goldman Sachs. Her work has been featured in a number of top small business resource sites and publications.