Running a successful bakery is an exciting venture, but it can also be expensive. If your Paycheck Protection Program (PPP) loan has already run out and you need more capital to expand your business, you may need to seek out capital. The good news is, there’s myriad financing options for you to choose from.

The PPP was established under the CARES Act to provide forgivable loans to small companies like yours during the pandemic. The main goal was to help companies use funds to suffice for employee salaries, preventing them from cutting jobs.

However, the PPP loan was intended for this purpose only: to help you keep your employees on the payroll. As you map out your bakery's growth in 2022, you will need financing solutions that can help you cover various expenses such as increasing inventory, upgrading kitchen equipment, renovating the bakeshop, or providing better employee benefits.

This article will cover the different financing options available at your disposal.

1. Small business loans from banks

One of the most common ways to finance a bakery is through a loan from a bank or other financial institution. This option can be beneficial because you will have access to a set amount of money that you can use to cover your startup costs or existing debt.

However, traditional lenders like banks and credit unions are strict with requirements, and may take time to process your loan application. This means that if you are a new baker with no business credit history, you might find it hard to secure funding from a bank.

2. Equipment financing

It can be difficult to afford all of the necessary bakery equipment outright, which is where equipment financing comes in.

Equipment financing is an alternative financing solution that helps you purchase new equipment needed in running the business without paying for them upfront. It can be used for various purposes, such as purchasing or leasing vehicles, furniture and fixtures, heavy equipment, and more.

Heavy duty ovens and other appliances can be expensive especially when you’re strapped for cash. Through equipment financing, you’re able to spread out the payments and maintain positive cash flow. Just remember that in case your loan payments default, the lender has all the right to seize your equipment. The equipment you purchased serves as your collateral in taking out the loan.

3. Invoice financing

Running a bakery is no easy task. Between the long hours and demanding customers, it can be tough to make a profit. You can address these challenges with invoice financing.

Invoice financing is a type of lending that allows you to borrow money against the money your customers owe you. This can be a huge help for businesses waiting on payments from their customers.

There are a few ways that invoice financing can help your bakery business grow. First, it can provide you with the working capital to purchase ingredients and supplies. This is crucial for any business, but especially for bakeries who often have to order in large quantities of flour, sugar, butter, and so on.

Second, invoice financing can help you expand your business. With the extra money from invoice financing, you can renovate your bakeshop, hire additional employees, or open a new location.

Lastly, invoice financing can help you manage your cash flow. When you have to wait 30 to 60 days for payments from your customers, it can be difficult to keep up with daily expenses. With invoice financing, you can get the money you need to cover your costs while you're waiting for payments from your customers.

4. Business line of credit

A business line of credit is a type of loan that gives small businesses access to capital they need for short-term needs. It’s what you use for unexpected expenses such as equipment repairs or hiring temporary employees for huge orders. It also gives you the financial cushion needed for emergencies, such as a fire hazard or temporary lockdown implementations.

The beauty of using a business line of credit iis, lenders will give you access to a set amount of capital on an as-needed basis. You can draw funds from your account whenever you need capital, and pay it back later with interest.

Since this type of financing functions as a revolving fund, you are not obliged to use all the funds. You can simply use what you need, or leave it in your account for future use.

5. Asset-based loan

Asset-based loans can offer tremendous benefits for your bakery. You can use the loan to purchase new equipment, boost production, and help you maintain positive cash flow.

Asset-based finance primarily relies on the collateral you put up when applying for a loan, rather than just cash flow and credit. Here’s how it works: lenders will check the value of your loan against assets, which will be used to secure the loan.

You can use your inventory, real estate, equipment, and machineries as collateral. Note that lenders may require field examinations and may ask someone to appraise your assets to determine the exact market value of your property.

BONUS: You may also try crowdfunding

Many local small businesses go to platforms like GoFundMe and Kickstarter for crowdfunding. This allows you to raise capital from friends, family and the general public who want to support your bakery.

Crowdfunding is most recommended for small bakeshop owners who are having a hard time getting their business off the ground. Also, if you are looking at setting up your first bakeshop but you are not yet qualified to get a small business loan, crowdfunding may be a good option for you.

Take note that if you will prefer this option, it will take time to raise money. Also, you might not be able to raise as much as you expect, given tough competition.

No matter what financing solution you choose for your bakery, make sure you talk to experts. They will guide you through the process and lead you to the best financing option that will yield you the most value.


About the Author - Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners