I am planning to open my shop (first time!!) in the next year or two and am at the stage where I need to consider how I am going to fund my business. Unfortunately, a bank loan is inevitable; however, I would really like to consider other sources to supplement a smaller bank loan. Has anyone tried to get outside investors... through small loans or possible even angel investors? How does this all work? How do you make it worthwhile to an investor when you may not turn a profit for several years?

Clueless...
Devon

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Write a business plan and calculate what you will need and double it (at least). If you are renovating are building that is a whole different ball game, and if you get suckered in by a bad consultant, a cafe-n-crate supplier, or an equipment supplier all who don't deliver the quality of service and goods that you paid for... well then you can kiss all that money good bye too!
It's amazing what you learn opening a cafe. There are definitely a lot of consultants out there that shouldn't be. Always do your own due diligence and question everything. I wouldn't do business with a consultant that didn't own their own cafe. If they haven't opened their own place and done it for themselves they have no business in your cafe. We wasted a ton of money on consultants that did not meet expectations, wasted more money on a "deal" of a designer. And just threw away money on Millrocks cabinetry, $45,000 in cabinets that were supposed to be designed for optimum work flow, luckily it was a modular set up and we were able to rearrange but on the next cafe we will do it for 1/2 the budget.
Unfortunately, I think you're going to find financing pretty hard to come by unless it's from someone who loves you. You can't expect outside investors to risk their money if you don't have something at stake also. A first time owner/manager with no experience in running a business is a tough sell to any lender. Equity in a home, savings, or anything else to put up as collateral would still not make financing easy to come by. Investors want to feel like they are putting their money into rock solid investments and what you are describing is a venture that traditionally has a high rate of failure.

How does this all work, you asked? Here it is....you need to get experience running a business, even if you just get a job as a manager in a fast food place or some chain store you'll learn a lot. Learn about marketing, record keeping requirements, IRS and OSHA rules, personell procedures, how to read a profit and loss statement, inventory management, site selection, the list goes on and on. THEN, you sign away the equity in your home, your savings and retirement money, your child's college fund, every penny you've ever made and ever hope to make. Then, and only then, can you expect a bank to loan you a portion of the money you'll need. Sorry if this seems harsh, I know it's not what you want to hear, but that really IS how it works.
Wow, Bob, that is harsh.
I agree it's next to impossible to find funding in this market, and you're better off spending your time looking into a local angel investors group, or putting together a pool of investors. Say, 50 shares at $3,000 apiece, and you're going to pay up 50% of the net annual profits in dividends and give 3% annually in share value. ($3,000 share is worth $3,090 after year 1).
Plan out your shop, and then start looking at it from your current (read: broke) position. Be innovative and don't hold anything but the equipment as sacred. I'm saying this from the prospective of having had 4 banks call me to break off negotiations last fall when the market tanked, so I feel for you, but don't give up- your funding is out there, you just haven't found it yet!
Happy hunting!
honestly if you don't have a significant portion of the funding yourself and you aren't willing to put everything on the line, you might not be ready yet. Really think about what you are willing to sacrifice to open your business and keep that in mind when you are seeking financing.

... uh... no loan sharks! :)

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