How to Open a Coffee Shop and Secure Financing for It

Starting your own coffee shop can mark the beginning of your dream business. As the food and beverage industry continues to thrive, opening a coffee shop can be a profitable venture. To run a successful coffee shop, you need to obtain the necessary licences, conduct thorough research, and plan your finances.

Bringing this idea to life requires significant funding for seating, equipment, interiors, and licences. A business loan for opening a coffee shop can provide the financial support you need. These loans are often collateral-free, tailored to your specific requirements, and come with flexible repayment options and competitive interest rates.

To start a successful coffee shop, you must research, plan, checklist your menu, gather equipment, get funding, and finalise your location needs. Here are some steps you need to follow to open your coffee shop in India:

1. Business Plan and Research

The first step in opening a successful coffee shop is developing an effective business plan and conducting thorough research. Examine market trends, customer needs, preferences, and competitor menus. Use this information to create a comprehensive plan that will bring your dream coffee shop to life, while ensuring it is practical.

2. Set Your Budget and Create a Menu

Once you understand the products and services your target customers want, you must set your budget. Calculate all the expenses, both one-time and recurring. After researching your competitors' menus, you should plan your own menu, ensuring it offers a competitive edge while meeting customer demands.

3. Gather Information About Required Equipment

Based on your menu, you will need specific machinery and equipment to prepare coffee and snacks. Essential items might include brewing equipment, a water filter machine, a coffee grinder, an espresso machine, and more. Make sure to research and invest in the right equipment for efficient operations.

4. Find the Right Location

With your menu and budget in place, the next step is choosing an ideal location. The right location is crucial to the success of your business. It should be visible and accessible and offer convenient parking or transport links. Opt for a location in a busy area where customers can relax and enjoy their coffee.

5. Plan the Financing

Once your location and menu are finalised, the next step is securing capital. You will need funds for rent, licences, registration, purchasing equipment, raw materials, inventory, shop interior, renovations, and staff salaries. Proper funding is essential to cover these initial costs.

6. Purchase Equipment

With your location ready, it is time to set up your kitchen and purchase the necessary equipment. Ensure the equipment is arranged to allow a smooth and efficient workflow, making it easier to prepare orders quickly and keep the space organised.

7. Registration and Licensing

Before you can start operating, you must register your business legally and obtain the necessary licences. Some of these include:

• Food Safety and Standards Authority of India (FSSAI) licence

• Goods and Services Tax (GST) registration

8. Find and Hire Staff

You will need skilled and experienced staff for administrative, kitchen, and serving roles. Select individuals who align with your business goals and then provide training on your specific processes and customer service expectations. Well-trained staff are key to delivering a great experience for your customers.

9. Promotion and Advertising

Marketing and promotion are essential for raising awareness about your coffee shop and attracting customers. Through targeted promotional activities, you can build your customer base, gather valuable feedback, and increase your visibility in the local market, ultimately driving more business and profit.

If you are wondering how to start a coffee shop legally, you must get legal licences such as a health trade licence, fire security certificate, GST registration, trademark, etc. Because your coffee shop is a part of the food and beverage industry of India, an FSSAI licence is mandatory. 

• Business Registration

You are required to register your business legally under the Government of India. You have the option to register your coffee shop business as a sole proprietorship, partnership, LLP or company. 

• FSSAI Licence

FSSAI stands for Food Safety and Standards Authority of India, which is a government department established under the Ministry of Health and Family Welfare. Getting an FSSAI license ensures that the food you offer is hygienic, safe, and suitable for human consumption. 

• Health Trade Licence

You can apply for this licence under the Health Department of your respective state or the local Municipal Corporation. This trade licence is required for all business owners dealing with food supply and is issued within 60 days of application. 

• Fire Security Certificate

This is also known as the fire NOC (No Objection Certificate) and you can get this from the local fire department. As the coffee shop will deal with fire equipment, this certificate inspects fire extinguishers in shop premises.  

• GST Registration

If your coffee shop's annual turnover exceeds the limit of ₹20 Lakhs, you will be required to apply for GST registration. 

• Trademark Registration

For a coffee shop startup, this registration is not mandatory. However, you can still get this to protect your business identity. This protects other competitors from taking your business name and logo and is valid for 10 years. 

• Registration under the Shop and Establishment Act

In case you are willing to hire staff for the kitchen, reception, waiters, etc., you must register your business under this act. This protects the rights of all workers hired in your shop. 

• Eating House Licence

You can apply for this licence at the nearby police headquarters to establish your business presence in the area. In major metro cities, you can get this licence online.

Opening a coffee shop requires a significant upfront investment, which can vary based on factors like location, size, and type of services offered. The overall cost will depend on whether you are opening in a high-traffic urban area or a more budget-friendly location.

Here’s a comprehensive cost breakdown to guide your planning:

Disclaimer: The cost estimates mentioned above are based on general industry averages and may vary depending on the specific location, size, and nature of your coffee shop. It is advisable to conduct a detailed market survey and consult with local experts before finalising your budget.

Cost Breakdown by Category

• Rent and Location

Rent costs will vary greatly based on city tier and location (mall, street, or commercial building). In Tier-1 cities, real estate costs are higher, but these locations also offer higher foot traffic, resulting in better sales potential.

• Equipment and Furniture

Setting up a coffee shop involves purchasing equipment such as espresso machines, grinders, blenders, and furniture. Initial setup costs for equipment can range from ₹3–10 Lakhs, depending on the quality and quantity.

• Licenses and Permits

Obtaining licenses such as FSSAI (Food Safety and Standards Authority of India) and health and safety permits will cost around ₹20,000 to ₹1 Lakh, depending on local regulations.

• Inventory (Coffee Beans, Milk, etc.)

The initial inventory for your coffee shop will include items such as coffee beans, milk, syrups, and packaging. Expect to spend between ₹50,000 and ₹1 Lakh for the initial stock, depending on your shop's scale and offerings.

• Marketing and Branding

Marketing, signage, website creation, and social media promotions can cost around ₹30,000 to ₹1 Lakh, depending on the scale of your marketing campaign and branding efforts.

One of the most important steps when working on a successful coffee shop plan is planning for finances. A business loan can be an excellent option to fund your business without depleting your savings.

Uses of a Business Loan for Coffee Shop

You can use a business loan to spend on the requirements of your coffee shop. Some of these include:

• Equipment Purchases and Upgrade

Use the business loan funds to purchase the required equipment for a coffee shop. Also, you can replace old machines with new ones for more seamless operations and fewer risks.

• Business Expansion

You can use the business loan funds to expand your coffee shop business after some time. Work on expanding through a food truck or simply open another branch in a popular location. For opening a new branch, you will have to invest in rent space, staff, and equipment.

• Marketing

To raise awareness of your business and attract new customers, you can allocate funds for local advertising and loyalty programs. These marketing efforts will help you build a customer base and drive sales.

• Inventory Management

To ensure smooth operations, you will need to consistently restock raw materials, such as coffee beans and daily essentials like milk. Investing in inventory management ensures that you maintain an adequate supply to meet customer demand.

• Space Renovation

Keeping your shop interior appealing and functional is important. Use loan funds to invest in necessary renovations, such as improving lighting, ventilation, doors/windows, and purchasing décor items.

• Initial Rent Costs

If you are renting commercial space for your coffee shop, you may need funds to cover the initial rent. Since your business might not generate profits immediately, this fund will help cover rent payments until your business begins to thrive.

Securing a business loan has become easier than before as the process is online and requires minimal paperwork. You can also get various loan offers with competitive interests. 

Refer to the table below to learn about various offerings available on Bajaj Markets along with the interest rates:

Disclaimer: The mentioned rates are subject to change at the lender’s discretion.

To secure a business loan via Bajaj Markets, you must pass certain eligibility criteria. Here are the details:

• Resident: You must be an Indian resident

• Age: Your age must be between 21 and 60 years

• CIBIL Score: You must have a high score

• Employment: You can either be a self-employed professional or non-professional 

• Business Vintage: Your business must be operational for at least 1 year

• Business Turnover: Your business must have a minimum annual turnover of ₹1.5 Lakhs as per ITR

• Business Structure: Your business must be registered as a partnership, limited liability partnership, or private limited company

After meeting the eligibility criteria, keep the following documents handy to apply online:

• Identity Proof: Aadhaar card, PAN card, Voter’s ID, driving licence, passport

• Address Proof: Aadhaar card, utility bills, lease agreement, passport

• Income Proof: Last 6 months' bank statement, income computation, Profit and Loss (P&L) statement, last 2 years' balance sheet, ITR, in addition to certified copies with details

• Business Proof: Copy of Partnership Deed, Certified copy of Memorandum, Sole Proprietorship Declaration, and Articles of Association

When applying for a loan to open a coffee shop, the financial requirements will depend on whether you're applying as an individual or as a registered company. Individuals need to provide a CIBIL score, while businesses will need to submit a Company Credit Report (CCR) rating.

For Individuals (Sole Proprietors/Freelancers)

If you are applying as an individual (e.g., a sole proprietor), you will need to provide your CIBIL score. The CIBIL score ranges from 300 to 900, and typically a score of 750 or above is required to secure a business loan with favourable terms. A higher score helps secure better interest rates and larger loan amounts.

For Companies (Registered Business Entities)

If you are applying as a registered business entity (e.g., LLP, Pvt Ltd, or partnership firm), you will need to provide your company’s Credit Report (CCR). The CCR rating ranges from 1 to 10, with a rating of 1-3 being considered ideal for securing a business loan. A good CCR rating demonstrates financial stability and increases the likelihood of securing funding for your coffee shop business.

To apply for a loan at Bajaj Markets, you can complete the application form online and proceed with verification. The steps in detail are:

• Go to the 'Business Loan' page located in the 'Loans' section
  

• Select 'Check Offers' in the top-right corner
  

• Complete the business loan application form with your personal and income details
  

• Click on ‘Check Your Offer’ to proceed and continue

The Indian government provides various schemes to support Small and Medium Enterprises (SMEs) and Micro, Small, and Medium Enterprises (MSMEs), including businesses in the food and beverage sector like coffee shops. 

These schemes, available both at the central and state levels, provide financial assistance to help entrepreneurs with setup costs, working capital, and growth.

Here’s a table with the most relevant schemes:

Disclaimer: The loan amounts and scheme details provided above are indicative and may vary based on eligibility criteria, location, and specific government policies. It is advisable to check with the relevant authorities or financial institutions for the most accurate and up-to-date details.