Funding for Small Businesses: What Food Entrepreneurs Need to Know About Commercial Kitchens and Their Small Businesses

16 Sep
business loan for a commercial kitchen

Are you considering starting a food processing/manufacturing business?  Maybe you have started a food business and are now looking to scale up.  In both cases, you'll most likely need access to a commercially licensed kitchen. 

Who Needs a Commercial Kitchen and Why?

There are many reasons why a commercial kitchen space is helpful to small businesses, but there is one that is required--regulations.  If you produce a finished food product that is considered hazardous due to the potential health risks, you must use a licensed commercial kitchen. 

The second reason why your business may need a commercial kitchen space has to do with logistics.  If your own kitchen space does not have the necessary equipment and layout for your food production, it may be time to look into commercial kitchen space. 

Option 1: Shared Kitchen Space

Shared kitchens are designed to provide startup food retailers or processors with access to kitchen space and professional equipment without the cost of ownership. The official operator of the space is responsible for all of the necessary permitting and licensing of the facility.  Entrepreneurs are the best candidates for shared space because it provides an affordable way to develop their skills and test products without incurring significant overhead costs and licensing. 

Quick fact about

Andrea Fishfader Bell is an internationally trained chef with over 40 years of experience and founder of the first culinary incubator in the country, Chef’s Kitchens. Chef Fishfader believes that while shared kitchen space is a great solution for businesses starting out, it does have its own unique set of challenges. She offers up the following key considerations in finding the right fit:

  • Can my product be legally made at this facility?
  • Are the hours I need available?
  • Is the existing equipment sufficient for my needs?
  • What is the reputation of the kitchen’s owners/managers? 
  • What is my contractual commitment, how long is the rental, and what is included in the charges?

There are a number of good sites that list shared kitchens by area, including Culinary Incubator and Cornell University. We also recommend checking out Brooklyn Food Works and Hot Bread Kitchen, organizations that provide start up support and advisory services for food businesses.   

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Option Two: Renting Your Own Kitchen Space

Existing food entrepreneurs who have outgrown their current space or cannot find suitable shared space should consider renting a private kitchen. Adam Malitz, a NYC-based commercial real estate broker with Lee & Associates, offers some key considerations in terms of location for space: 

  • Do you need both a kitchen and retail presence?
  • What are your anticipated distribution channels and how often does the product need to be delivered? 
  • In addition to road access, do you need public transportation for employees?

Finding existing commercial kitchen space that is both convenient in terms of location and affordable is challenging.  Most startups consider locations in the outer boroughs, as well as New Jersey.  On the positive side, with your own space you are in control of your own production schedule.

Option Three: Building Your Own Kitchen Space

Starting from scratch (known as a “build out”) is the most expensive option in terms of time and upfront costs. On the positive side, building out increases the number of possible locations and may be cheaper over the long run. Malitz offers two key considerations when screening sites for your build out: 

  • What are the zoning restrictions and building code requirements? 
  • What is the existing infrastructure in terms of utilities?

Finally, he recommends that you build a strong project team with a contractor and architect that specialize in the food industry.  Key support roles include an attorney and real estate broker that you can trust. However, even with the best team, he warns build out is “not for the faint of heart”. Our favorite resorces for more information on commecial kitchen build-outs include The Chronicle of Small Business and the New York City Health Department.

Financing Options and Business Loan Information for Food Entrepreneurs

Startup food businesses that use shared kitchen space will not need any upfront capital for equipment, but may require working capital financing for inventory and supplies.  Growing food businesses may require longer term financing for equipment and leasehold improvements. 

Most food entrepreneurs do not qualify for traditional financing, as the industry is deemed "risky" by lenders.  However, they may be eligible for financing from alternative lenders, such as Community Development Financial Institutions (“CDFIs”). Many CDFIs offer microloans, which are smaller dollar amount term  loans with a different set of eligibility requirements than a bank loan. Some CDFIs offer loan products that feature  online loan applications with a 24 to 48 hour approval process.  The U.S Small Business Administration (SBA) offers special lending programs for small businesses that do not qualify for traditional financing. The SBA is the largest funding source for small businesses in the United States.   SBA lenders offer term loans for equipment, machinery and real estate at competitive rates.

If you are a small business owner in need of working capital and long term financing, explore alternative, lower cost financing options available through your local CDFI.  Excelsior Growth Fund is a CDFI that offers the speed and efficiency business owners need.  Check out Excelsior Growth Fund’s SmartLoan, which offers term loans up to $100,000 with affordable monthly payments.

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About Excelsior Growth Fund

Excelsior Growth Fund (EGF) helps businesses in New Jersey, New York and Pennsylvania grow by providing streamlined access to business loans and advisory services. EGF’s signature product, the EGF SmartLoan™, provides up to $100,000 in fast, transparent, and affordable financing through a secure online platform. Larger loans up to $500,000 are also available. EGF is a nonprofit organization and is certified by U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Learn more atwww.excelsiorgrowthfund.org