How Will I Finance My Retail Store?

Finance a Retail Store
Getty images

The Big Question: How Will I Finance My Business?

Where you find money to fund your retail business will depend on your personal credit, business credit, the amount your willing to pay for the cost of a loan and other factors. Personal credit is always considered because how a person handles his or her own finances is a direct prediction of how he or she will handle the business finances. Statistics show that over 50% of all small business final within the first three years of operation and retail stores are some of the hardest to survive.


The biggest reason is that many people who start a retail business have no prior experience. They are simply entrepreneurs who are looking to own their own business. Retail is certainly much harder than people realize and it takes a special person to be okay with the long hours and weekends. I spent 26 years working in retail and truly loved all of it. The last six years of my career were running my own retail stores I owned. So I know the sleepless nights trying to make payroll and the costly mistakes of poor inventory management. 

Most new businesses find it very difficult to obtain bank loans, business credit cards or investors. This is why many new small businesses are funded through the owner's personal resources. This includes savings, loans from family or friends, credit cards, home equity loans and even cash value of life insurance.

Banks and other lenders will loan money to some new businesses if they are satisfied with the feasibility of your business plan, your credit history, the amount of experience you'll bring to the venture and the collateral you are willing to put up for the loan.

However, most of the money to start a new business will need to come from you.

Retail has always been a tough "sell" to bankers. It is a high risk proposition for the bank as well as yourself. Even the Small Business Administration (SBA) who helps guarantee loans for startups is not fond of retail. 

Here are some things to consider when seeking financing for your retail store:

  • You must have a solid written business plan with up to 5-year cash flow projections. Remember, in retail cash is king, so prove to your lender that you understand that fact. 
  • Be prepared to starve yourself the first couple of years. The biggest mistake a new retailer makes is procuring financing for their new retail store that includes a salary for themselves. If you cannot afford to pay yourself for the first two years, you should not do it. 
  • Consider a line of credit versus a loan. A loan puts you on the hook from day one. A line of credit only tags you when you access it. Often times, you need capital during slower economic times. No need to pay interest on a lump sum loan for 60 months if you really only need the money for 12. 
  • Never take a loan that requires a personal guaranty. If your business plan is not strong enough to stand on its own and a bank or investor is not willing to get behind, consider that they know more than you. 
  • Never use credit cards to finance a business. It's great to use credit cards to "float" a business - in other words, pay your invoices with a credit card when due and then pay the credit card 30 days later. This gives you an extra month of free financing. It's like getting an extra 30 days dating

Continue Reading...