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Grocery Store Financing: How to Get Grocery Store Business Loans

Meredith Wood

Meredith Wood

Vice President and Founding Editor at Fundera
Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
Meredith Wood

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Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

Few places are as important to a neighborhood as a local grocery store. They’re must-visit stores that have a high propensity toward repeat customers, can excite customers with new offerings and exotic ingredients, and can even give a town a gathering place to meet neighbors old and new. If you’re thinking about opening one of your own, you’re likely exploring your small business financing options as well.

Grocery stores, despite being in demand, tend to be a low-margin business. That means your best bet at long-term success boils down to a few crucial components. Namely, you’ll make your money by selling high volumes of goods, rather than a few expensive items with a bigger profit margin. This makes grocery store financing all the more appealing as you handle the fluctuations that come with running a business on low-priced, perishable items. 

The good news is getting a loan for a grocery store or supermarket doesn’t have to be a grueling process. If you know how to anticipate your needs, understand your business finances, and have a good handle on your options, you’re well on your way toward getting the grocery store financing you need to keep customers shopping. We’ll walk you through your small business financing options and what small business loans will work best for you and your grocery store when you’re starting your business.

Grocery Store Financing: The Basics

Whether you’ve sought out small business financing before or have some familiarity with the process, there’s a lot to know about getting one of the many grocery store business loans out there. Most owners are already busy maintaining their company’s daily business, which means that taking on the legwork required to get grocery store financing might feel like another major task to add to the to-do list. 

Getting a small business loan doesn’t need to feel like a daunting exercise, however. Here’s how you can better understand your business’s finances, credit history, and what you intend to do with the money, so that you can make the process of getting grocery store financing much easier (and less time intensive). 

grocery store financing

Develop Your Business Plan

If you have not already drawn up a business plan for your grocery store, getting yours in order is a great place to start—especially because you’ll need one as part of your business loan application process. A sustainable business plan enables lenders to determine how the business owners intend to operate their company, what kind of cash they need in order to get started, expected costs, and their long-term future plans for the company. A healthy business plan also enables you remain centered on your strategy, which will help you later on as your business grows.

Keep an Eye on Revenue and Expenses

The most crucial aspect of successfully running a business is making more revenue than you spend. Banks will want to know how successful your business is and what its financial health looks like for the future. Looking at your cash flow, revenue streams, and typical business expenses means keeping an eye on some of the most vital statistics that influence whether or not you qualify for the most attractive loans.

To get a good loan, you will have to demonstrate that your grocery store is a safe and lucrative use of their cash. They’ll want to have faith in their investment, and some degree of certainty that their money (plus interest) will be paid back. Having a knowledge of your business finances that you can commit to memory helps to make the bank’s approval processes run more efficiently, it will also go a long way in terms of leaving a good impression with your creditors.

Build (and Maintain) Good Credit

Not every loan needs excellent credit on behalf of the borrower, but an attractive credit score never damages your odds of receiving funding for a grocery store or other small business. By understanding your personal credit history, as well as your business credit score, you’ll be able to arm yourself with some insights into which lenders are most likely to approve your loan, and what kind of interest rate you might receive.

One especially important factor to consider when looking for a grocery store business loan is the role of your personal credit in business loan approvals. Your own individual credit history plays a major part in what banks do to determine if your company is a good candidate for a small business loan. The same goes for any business partners or loan co-signers you have alongside you, so their credit scores and history should be as strong as possible. 

Know Your Business History

Lenders will want to know more about your history with entrepreneurial endeavors, as this plays another vital role in the loan approval process. If you’ve started a successful business that’s been in operation for a few years or more, you’re likely to impress your lenders. A positive business track record can signal to lenders and banks that you’ve been able to navigate the challenges and decisions that come with operating a functional grocery store.

Much as personal credit plays a role in determining your business’s creditworthiness, so too does any prior business experience held by your partners in addition to yourself. If you’re bringing in a partner who has past or present success as an entrepreneur, this can help bolster your company’s chance at getting a loan—even if you’re a first-timer who may not have as much experience.

Your Business’s Financial Needs 

Not all expenses are the same. Neither are small business loans. In fact, there’s a wide variety of ways to finance a business out there. Many of them work better for borrowers depending on their motives for borrowing money in the first place. Be sure you understand why you need your loan and what you plan to do with it. This isn’t just prudent money advice—it’s going to be one of the first things your lender asks you during the approval process.

You might even save your business money in the long-run by knowing what you plan to do with the money. Some loans pay out a lump sum of cash to help businesses afford big projects, while others help cover the bills during cyclical swings. Other options can even help you pay for a brand new deli slicer, all while coming with different interest rates and terms depending on the loan you choose.

grocery store financing

Grocery Store Business Loans: The Best Options

When you know exactly what your business financials are and how they look in the future, you’re that much closer to getting your loan approved. Then, you can focus on the pros and cons of each kind of grocery store loan. 

You’ll want a loan that provides you with money and business-friendly terms that help you make the most of your financing. This may take the form of an SBA loan, bank term loan, equipment financing, or alternative lenders, depending on what you need. And if you’re not sure which of these is right for you already, we’ll help break down the differences between each of these business loans too.

Best Grocery Store Financing for Strong Credit: SBA Loans

Small Business Administration (SBA) Loans are prized by small business owners as they can help well-qualified entrepreneurs obtain funding at attractive rates. SBA loans are not actually carried out by the SBA itself. Rather, the administration partners with a network of banks to approve loans and disburse payments. The SBA helps out by guaranteeing up to 85% of the total value of a small business loan, which means that the banks take on less risk of not getting paid back. With the risk of default lowered, banks can offer competitive interest rates, larger loans, and longer repayment periods than they would otherwise offer to a small business.

There are several kinds of SBA loans out there, and each of them come with different terms and designations in order to serve specific small business objectives. The SBA 7(a) loan program is a perennial favorite with most entrepreneurs who need a general loan. These loans can be as large as $5 million and come with repayment periods as long as 10 years. Those terms would be hard to get through a conventional business term loan.

Best Grocery Store Financing for Flexibility: Business Line of Credit

A business line of credit can be an excellent tool for satisfying your need for a grocery store loan. These loans are similar in many respects to a credit card. A lender offers you a set amount of money as part of a business line of credit. Instead of requiring you to accept the payment in full upon the loan’s approval, you’re able to tap into all or part of your total loan amount, and can borrow from that cash as often as you like while the term of the loan is still valid.

Where business credit cards and business lines of credit differ, however, is interest rate and dollar figures. Business credit cards typically come with high interest rates, whereas a business line of credit may offer more favorable interest figures. Plus, credit cards typically place low spending limits on cardholders compared to what lenders can give through a business line of credit.

Best Grocery Store Financing for Gear: Equipment Financing

Buying products that sell in large quantities is the biggest financial obstacle most grocery store owners face. The second might often be the expensive equipment that keeps merchandise fresh and ready for customers. If you’re not interested in leasing walk-in freezers, deli slicers, cash registers, and any of the other grocery store staples, then equipment financing might be a perfect fit.

With equipment financing, lenders provide borrowers with a specific amount of money to purchase a specific piece of—you guessed it—equipment. Borrowers typically approach lenders with an application for financing alongside a quote or estimate for the equipment they wish to purchase. If approved, the lender then offers the cash needed to make the purchase, and charges interest on the money loaned during a set period of time. These loans don’t require collateral, however, since the purchased equipment is sold by the bank in the event of non-payment. As a borrower, this means avoiding putting money up front for your loan, which can help improve cash flow and liquidity.

Grocery Store Financing: The Process

Applying for a loan can feel like an intimidating, time-consuming task. And to a certain extent, it can be. How much time it takes, and how enjoyable the experience is, comes down to how well you’ve prepared yourself with research and supporting documents. The more you do your homework before the application process starts, the more likely you are to have all the materials you need at the ready.

Grocery Store Financing: Required Documents

We mentioned earlier how important it is to have a sturdy, up-to-date business plan on hand whenever you go looking for grocery store financing. This is one of the fundamental documents your lenders will look at when determining if you’re loan-worthy. Be sure that your business plan is current and reflects your present-day business model.

Be prepared to open up the books on not just your business, but yourself and any other co-signers or business partners. Lenders want to know as much as possible about a prospective borrower before opening the metaphorical vault, and this means that most of your personal financial information is up for review too. Having this information already at your disposal will make the small business loan application process that much smoother.

You’ll likely need other documents depending on the kind of loan you’re applying for, but there’s still one crucial document that lenders will want to see in nearly every application. That, in essence, is an explanation of why you want the loan in the first place. Detailing the financials behind your decision to seek a loan, as well as the benefit that this loan would give to your business’s future plans, can influence your candidacy. Make sure you include any positive business accomplishments of you and your partners, as these intangible factors can work in your favor too.

Grocery Store Financing: Reminders

The loan application process may feel opaque and cruelly long for almost anyone. Business owners don’t always feel as though they understand just what goes into approving a loan application, too. Although it’s impossible to detail every step of the process, it can be important to keep a positive perspective on the whole thing. The SBA loan application process may seem like it takes forever, when in reality it’s the document-gathering element that usually takes the most amount of time. In other cases, you may get approved within a matter of hours. 

The best thing you can do is understand the average wait time for your loan application decision. Don’t be afraid to keep the lines of communication open with your loan officer, either. If your business finds unexpected success or new business opportunities, your prospective lender will love to know all about them.

Grocery Store Financing: The Bottom Line

Starting your own venture can be just as much of a challenge as it is an exciting opportunity to do something new. Grocery stores may not be the easiest businesses to run, but they’re essential staples within any livable neighborhood. If you’re interested in opening a shop of your own, and need grocery store financing to make it happen, you’ve certainly got options. Know what your needs are for the money, and you’ll be on your way toward getting the money you need to keep your shelves stocked. 

Meredith Wood

Meredith Wood

Vice President and Founding Editor at Fundera
Meredith Wood is the founding editor of the Fundera Ledger and a vice president at Fundera. She launched the Fundera Ledger in 2014 and has specialized in financial advice for small business owners for almost a decade. Meredith is frequently sought out for her expertise in small business lending. She is a monthly columnist for AllBusiness, and her advice has appeared in the SBA, SCORE, Yahoo, Amex OPEN Forum, Fox Business, American Banker, Small Business Trends, MyCorporation, Small Biz Daily, StartupNation, and more. Email: meredith@fundera.com.
Meredith Wood

Latest posts by Meredith Wood (see all)

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