Some of the best businesses out there are those that always have a constant customer demand. If you’ve ever needed to rush out for a carton of eggs or a late-night snack, you know how clutch a convenience store can be. As a convenience store owner, your business is the lifeblood of a community, especially if your business is in a city or large town. Customers become regulars, must-have items become your staple, and you get a chance to be your own boss all the while. If this resonates with you, you’re probably wondering how to get a business loan for a convenience store to help get your shop off the ground.
The good news is that there are a ton of options to consider if you want to know how to get a business loan for a convenience store. Most are pretty comparable to other small business loans, particularly if you need cash to buy equipment or merchandise. There are convenience store loans that can cover just about any expense you’ll come up against, and each provides a different advantage by way of interest rates and repayment terms. So long as you know what to look for when seeking a business loan for a convenience store, you can make your borrowing with for you and maximize your shop’s growth.
Figuring out how to get a business loan for a convenience store can be a challenging process, particularly if this is the first time you’ve sought small business financing. Between varying types of small business loans, repayment terms, collateral, and application documents, there’s a ton to sift through. We’ll help break down what you need in order to get a business loan for your convenience store, as well as some of the top options.
Getting a small business loan can feel like a daunting process, especially if you’re a newbie who hasn’t sought business financing in the past. There’s paperwork to be done, financial information to collect, meetings with lenders to attend, and other small details that can feel pretty intimidating for a business owner who’s already busy keeping his or her company running smoothly.
Sure, there’s plenty to do once you’ve determined that you need a loan, but are only just broaching the question of how to get a business loan for a convenience store. That doesn’t mean it’s an impossible, herculean task. Getting a small business loan for your convenience store merely takes patience, organization, healthy credit, and a solid paper trail of business success. You’ll likely need to provide more details depending on the kind of small business loan you want, but these basics should encompass the majority of what you’ll need on hand.
The key to getting a business loan boils down to a few major factors. Master these details, and the loan approval process will go a lot smoother.
If you haven’t already drafted a business plan, doing so before you go out for a small business loan is an opportune time to get cracking. A robust business plan helps lenders see how you intend to run your business, what kind of money you need to get up and running, anticipated business expenses, and your vision for the future. Plus, a good business plan helps you stay focused on your company’s trajectory. This is particularly important as you get into the thick of things and get consumed by daily operations. You won’t likely have the same kind of time on your hands to think of big-picture visions for your shop, but a business plan can help you stay true to your initial goals.
Knowing where your money is coming from, and where its going, is essential for getting a business loan. Lenders are unsurprisingly focused on making sure that they make good investments. You’ll need to prove that your convenience store is a worthwhile use of their cash, and that they’ll get their money back plus interest if they lend it to you. Every lender will want to see your profits, losses, expenses, and revenue to gauge whether or not your business is financially viable for the future. The better organized and comprehensive this information, the better you can position yourself when going through the loan application process. Be ready to have profit and loss statements within arm’s reach for your lenders to review.
Not every loan requires immaculate credit, but a good credit score never hurt anyone’s chances at getting small business financing. The more you know about your personal credit, as well as the credit of your company (or companies, if this isn’t your first rodeo), the better informed you’ll be about which loans are most likely to get approved by lenders. Any good lending institution will check your credit for clues about whether or not you’re good at paying your bills on time, and to make sure that any outstanding loans are in good health. Better that you know what the banks are likely to see before they take a look, rather than being caught off-guard later on.
If you’ve ever run a business before, or are still operating another company in addition to your current or future convenience store, you’ll have to know every financial detail about your other endeavors. Lenders only have so much information at their disposal in order to decide if you’re a good investment. If you have prior business experience, this provides them with a better sense of how successful you’ve been as an entrepreneur. A well-run company without too much debt and a healthy cash flow can signal to lenders that you’re a strong candidate. This is your opportunity to influence lenders: provide them with as much information about your existing or previous ventures as you can, as this can significantly influence whether or not you get the capital you need.
Not all business loans are alike. In fact, there’s a ton of deviation between the different kinds of small business loans available from lenders. Sometimes these differences boil down to technical discrepancies, such as repayment terms and loan totals. In other cases, there are a ton of differentiating factors between loans, which may impact the way in which you are required to pay your loan back to the lender. If you know what kind of loan you need, you can avoid getting the wrong kind, and help ensure that the money you borrow works as well for your bottom line as possible.
There are a ton of financing options for convenience stores, given that most small business loans work for these kinds of shops just as well as they would for most other small businesses. The biggest deciding factor at play here is your purpose for the loan, what you can afford to pay back, and what kind of interest rate you can secure. These factors depend largely on your own setup, rather than abiding by an overarching set of best practices. So if you want to know how to get a business loan for a convenience store, consider the below and whether or not they’ll work for your own financial and creditworthiness.
The SBA loan is regarded as the gold standard of commercial loans—and there’s a good reason for why that is. Contrary to what the name might suggest, the Small Business Administration doesn’t actually dole out loans itself. Instead, the SBA partners with smaller banks to give small businesses access to loans that they would otherwise be too risky to get on their own. Most banks are reluctant to approve small business for a few reasons: the loan totals are too small for it to be worth a bank’s efforts, the businesses generate too little income to be considered a safe investment, or because applicants don’t have a long enough track record as entrepreneurs.
SBA loans are an attractive option for several reasons. For starters, the SBA guarantees up to 85% of the loan’s total, which means that banks take on less risk that they won’t get repaid. And because these loans come from banks, their interest rates tend to be lower than one might obtain through a short- or medium-term loan (more on those below). If this isn’t tempting enough in its own right, SBA loans also come with higher borrowing limits and longer repayment periods—that means you have more time to pay back more money than you’d normally get on your own.
Not every business (or owner) will qualify for an SBA loan. Given that SBA loans come with some pretty fantastic features, they are in high demand from many well-qualified borrowers. Competition is high, and only the best candidates tend to get them. The good news is that SBA loans aren’t the only option out there for getting convenience store financing. Term loans are also an option for most businesses. These loans are the kind you tend to think of when considering a bank loan. Your lender lets you borrow a certain amount of money in exchange for interest payments on the balance. The borrower and the lender agree that the loan will be repaid by a certain period, and come to terms with how much the borrower will pay back to the lender during this timeframe.
Term loans are a solid, reliable resource for small business owners. They’re provide a good backup plan for those who don’t qualify for SBA loans, or who merely can’t wait out the SBA loan approval process (which can be lengthy) and need cash right away. There are some downsides to these loans, however: their interest rates tend to be high, repayment periods short, and can require collateral in order to secure the loan. This means you might be on the hook for big repayments in short order, and may have to put up cash or equipment in order to get the loan approved.
Owning and running a convenience store means securing a decent amount of equipment. This can take the form of cash registers, refrigerators, deli slicers, coffee machines, and any other kind of machinery that you’ll need in order to offer your customers with the goods you wish to sell. All of this stuff can add up quickly, which might have you looking for a loan in order to get everything you need quickly.
This is where equipment financing can be your best option. Equipment financing is a bit different than most kinds of loans. Instead of providing you with a set amount of money to use as you see fit, equipment loans provide you with cash to purchase a specific item (or items) that you intend to use as part of your daily operation. For example, let’s say you want to buy a walk-in freezer. For an equipment loan, you would approach your lender with the price of the freezer as part of your application. The lender would then give you the money you need in order to purchase the freezer in exchange for repayment of the loan, and interest on the loan’s total.
That may sound similar to SBA and term loans, but there is a key differentiator between them and equipment financing loans. Because you’re using the loan to buy a specific piece of machinery or equipment, the value of the item you purchase serves as the loan’s collateral. This means that you won’t have to put up any of your own cash in order to make the loan happen. It also means that if you fail to pay back the loan on time, your lender can take the equipment purchased and sell it in order to recoup their losses. These loans often have more forgiving credit and cash flow requirements as a result as well.
Equipment financing isn’t the only flexible option available to convenience store owners who need to borrow cash. A business line of credit is another fantastic option to help you get the money you need to run your business. A line of credit is a unique option, insofar as it doesn’t require a borrower to take out a set amount of cash and repay it over a specific amount of time. Instead, lenders provide borrowers with a set amount of money that they are willing to dole out, with the expectation that the borrower will pay interest on the money borrowed while the debt is outstanding. Borrowers can pull from their line of credit several times throughout the duration of the line of credit’s term, and may borrow up to the maximum allowed in part or in full at any time.
A business line of credit is a great option for covering everyday expenses, such as merchandise, unexpected repair bills, or other incidental business expenses. Lines of credit allow you to borrow with greater flexibility, as you only withdraw as much money as you need at any point in time. You’ll also save on your interest payments, as you’ll only owe interest on what you’ve withdrawn. Note that a business line of credit usually requires a good history of borrowing money and paying it back on time. If you’ve had some credit issues in the past, you may have a harder time getting approved for a business line of credit.
The loans we’ve covered so far are definitely your best options in terms of financing a convenience store, but they’re not the only options out there. If you have bad credit (or no credit history), you may want to consider a merchant cash advance. Merchant cash advances are borrowing options that provide fast access to cash in exchange for a percentage of any credit and debit card purchase made during a specific period of time. You’re essentially borrowing against future sales, with the lender giving you payment in advance of you making money through your clientele.
These loans are best left as a last-resort option for most businesses. There are cheaper financing options out there, for starters, and merchant cash advances don’t help you solve the underlying issues behind your difficulty securing credit. If your convenience store conducts most of its customer transactions through credit card purchases, however, a merchant cash advance may help you when you’re hard up for operating capital.
There are almost as many loan options as there are different products on your store’s shelves. Some are great for getting your business started, or upgrading its equipment. Others are perfect for proprietors who qualify for low-interest, SBA-backed loans. Term loans are always a compelling option for business owners who have decent credit and can afford the interest and loan terms that come along with them. And for those who aren’t a fit for any of the above, there’s always the option of merchant cash advances when money is tight. No matter which loan you choose, be sure that your selection matches up with your needs. Doing a bit of homework can save you a significant chunk of change later on.
Meredith Wood is the founding editor of the Fundera Ledger and a GM at NerdWallet.
Meredith launched the Fundera Ledger in 2014. She 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 and financial management.