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Financing Your Retail Store

Amy Nichol Smith
Amy Nichol Smith

Your financing options aren't limited to only small business loans

After careful consideration and planning, you've decided to quit your 9-to-5 job and be your own boss. If that means working on Main Street and opening your own retail business, then you have a lot of preparation ahead. Once you've created a business plan and decided whether you're going to go into business with a partner, you'll be ready to look for the financing you'll need to get your store up and running.

Finding capital can be one of the most intimidating parts of starting a new business. It's important to remember that you are not alone. There are many avenues available to you to get the money you need. You'll most likely need to take out a small business loan for all or part of your financing, so include in your business plan the principal and interest you'll be paying down with each payment.

You have several options when it comes to financing. Whether you start with the U.S. Small Business Administration's (SBA) small loans, or you dive headfirst into fundraising, it's entirely up to you and largely dependent on your credit score, the time you have and how inspiring your store concept is. This guide will help you navigate the financial realm so you can decide which route is best for you and your soon-to-be business.

Cross Your T's

Before you jump into the process of selecting which type of financing you want to pursue, you need to make sure you've correctly calculated all of the costs associated with your business first. Double- and triple-check costs to make sure you haven't left anything out – and then add ten to 20 percent more to the total as a buffer.

What to include:

  • Lease or rent (six months' worth)
  • Security deposits
  • Location improvement costs
  • Utilities (electricity, internet, phone, water, etc.)
  • Inventory
  • IT costs (website, hosting, design costs, etc.)
  • Marketing and advertising
  • Miscellaneous (office supplies, cash for operations, etc.)

The average cost of a startup brick-and-mortar store in the U.S. is about $30,000, but costs go up with franchises or restaurants. Be sure you include all the costs down to the dime to make sure you're covered.

Editor's Note: Looking for a financing solution for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

Where to find capital

Most business owners need some form of financial help. If you have personal assets that you can tap into to bankroll your venture, then you may not need a loan, outside investors or fundraisers. There is no right place to start to get the funds you need, so choose the method(s) that make the most sense for your situation. Below are some options.

SBA loans

This is the best option for most entrepreneurs starting a business from scratch. There are several types of loans you may qualify for, but there are some restrictions. You can easily apply for one at your local bank branch, and there are a few qualifiers that may help you in some circumstances.

7(a) loan program

The requirements for eligibility for this common business loan are easy to meet. You must demonstrate an effort to use alternative funding resources first before seeking this loan, and you cannot have any outstanding debts to the U.S. government. Certain types of businesses are exempt and cannot receive assistance, such as life insurance businesses, casinos, private clubs that require membership and religious businesses.

You can expect a decision on your loan application within 36 hours. The smaller your loan, the more interest you may have to pay (but you may be able to negotiate this with your lender). A lender may require you to put up collateral, such as your home, if you borrow more than $25,000. A 7(a) small business loan can get you up to $350,000, if you qualify.

Microloan program

If your business won't need more than $50,000 in capital, you can apply for an SBA microloan. A microloan averages $13,000, according to the SBA, which makes it a good choice for those starting home-based business that don't require a lot of startup cash.

A microloan could also be a good solution for business owners who are already in business and need an influx of working capital for salaries, inventory, equipment or repairs. You can expect interest rates to hover between eight and 13 percent, but rates vary based on your lender and your credit. The benefit of these loans is that they're often offered by nonprofits, so you may be able to easily secure a loan with an organization that aligns with your business type.

Real estate loan – CDC/504

Most business owners start with leased property, but if you need to purchase land or an existing building and you don't have the needed funds, you may qualify for a 504 loan. This money is specifically for property, though, so you cannot use the funds as working capital or for repaying other debts.

If you're looking for a high-dollar loan, you may need to meet certain criteria to qualify. For example, if your business will create jobs, then you could receive up to $65,000 per job created, up to $5 million.

Personal loans

Those who have good credit (with a score that's at least 650) could qualify for a personal loan to help fund a startup. You're not likely to borrow all the money you need – a personal loan will net you about $20,000 to $50,000. Although most businesses cost about $30,000 to get started from scratch, a franchise may require more capital, or at least assets totaling a lot more. For example, if you wanted to open a McDonald's branch, you must have at least $750,000 in liquid assets.

Interest rates on personal loans vary greatly, and they typically fall in line with how good your credit is. The better your credit, the lower the interest rate – you're looking at rates in the range of five and 20%.

Bad or no-credit options

One of the latest financing options is what's often called alternative loans. These are alternatives to bank loans. If your credit score is lower than 600, it may be difficult to get the funding you need to start your business. Banks will likely consider you a high risk, and you're more likely to be turned down, or get a much smaller loan than what you need.

The obvious benefit of an alternative loan is that you can get the money you need – in some cases, up to $1,000,000. Another benefit is that many of these financial lenders don't require you to put up collateral. Many of these alternative financiers only lend to business owners who are already operating and generate a certain amount of revenue each month.

An unsecured small business loan from an alternative lender usually has short repayment terms, origination fees and high interest rates (though most are fixed). Read the fine print carefully with any of these alternative loans, which have often been compared to payday loans for businesses.


Crowdfunding is a popular way for many artists and entrepreneurs to get the money they need, and it's a viable option for small businesses needing working capital or startup cash. One of the keys to securing money from small investors is to ask for the right total amount – if your projections are too high, it can scare off potential investors, and you may not reach your goal amount. Some crowdfunding sites require that you reach your goal to receive the cash.

The other trick with crowdfunding is to provide enticing rewards. You've likely heard of TINSTAAFL, or "there is no such thing as a free lunch." Offering a thank you note isn't going to inspire many to help you reach your goal. If you're producing a $100 dress, and you need capital to get the dresses produced and shipped, you can offer different tiers of rewards. For example, those who donate $100 could receive the dress, plus a free skirt or handbag that you've also designed. Alternatively, you could offer a percentage off future purchases.

Home equity loan

Homeowners have an advantage that those who haven't purchased a house don't have – equity. This could be your ticket to borrowing a large sum of money to help you launch a new business. As long as you have at least 20 percent equity in your home and good credit, you may be able to borrow 80 percent of your home's equity.

Interest rates are generally lower with these types of loans (around three to eight percent), but you risk losing your house if you default on payments and can't repay the loan. It's a risky choice, but it may make sense for you, especially if you own more than one house.

Retirement account rollover

Only consider this option if you have at least $50,000 saved in a retirement account, such as an IRA or 401(k) (Roth IRAs are not eligible). You can borrow 100 percent of your savings (if you need that much money), and you're not required to pay early withdrawal taxes or penalties. The biggest benefit here is that you won't have to sink deep into debt to get the capital you need, nor will you be paying interest on borrowed money, and your credit won't be affected.

This is a tricky option, though, because if your business fails, you could be throwing away all the money you've saved for retirement. Success, though, means you can refill your retirement account. 

Family & friends

Speaking of tricky, asking money from family or friends could be a complicated matter. Some people say you should never mix business with family. If things go south with your business and you can't pay back a loan, holiday dinners may be awkward.

The best thing you can do if you have family or friends who are willing to contribute to your business venture is to whip up a legally binding contract. It's important that your family and friends keep in mind that they are acting as investors, so if business goes bad, their money may be gone forever – that's the risk they take by investing. A loan is a little different, though, and you can set one up using an app that lets your lender set the interest rate and repayment terms. Then you pay through the app, and it deposits funds directly into their account or bank.

Credit cards

Putting business expenses on credit cards is often a necessity, and it can be either beneficial or risky, depending on how you use it. Many credit cards today offer reward programs, which allows you to earn cash back or points as you charge expenses to your card. The points you earn could help pay for plane tickets to a convention, car rentals or cash back that you can use on everyday items you'd buy for your business anyway.

Although many credit cards also offer introductory rates of 0 percent APR for the first three months (or year that you have the account open), that quickly rolls over into interest rates of 10 to 24 percent – some of the highest rates out there. The good news is that you only pay interest on credit you use, so if you can pay your balance off each month, you'll be in the clear – and you'll be contributing to a higher credit score.

Angel investors

This may be the most difficult way to raise money for your business. Angel investors are few and far between, and they're extremely discriminating with their funds. Research angel investors within your industry, and typically these are in the tech and science industries.

An angel investor is usually a successful businessperson looking to help someone like them succeed, too. They may be interested in having a say in what happens with your business, too, so it may mean giving up some autonomy if you take money from an angel investor. A private investor is looking to make money off your success, so it's not a loan, per se. It's like they're buying shares of stock in your business, and they expect a return on their investment.

Bottom line

However you find the funds to start your business, it's important to choose the method that works for you. A loan may work well for you if you have an excellent credit score and equity in your home, but those who are starting with nothing may be better off setting up a fundraising platform online.

If you choose a loan, look for low interest rates (fixed can be better than variable if you're not sure which way the economy is headed), and flexible repayment terms. Be sure you know what you're getting yourself into – especially if your business doesn't succeed. Always have a plan B if you're offering up your house or nest egg. Bankruptcy can get you out of a sticky situation, but it can take years to rebuilt credit before you're able to qualify for a loan again.

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Amy Nichol Smith
Amy Nichol Smith Contributing Writer
Amy Nichol Smith is a freelance writer who covers business, technology, food, sports, pop culture, and much more. She's a former features reporter and editor for The Monitor newspaper and has a love of football and video games.