Small Business Loans for Convenience Stores
The neighborhood convenience store serves a community’s needs for quick, easy access to essentials. Stocking a mix of home goods, food staples, and toiletries save people a trip to a bigger store in a less-convenient location. Like running any small business, however, it has its challenges.
As a convenience store owner, you know that you must strike a balance between maintaining inventory on-hand but not overspending, keeping customers happy, and growing your business. Supporting your business’s current operations can take all your time, but you should always be thinking ahead. There will come times when you need to access capital beyond the net profits your business generates, whether it is for day-to-day operations or growth. We have been helping business owners get the funding they need for more than a decade. The process is easy and in just a few clicks you can get an answer. Apply online now to see the business loan options available for you.
What Do I Need to Qualify?
Below is a list of the requirements to get approved for business funding with our most basic program. There may be additional factors that are considered, meeting these three requirements though gives you a very high chance of having your application approved.
- At Least 2 Months in Business
- 500 Min. Credit Score
- $8,000 Min. Monthly Revenue
Types of Business Loans Available
To have a successful business, your store must generate enough money to pay its expenses and return a profit to you. Beyond that, however, it could become necessary to inject capital into your business occasionally. Capital can serve to fund expansion – whether into a new product line or opening a new space – or to cover cash flow gaps and keep you in business.
The type of loan that you should apply for will depend, in part, upon the business need that capital will fulfill. Think about why you are planning on borrowing, and then go through our list and compare your reasons to each type of loan for a convenience store owner.
1. Working Capital Loans
As a business owner, you need regular cash flow to cover your expenses. While some will be fixed, such as rent, others such as inventory orders could be variable. Working capital, or current assets on your balance sheet minus current liabilities, is the money you have available to cover daily operations.
Positive working capital is a must, but if you struggle with unpredictable cash flow, it can be difficult to maintain. Consider applying for a working capital loan. These loans help small business owners pay their bills during cash flow slumps. They can also be a great option if you need to divert your business’ profits elsewhere, such as opening another convenience store, adding a new product line, or expanding your space to add a seating area.
A working capital loan has a term of twelve to thirty-six months. Rates at an alternative lender range from 9 to 45%, and you must have a minimum credit score of 650 to qualify. Alternative lenders base their lending decisions on monthly revenues, weighing it higher than your credit score when deciding to lend. Shield requires minimum monthly revenues of $10,000 to take out a working capital loan.
2. Bad Credit Business Loans
After 2008 and the housing market crash, many banks tightened their underwriting criteria. Banks now approve just 56% of all small business loan applications, compared to online lender’s approval rates of 75%.
If you fail to meet a bank’s underwriting criteria, you can qualify for a bad credit business loan. In the banking industry, bad credit does not solely refer to your credit score. It merely means that one or more factors in your loan application led to a rejection. Banks will not work with borrowers who have less than two years of business history, whereas an alternative lender only requires two months in business. They also prefer to see high annual revenues, two years of tax returns, and a business plan.
A bad credit business loan allows you to access needed capital. Due to the lender’s higher risk, interest rates can be between 12 to 45%. Terms last from two to eighteen months and your minimum credit score must be 500. Minimum monthly revenues are just $8,000. Alternative lenders offer flexible repayment terms that align with your business’ cash flow, and you can borrow up to $1 million.
3. Short Term Business Loans
Need cash in a hurry, but for just a short time? Turn to a short term business loan. These loans can see you through a rough patch, such as when sales do not cover payroll.
You can take out a short term loan for a period of six months to a year and use it to cover both an immediate and longer-term need. Shield Funding will lend between $15,000 to $1 million to help you run your convenience store. A larger, longer-term loan could help you cover the costs of an expansion or opening another store. You must have a minimum credit score of 650 and have been in business for a year.
4. Equipment Financing
Do you want to add a large cooler, freezer, or beverage refrigerator to your convenience store? Investigate equipment financing loans. Equipment financing lenders work with small businesses to help them purchase the equipment they need.
With an equipment financing loan, the cooler or refrigerator you buy serves as collateral. The lender may ask for an independent appraisal in addition to information on the equipment’s age, condition, and resell value. Depending on its value, they could finance up to 100% of its costs plus shipping and delivery. However, if you have a poor credit score, they could require a down payment.
Before approaching a lender for an equipment financing loan, you will need to have already selected the equipment you plan to purchase. The loan approval process will be longer than applying for a bad credit business loan. Lenders have lower risk with these loans because they can repossess the collateral if you default; therefore, they charge lower interest rates. However, this could put your business at risk if you lose a crucial piece of equipment. Take this into consideration when deciding which type of loan to use for your convenience store.
Growth Tips for a Convenience Store
After a few months, or years, in business, your convenience store could be flourishing. The bell above the door rings often, you have become the go-to stop for tired workers on their way home who just need toilet paper, and sales are good. That does not mean that it is unnecessary to think about growth.
Every business must deal with losing customers, often through no fault of their own. Regulars move to a different neighborhood. Someone changes their route home. Whatever the reason, if you are not consistently bringing in new customers, eventually attrition will put you out of business.
How to grow your business should always be on a convenience store owner’s mind – looking for ideas? Here are some tips.
Try New Products and Follow Trends
Go beyond the big three, lottery, tobacco, beverage, and add new products that meet customer demand. Do not be afraid to experiment to gauge customer interest, whether it is adding a soup station or breakfast items. Recent trends have been for healthier options in-store, as customers want convenience without sacrificing their health. Look into adding fresh fruits or veggies, but make sure you can track waste and spoilage.
Invest in the Store’s Appearance
Above all else, keep your store clean, well-maintained, and well-lit. You want your customers to feel comfortable and safe shopping there. Keep aisles free of clutter and easy to navigate, remember, shoppers want to get in and out quickly.
Walk your store daily and try to view it through a customer’s eyes. Do the displays pop? Are the refrigerator doors dirty and covered with smudged fingerprints? Maintaining a friendly environment will draw people in and keep them coming back, and this includes upkeep.
It is important to stay on top of regular maintenance and repairs. Broken shelves, cracked floor tiles, flickering lights, none of these convey the message that your store is well-run. If you purchased a franchise or older location, it might be time to take out a loan for a full remodel. If you take pride in your store’s appearance, customers will pick up on that good energy and come back.
Invest in Technology
A convenience store is not a high-tech business, but you can still enlist technology to help your store run smoother and generate more profits. A streamlined checkout experience, aided by a simple and easy-to-use register interface, moves customers in and out of the store quickly. It supports their overall reason for patronizing your store – convenience.
Integrated inventory and point-of-sale systems support ordering stock, remind you to rotate product, and track demand for your products. With them, you can ensure you do not run out of essential items or identify items that are not selling well and should be cut. Back-office software solutions can help with effective staff scheduling, taking the guesswork out of planning for busy times.
The technology available to a convenience store owner provides actionable insights into their business so they can better meet customer’s needs and generate more profit.
Pay Attention to Customers
Customers are your store’s lifeblood. You want to become a regular stopping point when they are out of milk or want to buy a lottery ticket. Solicit their feedback, either by asking them if there is anything else they would like you to carry while they check out or conduct customer surveys. Listen closely to complaints and address them quickly. Amid everything else you have to stay on top of to run a successful store, do not lose focus on the customer.
Showing your customer’s appreciation for their business can help you grow. Consider offering loyalty programs and punch cards for commonly purchased items, such as coffee. Offer incentives for them to sign up, such as a free donut. If you set up an email list and collect their emails, you can choose it to send notifications of specials, birthday treats, or new products.
Know the demographics of your area and your shoppers. Are there a lot of young families moving into the neighborhood? Maybe stock up on diapers and diaper cream. Demographics fluctuate over time as people move in and out of a neighborhood; if it has been a while since you researched your store’s surrounding area, take the time to refresh your knowledge.
When learning your demographics, decide if your store will generate revenue by focusing on volume or price point. In a wealthier area, you can charge higher prices and will not have to sell as much. In poorer neighborhoods, shift to making a profit through volume and quickly pushing product through your store.
Customers also give you information through their buying habits. If you invested in a good POS or inventory management system, use it to carefully track which items fly off the shelves and which linger. This will tell you the local area’s wants.
Market your Business
Marketing gets the word out about your convenience store. If you have only been open for a few months and business is not picking up the way you had hoped, maybe customers have not found out about you. Consider sending out a direct mail blast to the people who live in your zip code. Introduce yourself and offer specials and promotions to bring them through the door.
Direct mail marketing and postcards can be quite effective, so plan on mailing out information about new products or specials at a minimum of a monthly basis. Advertise promotions in the windows, whether through signs or window clings. Digital signage, which can be easily changed, could be a larger initial investment but cheaper in the long run as it saves you money on design and printing costs.
Within the store, turn your TV screens into ads. There are several software options that allow you to turn your TV into a screen that rotates sales and specials.
While some businesses are fans of using social media to reach customers, a convenience store is designed to meet small needs quickly and efficiently. Customers are not often thinking ahead but instead stopping to pick up something last minute. They are not likely to check your Facebook page for any deals, and a convenience store owner might get a better return on their marketing dollars by investing in old-school promotion.
That said, make sure your store is listed online and in search results so that when someone types “nearby convenience stores” into their mobile browser, you pop up.
State of the Industry
Convenience stores generated $654.3 billion in revenue in 2018, and the number of businesses trended upwards. Successful operators have credited their ability to shift product mixes to respond to demand faster than larger stores as part of why they have been able to withstand tough competition from supermarkets. Revenues are expected to grow an annualized 2.2%. Analysts view opportunities in charging higher prices for goods, as consumers have shown their willingness to pay more in exchange for accessibility, and disposable income is expected to rise.
Convenience stores can be split between those that sell motor fuel and those that do not. Of the 153,237 operating in the United States, close to 80% of them also sell gas. Of the total convenience stores in the U.S., 95,445 or 62.3% of them are single-store operators and not part of a chain. The growth rates for new store openings have been anemic, only rising above 1% in three out of the past nine years.
When analyzing sales, it is important to break out revenue from inside sales versus revenue from fuel sales. Inside sales grew to $242.2 billion in 2018, but fuel sales jumped 13.2% to $412.1 billion. If you do not plan on installing gas pumps at your convenience store, it will be much harder for you to generate revenue. In-store gross margin averages 36.99% for the top industry players and 29.4% for smaller stores. Smaller stores have an average square feet of 3,191 and in-store sales per square foot of $32.23. Stores of all sizes have seen the largest growth in foodservice sales.
While there is money to be made in the industry, and predicted growth, your square footage, and product mix could have a significant impact upon your success.
Costs to Running a Convenience Store
If you are a newer convenience store operator, you should have a good grasp of the costs involved to running your business. The first few months and year can be crucial as you learn the ins and outs of cash flow management and get a feel for your store’s daily activity.
Between signing a lease, buying a register or POS system, and stocking your store, it can cost up to $50,000 to open a convenience store. If you used all your capital to open, you may not have enough to cover daily expenses, and should consider a working capital loan.
Rent and utilities will be ongoing expenses, and experts estimate that up to 70% of your monthly costs could go to replenishing inventory. Your other largest expense might be labor costs for employees. Your store’s size, product mix, and number of employees will impact these costs.
Licenses such as a tobacco vendor’s license or liquor license must be renewed annually, and if they come due during a cash flow slump, you might need to take out a short-term loan to pay them.
Running a convenience store can require significant outlays of capital to purchase inventory before you have made much money. Within a few months of opening, you could need more capital. An expansion into a new product line, such as adding liquor after you get your license, could also require that you borrow. Keeping an eye on your costs helps you to manage your cash and protect your profit margins.
The Final Word on Small Business Loans for a Convenience Store
How to grow your convenience store business will depend upon your neighborhood, your goals, and your access to capital. Funding a change in direction or a major renovation could be outside your current budget and savings, so you will need to talk to an experienced lender. Shield Funding has been helping small business owners succeed for over ten years. They understand the ins and outs of your business and can offer helpful advice. Reach out to talk to a representative today.