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Business Loans For Florists

florist

How To Get a Loan as a Florist

Consumers in the United States spend $1.83 billion annually on cut flowers. While some areas of the floral industry – particularly intermediates and small shops – have contracted during the past few years, there has been growth in supermarket and online florists. Between 2014 and 2019, online floral merchants saw 11.8% growth.

According to the Society of American florists, a retail floral shop generates an average of $362,318 in annual revenue. Profit margins vary widely, however, depending on the add-on’s such as vases, ribbons, or delivery services. With smart management, there’s money to be made in the floral industry.

If you’ve been thinking of opening a new floral shop, or expanding an existing shop through adding services and online sales, you might not have the cash reserves to fund your plans. Borrowing could be a smart choice.

If you already know that it’s time to take out a loan,  take a few minutes to apply online. But if you don’t have a good grasp on your funding needs, or are unsure which is the best loan product for your business, read on.

Top Considerations Before Applying for Financing of a Florist

Knowing why you need the funding, and how you plan on using it, is key to successfully borrowing. Before applying for a loan, ask yourself these several key questions. The answers will help you formulate a robust business plan. 

Are you an owner or are you looking to open a new florist shop?

The type of funding you’ll need, how much you should borrow, and how long you should take to pay back the loan will all change depending on if you’re already in business or opening a new florist shop.

If you’re already in business you have data available to inform borrowing decisions. You can predict cash flows and will know, for example, if you need to borrow to have inventory on hand for wedding season. 

Existing business owners have a history of credit card receipts, cash flows and income statements to include in a loan application. With a good idea of how you plan to use the funding – whether it’s expanding into a new space, adding a delivery route, or purchasing a new refrigerator for storage – you can demonstrate the increased revenues that the loan will bring into your business. Banks will look more favorably on your loan application – assuming you’ve been profitable. 

If you’re opening a new florist shop, it will be harder to qualify for a traditional loan. At a minimum, you’ll need a robust business plan and strong cash flow projections when you apply. You could have to pledge personal assets – such as investment or retirement accounts – to secure a loan. 

Banks want to know how you plan on making money, the amount of capital expenditures involved in opening a new store, and when you’ll turn a profit or break even. If you lack experience in the floral industry, they’ll be wary. Newer small business floral shop owners will find it harder to obtain a loan from traditional funding sources. 

Why do you need the funds? 

Opening a new floral shop? You’ll have to locate a good space to lease and cover monthly rent while possibly renovating it. There will be upfront costs like buying and installing refrigerators, and once you’re in operation you’ll have to cover utility bills and other fixed expenses before your first sale. 

Renovating or expanding an existing floral shop? You could face many of the same costs. 

Here are some of the most popular reasons florists take out small business loans

  • Purchase new equipment to replace old or broken refrigerators
  • Expand their space or open a new location
  • Add services, such as expanding into weddings or providing flowers for corporate events
  • Cover operating expenses during lean times

How you intend to use the funds dictates the type of funding and term that best fits your business purposes. It will also tell you how much cash you need to fund the business plan. 

What can you afford to borrow? 

Now is the time to create a budget for your business. After you’ve paid fixed expenses like rent and utilities, how much free cash flow do you have to make loan payments? The size of your loan payment will depend on how much you borrow, so if you can’t afford the payment consider scaling back your plans.

Your business’s cash flows must cover the loan payments for your new florist shop – particularly if there will be a delay between when you have to pay for any renovations or equipment and when the new investment will generate revenues. After you’ve made a budget and determined what you can afford to borrow, include a plan to pay back the loan in your budget. And plan for the unexpected.

The contractor you hired to renovate the new space shows up a few days late. The refrigerators you bought are backordered. Make sure you have a fallback plan to make loan payments if there are delays. 

Will the project generate a profit? 

It’s not enough to know if expanding to floral design for weddings will add $20,000 in revenue. If you have to take out a $25,000 loan to pay new workers, lease or rent a van for transport, and order inventory, you’ve actually lost money. 

Anytime you plan on borrowing to fund a project its expected return should do more than cover the loan’s cost – it should also produce more income for your business in the long run. Evaluating a potential project can get quite complicated.  A simple expansion has many variables.

For example, the storefront next door has become empty and you have the opportunity to lease it and expand your space. Based on square footage, you could host floral design classes and add potted plants – like the popular succulents – to your inventory. Cash flow estimates show potential profit of $2,000 a month. 

Your landlord is willing to give you a reduced rent because you’ve been a good tenant, so rent would be $1,500 for the expanded space. Total cost to renovate and add space for classes, purchase inventory, and advertise the classes will be $5,000. Your contractor estimates it will take him two months to get to the renovations, so you’ll have to cover two months rent before the project generates income.

If you took out an $8,000 loan for a two-year term at 10% interest, your monthly payment is around $369. Based on that, you could lose $131 a month.  

Before taking out a loan to fund a business project, check if the project’s impact on your revenues will both pay back the loan and generate a profit. Maybe adding two more classes monthly could put you in the green. 

Establish the funding timeframe 

A loan’s term is the time you can take to repay the funds. How long will you need to repay the loan? It’s a bad idea to still be paying on a loan when you’re no longer receiving its benefits, which is why a short-term loan might work better for the florist shop expansion outlined above.

For example, let’s say you’re taking out a $5,000 loan to cover the cost of a refrigerator to keep the flowers for floral design classes fresh. The refrigerator will be fully depreciated after three years. If you took out a five-year loan to finance it, you would still be paying on the loan after the fridge had no value (and already might need replacing).

For capital investments like machinery or delivery trucks, apply a matching principle. The funding’s term should expire when the project is complete, fully depreciated, or its benefits have been realized. 

Maybe you need access to funds on a rolling basis – to cover payroll, help pay rent during a slow month, or to draw on for unexpected expenses like an emergency floral shipment. In that case, a line of credit would work best for your situation. 

A line of credit works like a credit card, though often with lower rates. You can draw on the funds as needed and only owe payments when you’ve borrowed. While you might have to pay a fee to keep the line of credit open. 

What is your business and credit history? 

Your personal credit score and the business’s credit history impact your ability to get funding and the rate and terms of the loan. Before beginning the process of applying for loans, pull a free copy of your credit report and check your credit score. 

If you have a low credit score and poor business history the bank thinks that there is a higher likelihood you will default on the loan. Most banks prefer to work with borrowers who have at least two years of history, because they worry less that the business will suddenly fail and stop making payments. Knowing your credit score will save you time wasted applying with lenders who will never work with you. 

After two to five years in business, and with a credit score above 750, you can likely obtain funding from a traditional bank. The lender will also look at your Dun & Bradstreet credit report when making underwriting decisions. Traditional lenders rarely work with small business owners unless they have an almost-perfect credit score and business history.

You can still get funding if you’ve only been in business a few months, or less than five years, and have a lower credit score. Rather than wasting your time applying with banks only to eventually be denied, work with online and alternative lenders. These lenders specialize in working with borrowers who have less-than-perfect credit or less time in business.

Best Business Loans for Florists

The best business loan for your floral shop fits your funding and repayment needs. One of these options will be the best choice for you. 

Merchant Cash Advance

Floral shops that specialize in large corporate orders or weddings probably have a large volume of credit card receivables. This could make getting money for working capital or short-term needs easy with a merchant cash advance. When you take out a merchant cash advance, you sell a percentage of your credit card receivables to the lender. 

The lender automatically deducts your repayment from future credit card sales, which makes repaying the advance easy. The repayment comes out in dollars and cents, not a large, lump-sum loan payment each month. If you have a credit score as low as 500 but significant credit card sales, and minimum monthly revenues of $8,000, you can apply for a merchant cash advance.  

Working Capital Loans

Working capital loans help small business owners cover the costs of day-to-day operations like payroll or utility bills. These loans help with operational expenses, not big-budget expansions. They keep the lights on – literally.

Underwriting bases funding decisions for working capital based on bank deposits and monthly revenues, so the underwriting process is faster than with a traditional loan. If you’ve experiencing a cash flow crunch, you could get funded in time to meet current obligations.

At Shield Funding, we extend working capital loans to business owners with credit scores above 650 after you’ve been in business for just two months. 

Fast Business Loans

If it’s time to open that new shop or invest in an expansion and there is not a lot of time then look into a fast business loan. This loan product funds loans between $50,000 to $2 million. Because a fast business loan is for immediate opportunities it is best suited to projects that need to be acted on quickly. 

To qualify for a fast business loan you only need a credit score above 530, minimum monthly revenues of $10,000, and two months in business to qualify. Within as few as 24 hours you could have the funds needed to start making your dreams a reality.

Small Business Loans

Better suited for non-emergency needs, small business loans fund long-term projects like an expansion or capital investments like investing in newer machines. A small business loan is the best loan product to match your repayment period to a longer project for which you have a clear plan.

After two months in business you can borrow as little as $5,000 with a repayment term of two months to three years and a minimum credit score of 650. 

If working with traditional banks has discouraged you, it’s time to reach out to an alternative lender. Alternative lenders can best serve the needs of small business owners, particularly if you need funding in a hurry or have a spotty business history. After just a few minutes to gather the necessary paperwork you can apply online now!