The term “food deserts” has become popular in recent years, as studies have shown that many families lack access to healthy fruits and vegetables within their neighborhoods. Poorer neighborhoods, particularly those in urban areas whose demographics are primarily minority racial groups, are particularly lacking in fresh and healthy food choices. If you are a small grocery store owner, now is the time to capitalize on all this recent attention.
The local bodega plays an important role in the neighborhood. It is a gathering place to exchange neighborhood gossip while the bodega cat winds around customers’ ankles, a quick stop for those essentials that you might have forgotten to pick up at the big box store, or, the neighborhood’s only grocery store.
If you operate a bodega, expanding your product offerings into premium dry goods and fresher selections of perishables can not only increase your bottom line but also serve your neighbor’s needs. But grocery store expansions can be an expensive proposition, with a new refrigerator case costing upwards of $4,000. There are also many other costs that come with expansion and business funding can be a difference maker for many underserved local grocers.
Expansion is not without its risk, but it can offer a great reward. If you want to learn more about how to finance your grocery store’s future, here are all your options.
Small Business Loans
Alternative lenders like Shield Funding has been working with small grocery store owners for over a decade. We offer small business loans for grocery stores that have flexible repayment schedules and terms from two to thirty-six months. Unlike traditional lenders, who often require that you have been in business for years, we will lend to businesses as new as two months old.
The minimum credit score for lending is 500, and rates range from 5-45% based partially upon your credit. Alternative lenders will also want to look at your business financials, and at Shield you will need at least $8,000 in monthly revenues to qualify. Loan amounts range from $5,000 to $1 million.
Business Lines of Credit
If you plan on expanding into offering fresh fruits and vegetables, rather than expanding your location or adding capital assets, a business line of credit could be a better choice. Unlike a loan, whose capital is distributed in one lump sum, a line of credit can be drawn upon and repaid many times. This makes it ideal for running a grocery store.
Initial inventory to stock a grocery store’s shelves could be up to $200,000, according to Save-a-Lot, and getting started at a new location can cost $100,000 or more. The high turnover of inventory in a grocery store mean that you will often need access to cash on hand to keep your shelves stocked. If you continually run low on inventory, customers will begin shopping elsewhere.
Even if not opening a new store, adding or expanding inventory could run you tens of thousands of dollars. Specialty items such as beer and wine, or fancy cheeses, can run that bill even higher.
With a business line of credit, you can draw on it if you need to restock, and then repay it once those items have sold. A line of credit smooths over bumps in cash flow and lets you restock your shelves when needed, even if you do not have the cash on hand. And, if you do not need to draw on it one month you will pay no interest or fees.
Another reason a line of credit is a good choice is that it remains open even if paid off. Once a loan has been repaid you would have to go through the application process all over again to obtain new financing. Business lines of credit provide more flexibility.
You will incur significant equipment costs when opening or expanding a bodega. According to Grocery Outlet, a new store’s equipment could be around $135,000. It will go up if you have a larger space. With an expansion, you will not need multiple refrigeration units and freezers, but with a new store you are looking at significantly more costs.
Customer-facing costs include fridges, freezers, carts, point-of-sale systems, fixtures, and shelving. Backroom equipment which keeps the store running could be as simple as a hand cart or as large as a forklift or baler.
A planned product expansion could also mean additional equipment. If you want to add a deli counter you will need more refrigeration, slicers, packages, and scales. A bakery will require ovens and display cases. Depending on your state, you may need a lockable section for beer and wine.
Equipment financing loans are secured by the equipment you are buying with the loan. The new fridge would serve as collateral, in other words. Because the lender’s capital is secured by the collateral, equipment financing loans typically charge lower interest rates than a term loan.
Merchant Cash Advance
Merchant cash advances are common in the grocery industry. The lender advances cash on the basis of credit and debit card sales. If you have poor personal credit, you will be relieved to know that it is not considered with this type of financing and it is the ideal bad credit business loan solution. This funding is ideal for businesses which process a lot of credit card sales, such as grocery stores.
While a cash advance does not charge interest up front, the lender will take their percentage on each in-store sale. You are selling your incoming receipts to the lender, and can have access to immediate funding up to $500k. The lender will decide upon their rate and will deduct it from your sales until their money has been repaid. If your customers tend to pay in cash, this will not be a good option for you.
While traditional banks often hesitate to lend to grocery stores, given their high-risk inventory, product turnover and low-cost margins, alternative lenders have stepped in to help these essential centers of the community thrive. Partner with Shield Funding today to continue to grow and serve your community’s needs.