Liquor retailing is a business that has a steady demand throughout the year. If your store is in a good location, you will have a constant stream of customers. You are sure to do brisk business if you stock a wide range of products and build a reputation in the area where you operate.
Unless you plan to put your own money into the business, you will have to apply for liquor store financing for purchasing a suitable store as well as for stocking it with an adequate volume of inventory.
SBA financing – The U.S. Small Business Administration (SBA) is possibly the best source for meeting the entire range of requirements for liquor store financing.
The flagship 7(a) loan program can be used for several purposes, including purchasing real estate, furniture and fixtures, and even for establishing a new business. Money sourced through this program can also be utilized to buy inventory.
The other major SBA loan program is the CDC/504. Its use is restricted to purchasing real estate and equipment.
Whichever SBA loan you opt for, you can be assured that you will pay the lowest rate of interest and also enjoy an extended repayment period.
But these loans do have several downsides. It is very difficult to meet the credit criteria that the SBA stipulates. Additionally, you would need to wait many weeks for an approval.
Bank loans – A bank loan could also be a good source to meet your liquor store financing needs. These traditional commercial lenders charge reasonable rates of interest, a factor that would enhance your cash flows and help you run a successful business.
Unfortunately, banks consider liquor store financing to be a high-risk area. Unless you are able to provide adequate collateral, you would find it difficult to get funding from this source.
It is also likely that you would have to furnish a personal guarantee, along with a list of the assets that you own. In the event that you default on your bank loan, there is a likelihood that you could lose your home because of the guarantee that you have provided.
Alternative lenders – There are a number of marketplace lenders that are open to advancing money for the purpose of liquor store financing.
These lenders enjoy several distinct advantages over bank loans. As they use an online application process, it is very easy to apply. There is no need to complete lengthy forms and submit copies of documents.
All you need to do is enter some basic data onto the lender’s website. An algorithm will process your information and convey a credit decision instantaneously. In fact, it is possible to receive loan funds within a few days of applying.
If you plan to take liquor store financing from an online lender, remember that the interest you will pay is likely to be substantially higher than what you would pay for an SBA loan or a bank loan.
But these financial institutions do not have cumbersome procedures. Their credit appraisal techniques are also not as stringent as those followed by banks.
Making a success of your liquor business – Running a liquor store is not easy. Gross profit margins are not very high, but you are required to maintain sufficient quantities of stocks, a factor that will increase your interest costs.
You would need to pay a great deal of attention to your working capital and cash flows if you want to maintain your profitability.
In addition to locating your store at a high-traffic location, it is important that you have some knowledge about the different products you sell. This will help you gain a loyal customer base and contribute to the success of your liquor store.
Ezine by John Albert
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