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How to finance a new retail business

May 4, 2021 | Published by Faire

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The following content is informational only and not an exhaustive list of funding options for a new business. The right finance plan will depend on your specific needs and financial situation. When making financial decisions, we encourage you to consult a financial advisor or other qualified professionals. 

Figuring out the best way to fund a new business is often one of the biggest challenges entrepreneurs face. Fortunately, when it comes to opening a new retail business, there’s a wealth of funding solutions available. We’ve broken down a few different approaches to financing your retail store. 

Calculate how much funding you need

Before you explore your retail store financing options, you’ll need to calculate just how much funding you need. Your financial needs will vary depending on a variety of factors, and it helps to write a business plan early on to help break down your costs. 

The main factors to consider when calculating funding are:

  • Retail space rent and utilities—on average, new store owners try to have enough capital to cover rent for two years
  • Inventory cost
  • Store renovations, including any display fixture purchases
  • Employee cost
  • Technology (like a POS system) 
  • Insurance
  • Marketing/advertising 

For a more detailed example of startup costs for a new business, take a look at the Small Business Administration’s (SBA) startup cost worksheet

To get a clearer picture of your funding needs, it’s also helpful to calculate your burn rate. Your burn rate is a measure of how quickly you’re spending money. If you’re not sure how much revenue you’ll be making each month, calculate burn rate simply by looking at your monthly expenses. This metric is often used for new businesses to determine your “runway,” or how long the business can operate before hitting zero dollars in the bank. To find your runway, subtract your burn rate from the total amount of money you have to start your business. When opening a new retail store, it’s typical to secure enough funding to last you between 12 and 18 months. 

Consider outside investors 

Outside investors can (and often do) include friends or family willing to contribute to your business venture. This can be an attractive option, as interest on a loan from someone you trust will be much lower than what a bank can offer. Though less common, some new retail business owners also turn to crowdfunding platforms to finance their store. Whether the aid is coming from family or your community, make sure you clearly establish upfront how much stake each investor will have in your business.

Explore self-funding

You may be in the fortunate position of already having the capital you need to open your store. Before deciding to go it alone, there are a few things to consider. If you have other significant recurring expenses such as student loans, a mortgage, or other outstanding debt, you may want to seek outside funds. You’ll also want to think about how many employees you need and how much you plan to pay them. Keep in mind that you’ll want to pay yourself a salary eventually as well, and calculate how much that might be. 

Apply for a small business loan through a bank or credit union

Small business loans are the most common type of retail store financing upfront, and banks or credit unions offer a handful of funding options to help grow your business. If you have an existing relationship with a bank or credit union you trust, it’s helpful to see what loans they offer. 

When taking out a loan, there are a few key factors you want to consider. First, look at the loan term requirements. Is this a short-term or long-term loan? When do you have to pay it back? What’s the interest on the loan? Next, think about how easy the application process is and how soon you’ll get your funds. Depending on your needs, you may want the money sooner rather than later. 

Navigating your loan options can feel overwhelming, but the good news is that you have options. The most common types of small business loans offered by banks and credit unions are:

  • Business line of credit loan. This loan provides the same flexibility as a credit card. You’re given a credit limit, and you can borrow any amount within that limit whenever you need it. You’ll only pay interest on the money borrowed, and you can borrow as frequently or infrequently as you like. 
  • Term loan. This is a lump sum of cash repaid (with interest) over a fixed period. You can use the funds for whatever you may need, and the term of the loan can vary from a few months to years. 
  • Equipment financing loan. If your biggest area of need is purchasing equipment for your retail space, this is a good option to consider. An equipment loan gives you the funds to purchase what you need immediately without paying for everything upfront. You’ll pay the remainder back (plus interest and fees) over a set period, and when it’s paid off, you’ll be the sole owner of the equipment. 

Apply for a small business loan through the SBA

Another popular route for retail business funding is applying for a loan through the SBA. The SBA is a great resource for learning more about your loan options and gathering information on the application process. 

The most common loan from the SBA is the 7(a) loan, which typically acts as a long-term loan. 

When you apply for a 7(a) loan, the SBA will pair you with a lender who will determine the specific amount and terms of the loan. If you’re having trouble securing a traditional business loan from a bank, this is a good alternative to explore.

There are several types of 7(a) loans, ranging from $250,000 to $5 million, and your lender will help you find the best option for your business. To learn more about the 7(a) loan, visit the SBA’s website

Apply for Open with Faire

Purchasing inventory can be one of the most expensive costs of a new retail business, and many new business owners struggle with limited cash flow. Open with Faire—a program for new independent retailers—seeks to address that problem by covering the cost of inventory upfront. With Open with Faire, you can order up to $20k in new inventory for your store and pay 60 days later, with no added interest or fees. You can also start a payment plan to pay over longer than 60 days. Applying for Open with Faire is a great option if a large bulk of your expenses is buying products for your store.

Learn more about Open with Faire and apply today. Don’t know where to start? Sign up to chat with a Faire team member here.

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