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How to finance a new retail store?

8 August 2022

Successful retail businesses don’t simply appear overnight. It takes dedication, hard work and creativity to launch a business. Starting a retail enterprise also takes money. Money that most new retailers often do not have just lying dormant in an account. Acquiring finance is one of the first steps that business owners need to take.  

Deciding on exactly how to finance a retail business can be difficult. These days, entrepreneurs have a range of finance options to choose from to help them cover the costs to open a retail store for example. They need to carefully assess each one to see if it will meet their needs. 

This article provides budding business owners with a quick guide on how to finance a retail business. We’ll go over why it is important to weigh your financing options carefully. You’ll learn how to prepare a finance plan. We also outline some common finance options and look at how to avoid financing mistakes.

Andrea Landi

Why you need to carefully consider financing

The majority of small retail business owners want to create a viable enterprise that will be profitable for many years to come. In most cases, a retail business is a long-term commitment. Whatever financing option you choose will be with you for some time. For this reason, it is wise to prepare the groundwork for your financing thoroughly.

Making the wrong financing choice could see you encumbered with expensive repayments. With the wrong financing, you may not acquire all the capital you need to begin your retail store. In this case, a retailer may be forced to take out additional financing, further adding to their debt burden.

How to prepare your finance plan

Finding a reliable source of financing is the foundation of any business. It requires careful planning and preparation. A business owner needs a clear plan before they start approaching investors or applying for loans from banks or institutions.

What should you include in a plan for how to finance a retail business? The big question your plan should answer is: How much financing will your shop really need? Having a clear idea of the maximum amount of money you will require will help you acquire the right financing.  

Firstly, you should think carefully about the initial financial requirements of your retail store and its ongoing needs. Use your business plan to get a forecast of what your monthly costs might be. Be realistic, don’t just make estimates based on best-case scenarios. Consider all your start-up costs and factor them into your budgeting.

Think about a few worst-case scenarios. How much capital would you need if a supplier raised its prices? How would you keep your business afloat if there is a sudden drop in sales? Quite a few retail stores do not make significant profits for the first few years. Your financing may have to be ongoing until you reach a breakeven point. Remember to factor in any possible interest on loan repayments.

Types of finance available for new retail businesses

Once you have a good estimate of the amount of finance your business will need, then it’s time to consider your options. There are four main types of financing available to new retail businesses. Which one you choose will have serious repercussions and impact how your business develops. Make sure to weigh up each option carefully before making a final decision. 

Self-financing your retail store

Self-financing is also known as ‘bootstrapping’ and it is a popular option for entrepreneurs who want to go it alone. As the name suggests, self-financing denotes raising start-up capital from your own resources. This may include mortgaging a property, relying on credit cards, taking out personal loans, or using your savings. 

Some retail entrepreneurs utilize so-called ‘merchant credit’. This means that a supplier will provide goods and not require payment for a period of time, usually 90 days. In this period, the retailer has to sell all the goods in order to pay the invoice. 

Self-financing is an attractive option for any business that has low start-up costs. It is also a good option for anyone who does not want to deal with investors, banks, or government grants. There is also a significant amount of risk associated with any self-financing option. If the business does not perform as expected, a retailer could lose their security. 

Commercial lenders

The most traditional way of financing a retail business is to approach a financial institution and apply for a loan. The process of getting a loan for a retail business can be complicated. Many banks and commercial lenders are overly cautious about approving financing for a retail store. Applicants will need to have a clear business plan and strong financial projections in order to secure a loan.

If you already have an existing relationship with your lending institution, this will help you to secure financing. It is also advisable to have some of your own money invested in the venture. This will prove to the institution that you are serious about the enterprise. 

Banks may require a guarantee before they approve a loan. Retailers need to decide if they can risk their own assets in order to secure financing. A bank or lending institution may also ask that a business owner takes out insurance before they approve a loan. 

Take care to make sure you fully understand the terms of the loan and the amount of the interest applied to it. Some loans have variable interest rates while others may come with a fixed interest rate. 

Compare a range of lenders to try and find the most advantageous deal for your situation. If you are refused a loan from one institution, reassess your application and try again with another lender. It can often take multiple applications to secure financing. Be patient and do not rush into the first loan offer you get. 

External investors

Another traditional means of raising capital for a retail business is to find external investors. The right investors can provide your business with a loan that has more agreeable terms than a bank or lending institution. 

Investors can also provide business acumen and access to an existing network of contacts. Since it is often hard to carve out a niche in the crowded retail market, these resources can be invaluable for a fledgling business. 

To secure funding from investors, a retailer will have to ensure that they have a good pitch for their business. Like a credit institution, investors will want to see detailed profit and loss forecasts. 

Investors can be more susceptible to the ‘wow’ factor, so it can be a good idea to create an exciting and inspiring presentation. Always remember to think about your audience and adopt the right tone to your pitch. 

Some entrepreneurs turn to family or friends for investment. Others may make use of crowdfunding or peer-to-peer lending. Many small businesses seek to gain investment funding via the private sector. 

Whatever method you choose to find investors for your retail store, you will need to be comfortable with doing business with them. Always take the time to closely go over any terms and conditions an investor may place upon a loan. 

Government loan schemes

People wishing to start a new retail business can also apply for a Start Up Loan from the UK government. A retailer can apply for Start Up Loans anywhere from £500 to £25,000. These loans are designed to assist entrepreneurs develop an existing enterprise or start a new business. 

Start Up Loans come with a fixed interest rate of 6% per annum. They attract no early repayment fees or application fees. Start Up Loans can be arranged for a period of between one to five years. 

To be eligible for a UK government Start Up Loan you must be 18 years of age or over and a resident of the UK. Your business must be planning to trade, or have already been trading, for at least 36 months. 

If you are successful in applying for a Start Up Loan, you will also receive support, guidance and mentoring free of charge for up to twelve months. A Start Up Loan from the UK government is an unsecured personal loan.

More information on Start Up Loans can be found on the UK government’s website:

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How to avoid financing pitfalls for your new retail store

Many retail businesses fail because they do not acquire enough financing to see them through their first few years of trading. The initial seed money for your business has to match your needs and cover any unforeseen eventualities. 

Another mistake retailers make is to take on more debt than they can handle. Be sure that you can meet any loan repayments, even if your business does not perform as expected. Be sure to make detailed and realistic financial projections. Tally up all your start-up costs and be honest about any potential problems you may face. 

Plan carefully and adopt a pragmatic and honest approach when dealing with banks, credit institutions and investors. This way you should avoid common issues caused by under- or over-financing.

How to be sure your retail business has the right financing

When considering how to finance a retail business, ask yourself the following questions:

  • Can you afford the repayments on a financing loan?
  • Can you cover costs if your business does not perform as expected?
  • Are you going to be able to meet any unforeseen expenses?
  • Will you require an extra line of credit in the future to expand the business?
  • Are you comfortable being in partnership with private investors, friends or family members?
  • Are you comfortable with using your own assets as security for a business loan?

If you are able to answer these questions to your satisfaction, then it is a good sign you have the right type of financing for your retail store. 

Ankorstore is here to help entrepreneurs create successful, sustainable retail businesses. If you are opening a retail business, then Ankorstore can provide a range of resources to help you get started. 


What are the most common ways of financing a retail business?

Many retailers use their own funds to self-finance their businesses. Others choose to seek out investors. Often, retailers apply for loans from banks or lending institutions. Some retail business owners chose to acquire financing via UK government schemes. 

How can I cut my start-up costs?

Cutting your start-up costs can lower the amount of financing your business needs. Consider leasing equipment on a short-term basis instead of buying it. Choose smaller premises for your business. Try and obtain merchant credit from suppliers. 

How do I prepare for applying for a loan?

Make sure you have a solid business plan when applying for a loan or pitching investors. Your financial projections should be grounded in reality. Try and anticipate any problems you may encounter and provide solutions. Being prepared will enable you to negotiate the best terms possible.

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