Guide to Receiving a Business Loan
for Brick-and-Mortar Stores

What is a Brick-and-Mortar Store?

A brick-and-mortar store is a physical business that sells products or services in an establishment that a customer can visit. The term can also refer to companies that own and operate factories or warehouses where they produce and store goods.

The Current State of Brick-and-Mortar Businesses

With terms like “retail-apocalypse” being tossed around, it inevitably raises many questions on the current and future state of brick-and-mortar stores. As the owner or hopeful owner of a brick-and-mortar store, it is important to understand just what that landscape looks like. According to The Balance Small Business, e-commerce only accounts for 14% of all sales. So, while it may feel like people are ditching the traditional in-store shopping experience for clicking “add to cart,” the data shows otherwise. When looking at which method people prefer shopping, 46% of people said that they prefer shopping in physical stores rather than online, according to Raydiant. While this is a 9% decrease compared to the 2020 State of the Consumer report, one can assume that a portion of this decrease can be attributed to the COVID-19 pandemic and the fear of exposing themselves to the virus while in public.

Why Financial Needs are Different for Brick-and-Mortar Businesses

Brick-and-Mortar businesses experience financial demands that a business without a physical location will not face. It is important to consider which of those expenses your business will incur and how those will affect the amount of extra capital you will need to acquire. Below are some of the typical costs that an owner and operator of a brick-and-mortar store can expect to cover.

Purchase or Renting of Commercial Real Estate

When you operate a brick-and-mortar store, you will need to purchase or rent the commercial real estate where you will be operating your business. This can come in the form of office buildings, retail or restaurant spaces, hotels, land, or multifamily spaces. If you are seeking financial assistance to cover the purchase or rent of commercial real estate, continue reading to understand what type of loan is the most appropriate for your situation.

Stocking of Inventory

When you operate a brick-and-mortar store, you will need to purchase inventory to keep your store stocked for your customers to browse and purchase when they visit. In addition to the ready-to-purchase goods, you may need some type of warehouse or storage where all additional goods are kept until they are moved to a sales floor.

Purchase of Equipment

As an owner of a brick-and-mortar store, you will likely have to purchase equipment to keep your business up and running. Whether you need to purchase an x-ray machine for your private medical practice or a large pizza oven for your restaurant, these purchases can require a large amount of up-front capital and that is where equipment financing will come in handy.

Point-of-Sale Software

Point-of-Sale (POS) software is an essential part of operating a brick-and-mortar store. This is where all information will be stored concerning customer transactions, such as purchases, returns, and exchanges. POS tools will also be able to provide you with critical business insights on things such as sales reporting and analytics.

Purchasing Marketing and Signage Materials

All small business owners typically allocate funds to marketing efforts, but when you own and operate a brick and mortar, you will incur unique types of marketing and advertising costs. For example, you may want to print and post physical signs about your business around your community or create materials to display in your store advertising special promotions. Additionally, you may choose to hire a staff member to hand out promotional materials to people around your business location.

Renovation and Upkeep of your Physical Business Location

An inevitable cost of owning a brick-and-mortar store will be the upkeep and renovations that come with operating out of a physical storefront. Whether it is a more minor cost such as repainting the interior of your store or a larger cost like expanding the size of your store, as the owner of a brick-and-mortar store, be prepared to allocate money to these types of expenses.

Now that you understand the different types of expenditures you will typically incur as the owner and operator of a brick-and-mortar store, you may be considering if an e-commerce store might be the most appropriate route for you and your business. Like a brick-and-mortar store, an e-commerce store will face expenses that the other will not, so it is important to consider those before deciding what type of model is best for you. Check out this in-depth article from Biz2Credit that discusses the unique expenses that e-commerce businesses incur and the types of financing you can apply for to cover those expenses.

Common Business Models Chosen by Brick-and-Mortar Stores

Within the category of brick-and-mortar stores, there are several different key business models that business owners will need to decide between.

Franchise Model

Franchising allows the franchisor to license its resources and brand name to a franchisee who will own and operate the store on the franchisor's behalf. The popular fast-food chain, Mcdonalds is a notable example of a successful franchise model, as 93% of their 38,695 restaurants are franchised.

Department Stores

Department stores consist of products across a variety of departments such as beauty, clothing, home furnishings, and more. This can be an attractive business model as these types of stores typically offer something for every type of shopper, which will allow a department store owner to generate a substantial amount of business.

Specialty Stores

In contrast to a department store, a specialty store will only sell goods related to one specific area. A benefit of this type of business model is that you can give each of your customers a specialized in-store experience that will cater to exactly them and their specific needs.

Convenience Stores

Convenience stores are a great way to start a business that will ensure very high foot traffic. As the name suggests, convenience stores are usually located in residential or commercial areas so they are easily accessible. By offering customers a quick place to stop and get things like gas, snacks, drinks, and many other everyday items, you are sure to see a high frequency of customers every day.

Grocery Stores

Focused on selling food and culinary-related items, grocery store business owners have the benefit of operating a business model that sells goods that are essential to each person. When you operate a grocery store, you will likely possess products with short shelf lives that need to be sold quickly to avoid losing money on spoiled goods. If you want to operate a store with goods that have a much longer shelf-life, consider if a liquor store could be the right option for you.

Liquor Stores

In the United States, alcohol sales made up a multi-billion dollar a year industry. If done right, operating a liquor store can be a very lucrative business model, but it will take patience and dedication. Due to the high regulations of the importation, distribution, and sale of alcohol, the market is not over-saturated with other stores. Because of this, if you enter the market, you will typically have low competition. Another benefit of owning a liquor store is that, unlike a grocery store, your inventory will be very shelf-stable. So, if operating a brick-and-mortar store in the food and drink space interests you, but you do not want to deal with expired goods, a liquor store could be an excellent option. Read how this Maryland entrepreneur was able to build four thriving liquor stores after receiving financing from Biz2Credit.

Are you Managing Small Business Finances Optimally?

Before you begin to apply for financing for your brick-and-mortar business, it is important to ensure that you are managing the finances of your business in a manner that is sustainable for you and your business. Fully understanding the financial situation is also vital to know what type of small business loan is best for you and your business. Our Guide to Managing Small Business Finances covers everything you need to know to manage the financial side of your business, explains the importance of having a business plan in place, and discusses the different tools and techniques you will need for your business. This helpful article is your go-to guide for everything you will need to consider relating to the financials of running your brick-and-mortar store.

Determine the Best Term Length for Your Small Business Loan

Another important consideration when applying for a business loan for your brick-and-mortar store is deciding on the term length of the loan. It is important to know that there are pros and cons that come with a shorter-term loan versus a longer-term loan. Picking the Right Term Length for Your Small Business Loan is an essential step for securing funding for your brick-and-mortar business.

Understand the Risks and Benefits of Business Loan Collateral

One aspect that you may run into when deciding what type of loan is best for you and your brick-and-mortar store is loan collateral. Loan collateral is when you pledge something of value to the loan lender so that if you default on a loan payment, the lender can take possession of the pledged asset to recoup their lost money. A loan that requires collateral is called a “secured business loan” while those that do not are referred to as “unsecured business loans.” For a deep dive into the topic of loan collateral and to understand how it could impact the type of financing that you receive, check out our article on Understanding the Risks and Benefits of Business Loan Collateral.