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If you’re a convenience store owner and have repeatedly applied for funding only to be denied, you’re not alone. Many small businesses — including convenience stores — are reporting limited access to working capital, making it difficult for them to aggressively pursue growth opportunities.
But why? Isn’t the Recession over? Isn’t the economy beginning to pick up?
The answer to both of those questions is "yes" and "no."
While the financial crisis of 2008-09 affected businesses nationwide and caused many to shut their doors, the economy has shown to be improving. Small business optimism is on the rise, and it hasn’t been this good for business owners since the pre-Recession days.
Even convenience stores — both standalone and those that are part of gas stations — are booming. U.S. convenience stores reached record in-store sales in 2013, climbing to $204 billion, according to NACS, the Association for Convenience & Fuel Retailing.
However, while things appear to be looking up, most businesses keep coming back to a singular problem: financing.
Access to funding has always been essential to the growth of a small business. Operating an independent enterprise can be costly and requires a significant amount of capital to run on a daily basis.
But why is financing still an issue in light of an improved economy and increased small business optimism?
The main reason is that the Recession caused a sea change in the small business lending industry. Government regulators began mandating that banks tighten their lending requirements and as a result, many business owners — including those thought to be in good standing — have been shut out from securing the financing they need. Even for established businesses that are turning a profit, a successful track record isn’t always enough to open up new lines of credit these days.
Three reasons stand above all others as to why businesses are having issues with financing:
Your personal credit score will usually be what makes or break your case for a bank loan. A bank will often want to see a long and solid credit history with a score in the 700 area, which is an exceptional rating. You may be thinking that anything above 650 should be fine, but it isn’t anymore.
Banks only want to loan money to those business owners that have a near-perfect track record with their bills and previous loans. Obviously, this can be significantly detrimental to convenience store owners looking for financing who, despite having a strong business, don’t have the requisite credit score. These incidents are often isolated and one-time-only type situations, but they matter to banks nonetheless. Is it fair? No, but unfortunately, that’s the way it is.
A common issue facing convenience store owners is the lack of viable collateral. Often, banks will want something in exchange for the loan they’re giving you, i.e. real estate, mortgage, etc. But not all business owners have attractive collateral that is valuable enough to be put up with a loan, thereby limiting those who can be eligible for a loan.
Obviously, a bank wants to see that you’re making money, or else how would you pay back the loan? All businesses have their good and bad months with many months falling in between. But a bank will want to see that you’re having consistent cash flow flowing through your business on a consistent monthly basis.
All of the above may be overly pessimistic and if you’re a convenience store owner who’s been denied financing, you may feel a sense of defeat. Don’t give hope. Since the Recession, a new form of financing — alternative lending — has created a new market for small business funding.
What is alternative lending and how can it help your convenience store?
Alternative lending has one aim: get small business owners money as soon as possible. To achieve this objective, alternative lenders use online applications that can be completed in minutes. Once completed, approvals can happen in seconds and the applicant can receive the money in just days.
The entire process is warp speed compared to the notoriously snail-like pace of a bank. But how else can alternative lending benefit convenience store owners?
- Credit score doesn’t matter: Well, almost. Most alternative lenders ask that you have at least a credit score of 500 compared to the more stringent credit score requirements of a traditional bank.
- Collateral: The majority of alternative lenders do not require you to put up collateral to receive financing.
- Cash flow: Alternative lenders understand that small businesses have their strong and weak months, which is why they look at your entire business history to gauge the strength of your business.
- Money can be used for anything: As a convenience store owner, you have a lot of needs to be addressed with capital. With alternative lending, you can use the money for purchasing inventory, expansion, hiring additional employees, payroll and more.
Don’t quit on small business financing just because you’ve had trouble and been denied in the past. Consult with an alternative lender and get the financing you need to fulfill your basic convenience store needs and more.
Editor's note: The opinions expressed in this column are the author's and do not necessarily reflect the views of Convenience Store News.