How to Get a Retail Business Loan with Bad Credit


Businesses have ups and downs, especially in a cyclical industry like retail. But if a down period crushed your credit score, it could affect your ability to get a retail business loan.

Lenders use credit reports as a tool for determining a borrower’s risk level before doling out any cash. If your credit report reveals a history of missed payments or a high amount of existing debt, you might have trouble getting a retail business loan. These factors, among others, might cause your application — and hopes of an injection of cash to your business — to be denied.

But all is not lost. Obtaining a retail business loan when you have less-than-stellar credit might seem difficult, but there are ways to get the funds you need. Some financial institutions, such as online and alternative lenders, look at more than your credit score. They’ll take into account how long you’ve been in business, your annual revenue, and the state of the market. Even if you have bad credit, you could still qualify for a loan.

Prepare to Apply

Before putting pen to paper to apply for a retail business store loan, check your credit score for errors. If you find any, correct them. One in five people has at least one error on their report, the Federal Trade Commission says. You can make sure you’re not one of them by ordering a free personal credit report from each of the three credit-reporting agencies: TransUnion, Equifax and Experian. You can check your business credit score by contacting Equifax, Experian or Dun & Bradstreet.

The next step is to gather the paperwork the application will ask for — and there’s usually a lot of it. The Small Business Administration has a detailed loan application checklist you can reference as you gather the right information and paperwork. Lenders usually request documents like:

  • Profit and loss statements
  • Projected financial statements
  • Personal and business income tax returns from the past three years
  • Bank statements from the past three months
  • Accounts receivable reports
  • Business licenses and ownership documents
  • Leases and deeds

Lenders will also review your cash flow by calculating your debt-to-income ratio. For retail business loans, a ratio of 1.35-to-1 is preferred. They’ll also compare your monthly loan payments to your monthly income to determine whether you can afford the loan payment on top of your other expenses.

Lenders will also want to read your business plan, which is your blueprint for running your company. This document details your revenue-generating plans and affirms that you can repay the loan. Your business plan should include:

  • An overview of your company
  • Information about your products and services
  • Market analysis and strategies
  • Organization structure and management team info
  • Financial projections
  • Store locations (brick-and-mortar and online) and corresponding traffic

If you haven’t written your business plan, put one on paper before applying for a loan. If your plan’s a few years old, update it.

Know How You Will Use the Funds

Lenders will want to know what you’ll do with your retail store business loan, so be sure to have documents that detail your plans. If you’re applying for an $80,000 retail business loan, break down where each dollar will go. You might want to put $40,000 toward inventory, $20,000 toward storefront improvements, $12,000 toward hire a public relations firm to help with marketing and $8,000 toward new equipment.

Be prepared to explain how you’ll repay the loan, too. If you’re spending $20,000 to turn an unused warehouse into an expanded sales floor, project the income you’d generate by sizing up your store. Or if you’re spending $8,000 to add high-end espresso machines to your coffee shop, estimate what the new items to your menu might bring in additional sales.

Improve Your Chances

One way to improve your odds of being approved for a retail store business loan is to put up collateral. If you own assets valued near the amount you’re requesting, such as real estate, vehicles or expensive business equipment like fixtures or inventory, you could use it to secure the loan. To use an asset as collateral, you’ll need to prove that you own it.

Putting up collateral can improve your chances of being approved, as the lender can repossess the collateral to recoup their investment. And if the asset doesn’t generate enough money to cover the debt, you’ll lose it and still be on the hook to repay the difference.

small business owner uses home as collateral for small business retail loan

Consider Alternative Sources

Traditional banks are often very strict about approvals. Even if you have a stellar business plan, a long history in the community and a good debt-to-income ratio, you could be declined if your credit score is below 700.

If your credit score’s subpar, consider lenders that look at more than your FICO score. Online and alternative lenders are often willing to extend financing options to borrowers with bad credit. These lenders will review a variety of factors to determine your creditworthiness.

You could also tap into your personal network for funding. Because your family and friends know you and your drive to succeed, they might be willing to lend you the funds you need. Be careful with this arrangement, though — debts owed to loved ones can sometimes strain those relationships. If you can’t pay back the loan, you could lose a relationship and the money.

Angel investors and venture capital firms fund small business owners who offer something new to the market. And don’t forget about grants. Some are designed for specific businesses, such as those owned by people of color. If you qualify, you could get money that you don’t have to pay back.

Don’t Give Up

Take the time you need to prepare your retail business loan application. Think through the best way to invest in your business for the future. Seek lenders who take a personal approach.

And don’t give up. You can get the funding you need with the same grit and determination you used to start your small business.

Looking for funds from an alternative lender to grow your business? Check out National Funding’s funding solutions or fill out the contact form to contact a representative.

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