It’s never a bad time to start a liquor store. As a business, it’s fairly recession-proof, and with enough passion and planning, liquor store owners can turn healthy profits. However, securing the financing to get started or get through unexpected events can be tricky.
Don’t let that discourage you. With a solid understanding of liquor store expenses and the various liquor store financing options out there, you’ll be well equipped to make financial decisions with confidence.
Let’s dive in.
To determine the type of financing you need for your liquor store, it’s essential to know some ballpark figures for common costs.
If you’re starting a brand new liquor store, expect to pay between $100,000 and $250,000. Of those expenses, the two costliest will likely be your location costs and inventory. Here’s a more detailed breakdown:
The costs that are most relevant to you will depend on whether you’re starting a liquor business for the first time, expanding to a new location, or taking over an existing business.
Liquor store revenue can fluctuate greatly depending on where you’re located, but on average, expect your store to earn between $300,000 and $735,000 per year.
Related Read: Thinking of Buying a Liquor Store? 8 Things You Need To Know
Creating a liquor store business plan lays the foundation for success — it’s also a requirement for many investors or banks to even consider financing your business.
Most business plans consist of:
Not only does a business plan help you define your niche and determine what kind of bottles to stock, it also helps you turn ballpark figures into exact estimates.
With a solid understanding of your initial financial needs and growth projections, you can go to investors with confidence and only borrow as much as you need.
Once you’ve done the initial legwork and run the numbers, it’s time to look at liquor store financing options. There are several different paths you can take depending on the size of the loan, what you’re using it for, and the status of your credit.
Here are eight liquor store financing options to consider.
Best for: Existing businesses buying out another liquor store, expanding to a new location, buying inventory, or investing in new real estate
The U.S. Small Business Administration (SBA) offers several long-term, low-interest, fixed-rate loans for small businesses, including 7(a) loans and 504 loans (detailed below).
The 7(a) loan is for amounts up to $5 million and can be used for a variety of purposes, including:
To be eligible for a 7(a) loan, you need to meet the following criteria:
Many SBA loans require a minimum of two years of operating experience to qualify, making them a better fit for existing businesses that need an injection of capital for expansion or to weather a short-term disruption.
Last, it’s worth noting that 7(a) loans cannot be used to pay for liquor licenses or any associated fines.
Best for: Existing businesses with specific projects (e.g. construction or equipment purchase) or looking to buy new property
The 504 loan is another type of SBA loan that’s primarily used for specific projects and upgrades. Compared to a 7(a) loan, there are much stricter limits on how the money can be used.
A 504 loan cannot be used for working capital or inventory, but can be used for:
This loan can be useful if you’re looking to overhaul your storefront or modernize your liquor store design. A final note: If you take out a 504 loan of over $50,000, you’re required by the SBA to take out hazard insurance on all assets pledged as collateral.
Best for: Brand-new or established liquor store owners with good credit looking to finance the business for a specific period of time
A bank term loan gives business owners an upfront lump sum that is paid back over a defined period. If you have previous business experience and good credit, you may qualify for more competitive interest rates and may not have to provide collateral like you would with larger SBA loans.
Bank loans can be used for a variety of purposes, and the more detailed you can be, the more likely it is that the bank will take your request seriously. There are also specific bank loans for business acquisition, if you’re buying out another store.
Despite having higher interest rates than an SBA loan, some businesses prefer using banks because the application process is easier.
Related Read: How To Open a Liquor Store in 7 Simple Steps
Best for: Business owners who are involved with other local entrepreneurs or lack the creditworthiness for traditional bank loans
Independent (a.k.a. private) investors provide liquor store financing, usually in exchange for an ownership share and/or a more active role in the company’s operations. Private investors are usually able to be more flexible with their funding terms compared to banks and other financial institutions.
Private investors can range from venture capital firms to friends and family. There are also angel investors, who are wealthy individuals who invest in startups.
Just know that private investment tends to come with more caveats and risks, whether it’s less control of your business or having to navigate tricky personal relationships with investors who are also close friends.
Best for: Liquor store owners needing access to short-term funding to manage uneven cash flow or to take advantage of unexpected opportunities
A business line of credit gives small businesses access to funds in the short term. Unlike a business loan, it doesn’t provide a lump sum upfront to be paid back.
Think of it more like a credit card — it allows you to spend money on things (big and small) and starts accumulating interest from the point of purchase. However, like a credit card, the longer you take to pay it back, the more you’ll owe. On the other hand, you’ll only be on the hook for the amount you actually use.
This means opening a business line of credit is often good for short-term needs like managing off-season operating expenses or for a specific short-term purchase (like replacing an old standing fridge or other piece of equipment).
Related Read: How To Open a Business Credit Card in 4 Easy Steps
Best for: New business owners with a good credit score who need only a small amount of capital to get started
Never ran a business, but have good credit? You may still have financing options in the form of a personal loan. Most personal loans max out around $50,000, and repayment terms depend on your personal credit history.
Truthfully, a personal loan probably won’t cover all of your liquor store startup costs, but it may be enough for a crucial down payment to get you started.
However, it’s worth noting that a personal loan is tied to you, not the business. Meaning your business will not build credit, and if it fails, you’ll be the one in the red. This makes it by far the riskiest option on this list.
Best for: Liquor store owners looking to own instead of lease a location, or businesses that want to expand or renovate an existing site
The average commercial rent in the U.S. sits around $29 per square foot per year. That means if your store is 2,000 square feet, you’ll pay about $58,000 a year. If a landlord decides to sell the property or raise the rent on you, it can have huge financial impacts.
If you have the cash for a 20–30% down payment, it may be a good idea to invest in a commercial mortgage. While requiring more upfront costs, having control of the building provides some peace of mind and gives you more flexibility when it comes to renovations.
Best for: Startups or new business owners with poor credit
Alternative lenders (a.k.a. online lenders or fintech lenders) provide faster funding and looser requirements, but at the expense of higher interest rates and shorter repayment terms. These include companies like Fora Financial, Bluevine, and others.
While riskier, they offer a way for borrowers without established partners or those with low credit to get quick access to capital. Interest rates for alternative lenders are much higher (14–99%), and repayment times are more aggressive (usually within two to five years), meaning you’ll need to be confident in your growth projections to ensure you don’t fall behind on payments.
This is another reason why creating a solid liquor store business plan is useful, even if it’s not for securing a traditional loan.
There are many ways to secure financing for your liquor store, but before signing any paperwork, remember these tips:
Once you secure the money for a liquor store, then comes the hard part: running it. Your ability to repay your liquor store financing will depend on how efficiently you can run your business and how well you can retain customers.
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