Grocery Store Funding: The Essential Guide to Grocery Store Loans

Understanding your funding options and applying for the right small business loan for your business can be confusing. Our Industry Funding guides make it easy to compare your funding options and choose the right loan for your business, whether you’re just starting up or are looking to grow an existing business.

Getting Started with Grocery Store Loans

There are over 85,700 grocery stores in the USA. Supermarkets and grocery stores are the 2nd ranked retail trade industry in the country, projected to generate an estimated $765B in sales in 2022 and accounting for nearly 86% of the US food and beverage retail market.

Grocery businesses include any retail stores that sell food, including:

  • Specialty stores
  • Delis
  • Health food stores
  • Supermarkets
  • Hypermarkets
  • Wholesale grocers
  • Greengrocers

As a purveyor of essential goods, grocery stores are typically more resilient to social and economic changes than other retail specialties. Though demand is relatively consistent and these retailers can typically rely on repeat customers, they are also more susceptible to challenges like low margins, supply chain issues, and spoilage.

Most of the grocery market is dominated by large businesses—mass-market retailers accounted for 48% of sales in 2020, and Walmart alone accounts for 47% of online grocery delivery and pickup sales. Large retailers may be more insulated from these challenges, but small, local grocery stores will feel the pinch more keenly when demand shifts, supply runs low, and consumer behaviors change.

Grocery stores of all sizes are looking for ways to pivot to meet changing customer needs and preferences. Physical stores remain the leading channel for purchasing groceries, but digital sales are projected to grow as more Americans go online to place grocery orders—online sales were expected to capture 10% of the total grocery market in 2021, and are projected to reach nearly $190B by 2024.

Larger grocers are better positioned to adjust to these changes, but smaller grocers may not have the working capital or infrastructure to pivot as easily. Grocery store loans can help grocers of all sizes and specialties meet these challenges and continue to grow.

Grocery Store Loan Options

Long and short-term law firm funding options are available, including:

  1. SBA loans for accountants
  2. Bank loans for accountants
  3. Alternative funding
  4. Lines of credit
  5. Equipment financing

Let’s take a look at each of these options.

1. SBA grocery store loans

SBA loans are often considered to be the most ideal source of small business funding thanks to their low rates, long terms, and high loan amounts. They also have the longest application process, extensive paperwork requirements, and the strictest eligibility criteria—businesses must provide at least two years of detailed financial documentation, and only those with the strongest credit scores are approved.

SBA loans are not actually disbursed by the Small Business Administration. Instead, applications are reviewed and funds are disbursed by commercial lenders who partner with the SBA. If approved, the SBA guarantees the loan up to 85%, reducing the risk to the lender and in theory encouraging them to approve more loans.

Multiple types of SBA grocery store loans are available, including:

  • 7(a) Guaranteed Loans: 7(a) loans are the most popular SBA funding option, with loan limits as high as $5M, terms as long as 25 years, and the lowest rates available. These loans typically require collateral, but have the fewest restrictions on how you can use your funding. Express loans are also available, with a turnaround time of 36 hours or less. Express loans typically don’t require collateral for amounts under $25,000.
  • 504 Loans: 504 Local Development Company Program loans are long-term, fixed rate loans that are commonly used to purchase real estate and equipment. These loans are disbursed by community development corporations through commercial lending institutions, and require the borrowing business to use their financing to create or retain jobs, or uphold other public policy goals such as rural development, revitalizing a business district, or supporting minority-owned businesses.
  • Microloans: Microloans are available to a maximum amount of $50,000 with a maximum repayment term of 6 years. These loans can be used for working capital, inventory or supplies, furniture or fixtures, or machinery or equipment, and are available through select non-profit, community-based organizations.

Regardless of which type of SBA grocery store loan works best for you, the application process for SBA funding is the most rigorous with the strictest eligibility requirements. It can take weeks or months to get a decision, and most applicants are rejected, especially those with low credit, a history of unstable cash flow, or those seeking short-term financing or smaller loan amounts.

Difficulty:

5/5

Pros
  • Lowest rates and typically better terms
  • Large loan amounts are available, up to $5 million
Cons
  • Most applicants are rejected, especially those with low credit
  • Extensive application requiring years of detailed business and personal financial information
  • Can take weeks or months to process with no guarantee of approval
  • Some loans restrict how you can spend your funds

2. Bank loans for grocery stores

Grocery stores may be able to get the funding they need from traditional commercial lenders like banks or credit unions. Terms and rates will be competitive but may not be as low as SBA loans, and will ultimately depend on the size of the loan and your financial history.

Lending requirements may not be as strict as the SBA, but bank loans for grocery stores may still be difficult to acquire due to the perception of risk thanks to factors like lower margins and unstable cash flow.

Banks tend to prefer lending to larger businesses, or issuing larger loans, which can make it tough for smaller retailers and those looking for smaller loan amounts to find the funding they’re seeking. Grocery stores with existing lender relationships may have better odds of getting approved, but similar to the SBA, it can take weeks or months to process a loan application, with no guarantee of approval.

Difficulty:

4/5

Pros
  • Low rates and good terms depending on size of loan and credit history
  • Slightly less strict application requirements than SBA loans
Cons
  • Many applicants are rejected, especially small loan amounts and applicants with low credit
  • Extensive application requiring detailed business and personal financial information
  • Can take weeks to process, with no guarantee of approval
  • Some loans restrict how you can spend your funds

3. Alternative funding

Alternative grocery store loans are available from direct online lenders like Greenbox Capital®. Application requirements are more flexible and turnaround is much faster—funds can be deposited in as little as one business day—but typically loan amounts are lower, terms are shorter (1-3 years or less), and rates will be higher than SBA or bank loans.

Approval for alternative grocery store funding is based on the overall health and potential of your business, with less focus on your financial history and credit score. These factors will still be considered, but will be reviewed alongside other factors like your cash flow, vendor relationships, and public reputation.

Multiple types of alternative funding are available, including short term loans and lines of credit, as well as innovative non-loan funding options like merchant cash advances and invoice factoring:

  • Merchant cash advances are a non-loan form of financing known as an asset purchase. In exchange for a lump sum of working capital up front, your lender will receive a percentage of your daily or weekly credit and debit card sales until the advance has been repaid. MCAs are ideal for businesses that process a large volume of credit card transactions, including grocery stores. Learn more about merchant cash advances.
  • Invoice factoring is another non-loan form of financing known as accounts receivable financing. Essentially, a business sells their outstanding invoices to a lender, called a “factor”. The factor pays the lender up to 90% of the invoices’ value up front and is responsible for collecting payment from the customer. When the invoice is paid, the factor will deposit the remaining amount into the borrower’s account, minus any fees. Invoice factoring is ideal for businesses with large outstanding invoices and long accounts receivable periods. Learn more about invoice factoring.

Alternative lenders typically place no restrictions on how funds are used and often do not require collateral, making these lenders an ideal option for businesses that don’t meet the strict criteria of the SBA and banks. With faster turnaround, alternative lenders may also be the best option for businesses that need fast funding or don’t have time to navigate the long application process of these lenders. Alternative lenders are also more likely to lend to newer businesses, though some will not lend to businesses in operation for less than 6 months.

Difficulty:

2/5

Pros
  • Faster approvals with funds deposited in as little as 24 hours
  • Easier lending requirements
  • No restrictions on how funds are used
  • More likely to fund younger businesses
Cons
  • Higher rates
  • Daily or weekly repayment terms depending on type of funding

4. Lines of credit

Lines of credit function similarly to credit cards, but with longer terms and lower rates. Business owners can draw and repay from the line as needed, and will only ever pay interest on the amount borrowed.

Lines of credit are available from both traditional and alternative lenders. Alternative lenders may have easier approval requirements, but may also have lower credit limits and higher rates than traditional lenders.

Lines of credit are the most flexible form of financing for grocery stores, with no restrictions on how funds are used. Lines of credit are typically ideal for covering unexpected expenses, occasional purchases like inventory or new equipment, or other major expenses that don’t require a larger loan but which can still strain your cash flow.

Difficulty:

3/5

Pros
  • Only pay interest on the amount you borrow
  • Draw and repay funds as needed
  • No restrictions on how you spend your funds
  • Lower rates and higher limits than business credit cards
Cons
  • Tougher application requirements
  • Lower amounts than other forms of funding

5. Equipment financing

Equipment loans are designed specifically to finance the purchase of equipment, such as self-checkout kiosks, new computer systems, store fixtures, automation technology, or appliances like refrigerators and deli slicers. Similarly, inventory loans are designed to finance the purchase of new inventory, such as new product lines, seasonal inventory, or purchasing inventory in bulk at lower rates.

The equipment or inventory acts as collateral to secure the loan, so this type of loan may be easier to acquire for newer businesses or businesses with lower credit scores.

Difficulty:

3/5

Pros
  • May be easier to qualify for because equipment serves as collateral
  • You own the equipment instead of leasing it
Cons
  • Funding can only be used to purchase specific equipment
  • Very specific equipment or equipment that goes out-of-date quickly may have higher interest rates

What Are The Best Grocery Store Loans?

The best grocery store loan for your business depends on how much funding you need, your financial history, your monthly sales, and how you plan to use your funding.

For short-term funding, non-loan financing such as merchant cash advances or invoice factoring can provide a quick infusion of working capital that can be used for any purpose, such as purchasing inventory, bridging cash flow shortages, or marketing your grocery store to a wider audience.

For short-term funding, non-loan financing such as  can provide a quick infusion of working capital that you can use to maintain cash flow, cover unexpected expenses, or fuel your business’s growth.

For long-term funding, SBA 7(a) loans offer highest loan amounts, lowest rates, and longest terms, but they are the most difficult to acquire. Bank loans may be easier to acquire, but can still be difficult due to perceived risk. If you don’t meet the strict approval criteria of these lenders, alternative lenders also offer term loans, though terms may be shorter than SBA and bank loans.

For fast funding, alternative lenders are always your best choice. These lenders can approve and deposit funds in as little as one business day, while the SBA and banks can take weeks or months with no guarantee of approval.

How To Use Grocery Store Funding

The grocery landscape is shifting. As consumer behaviors change, grocery stores will face number of opportunities to grow, such as:

  • Online shopping: Shoppers have been pleased by the emergence of new options for click-and-collect and delivery and are indicating a preference to continue with these patterns as we emerge from the COVID-19 pandemic. 45% of millennials do their grocery shopping online and consumers typically spend nearly $40 more per order when they shop online, but it can be hard for smaller grocers to make the adjustment to omnichannel shopping despite these trends. Grocery store loans can help you invest in omnichannel approaches, such as subscription services with no-fee pickups, stocking primarily fresh items in store and fulfilling online orders for dried goods and other items, ensuring ease of selection and checkout, quick access to past orders, and transparency into in-stock items.
  • All-natural or plant-based products: Demand for all-natural, plant-based, and organic products has expanded during the pandemic. According to McKinsey & Company, the trend is unlikely to revert and the “net intent to focus on healthy eating and nutrition is expected to be up 38 percentage points over 2020, with consumers specifically seeking out naturally healthy, high-protein, low-sugar, and low-calorie foods”. Grocery store funding can help you acquire this inventory and make the necessary adjustments to your merchandising to stock these items without compromising your cash flow.
  • Prepared meals and other household goods: Demand is growing for fresh, ready-to-eat, and frozen products as fatigue for cooking at home sets in and the meal kit industry grows. 40% of consumers also indicate they would prefer to frequent stores that sell more than just groceries, such as pharmacy items and household goods. Grocery store loans can help you invest in this inventory so you can better meet the changing needs of your customers.
  • Updating technology and software: Adding self-checkout kiosks, developing e-commerce capabilities, and improving point of sale systems can streamline your operations and provide options that suit the changing needs and preferences of your consumers. These technologies can be costly, and grocery store loans can help you finance these purchases without impacting your cash flow.
  • Data analysis and personalization: Consumers are more likely to patronize retailers that combine timely, relevant offers with good pricing, and 60% of leading grocery retailers invested in enhancing personalization strategies in 2020, particularly for promotions and pricing. Understanding what your customers are buying and analyzing their purchasing patterns can help you offer better sales and personalized promotions and project demand. This trend is projected to increase in 2022 as supply chain issues lead to more shortages and consumers seek suitable alternatives to their preferred products. Grocery store funding can help you invest in these technologies so you can offer compelling deals and promotions.
  • Private label: A growing emphasis on affordability in 2021 and into 2022 may accelerate demand for private label brands. Grocery store loans can help you establish a private label, whether you develop it from scratch or partner with other local brands.
  • Support local: 42% of consumers say they’d buy more locally sourced items moving forward. In a post-COVID world, many people also feel safer in smaller stores where there aren’t as many shoppers and they can get in and out quickly. Use your grocery store loan to partner with other local businesses to create deals and promotions for products you can’t carry in store, such as other household goods retailers or even local restaurants to offer kitchen-fresh or ready-to-eat-meals.
  • Purchase inventory in bulk: Use your grocery store loan to purchase inventory in bulk at discounted prices, or stock up for seasonal sales.
  • Renovate or adjust your floor plan: Grocery store loans can be used to give your store a facelift and create a more pleasant environment, or adjust your floorplan to better suit the changing needs of consumers by making more space for fresh foods, ready-to-eat, and prepared meals. You could also use your funding to expand your store and create more space to fulfill online orders

Grocery store loans can also help you meet the challenges of running a grocery store, including:

  • Rising food prices: Food prices rose 3.5% in 2020 and have continued to climb faster than inflation in 2021 and 2022. Cash flow shortages may emerge as people spend less on groceries, and grocery store funding can help you bridge these gaps so you can continue to grow.
  • Supply chain issues: COVID-19 led to widespread supply chain issues, and product shortages in food production, transport, and restocking are common as we emerge from pandemic restrictions. Motivating suppliers to prioritize smaller retailers over larger competitors can be a challenge, and independent stores are more often at the bottom of suppliers’ priority lists. However, independent stores also have more freedom and agility when it comes to making supply chain adjustments, and grocery store loans can help you shore up cash flow shortages caused by supply chain issues so you can invest in new supplier relationships.
  • Staff shortages: The ongoing effects of the COVID-19 pandemic are leading to more frequent staff shortages if more workers are home sick. Offering competitive salaries, paid sick days, and other benefits can help attract new workers. Adopting automated technologies such as self check-out kiosks or aisle-scanning robots to monitor inventory can help you address staff shortages. Grocery store loans can provide the funding you need to make competitive offers and invest in automated technologies.
  • High competition: Smaller, local grocery stores must compete with bigger players who may be able to offer lower prices and better deals, as well as online ordering services like Instacart or Amazon delivery. Consumers are also consolidating their shopping patterns and are less willing to visit multiple stores per week to find what they want or to get the best price. It can be difficult for smaller, independent grocers to compete in such a market, with limited space for new products and less capacity to scale omnichannel approaches to offer the same convenience as larger players. Grocery store loans can provide the funding you need to adjust your promotions, products, or merchandising to compete with larger retailers.
  • COVID-19: Grocers are considered essential retailers and therefore saw less change in demand and claimed more “share of stomach” during the pandemic—North American grocery sales grew by approximately 12% in 2020 compared to the standard growth of 1-2% per year. However, as restrictions ease, consumer spending at restaurants is expected to increase. Grocery store loans can help you pivot to meet the changing needs of consumers and capture as much “share of stomach” as possible.

How To Apply for Grocery Store Loans

Retailers, including grocery stores, are often considered to be a riskier loan applicant because of factors like low margins, high competition, and cash flow shortages. Here’s what you need to know before applying for a grocery store loan:

  • It can be difficult to get a grocery store loan from traditional lenders because these lenders typically consider grocery stores to be higher risk due to cash flow fluctuations caused by a reliance on selling higher quantities of lower-priced, perishable items. Alternative lenders have more flexible approval requirements that will factor in other criteria in addition to your financial history and may be a better source of funding for grocery stores.
  • You may need to supply a business plan. All lenders will require you to describe how you plan to use your grocery store loan, as well as how you plan to repay it. The SBA and banks will require a formal business plan as part of your application, but alternative lenders may only require a purpose statement. It’s always a good idea to have one prepared just in case in order to minimize any delays with your application.

Otherwise, the steps you’ll follow when applying for a grocery store loan will be similar to other industries.

Learn more about how to apply for small business funding

Frequently Asked Questions

Can I get a small business loan with bad credit?

Yes, you can get a small business loan with bad credit, but only certain lenders will consider financing businesses with low credit scores. SBA-guaranteed and bank loans have strict credit score requirements, but alternative lenders are more lenient and are typically the best option for retail businesses with bad credit.

What if I’ve already received funding from another lender?

Some lenders will evaluate your debt-to-income ratio when reviewing your application, and may not fund you if you’ve already received funding from another lender and are still repaying it. Depending on the strength of your business, alternative lenders often fund retailers who have already received an advance.

Greenbox Funding Options for Grocery Stores

As an alternative lender, Greenbox Capital® can approve more grocery store loans than traditional lenders. We can also approve your grocery store funding faster, with funds deposited in as little as 24 hours. We provide several types of small business funding to help grow your grocery store, with funding from as low $3,000 up to $500,000.

Greenbox Capital® funds all grocery specialties. Our expert Funding Advisors will work closely with you to determine which funding option will help you achieve your goals without compromising your business’s cash flow.

Learn more
Author:
With over 25 years’ experience in financial services, Pamela Kohl has worked closely with banks, alternative finance, and other fintech platforms to develop core banking services, as well as establish new card programs, lending programs, and global payments platforms. She has been nationally recognized for creating innovative solutions, leveraging new markets, and developing winning strategic partnerships. Currently, Pamela serves as Vice President of Marketing at Greenbox Capital. Pamela earned a B.A. from Marshall University, summa cum laude, and M.A. in International Economics from the University of Miami, where she graduated with Distinction.