Loan for Small Retail Shop

Jon Maloney explains your options in terms of loans for a small retail shop.

Can you get a loan to buy a small retail shop? What type of business loan would you typically need?

Yes, you can get a loan to buy a retail shop. Typically speaking, those loans would be secured, because they’re probably quite large in value. They would either be secured against your own home address or the lender would perhaps take a debenture on a company.

If you’re buying the actual freehold to a shop then you could secure it on that. It’s not one of our specialities though, although we do arrange them. Once you’ve bought the shop and it’s up and running is where we tend to come in.

What are the eligibility requirements for a small retail shop loan?

Initially all we’d be looking for is for your business to have been trading over 12 months and to turn over around £10,000 a month.

From a personal or business credit perspective, we can work around your situation.

Can individuals or only businesses apply for a loan for a small retail shop? Can I get a business loan as a sole trader?

We can’t provide finance to individuals – that’s deemed consumer finance. But we can deal with any business; there are no real restrictions. Obviously if you’re an arms dealer we don’t want to know. But there are no restrictions on the type of business.

In terms of sole traders, that’s a really interesting point. What we’ve been finding recently is that funders are moving away from providing loans under £25,000 to sole traders.

It’s because anything less than £25,000 for a sole trader is covered by the Financial Conduct Authority – and that’s into the realms of personal finance. A lot of lenders now are not doing anything under £25,000 for sole traders.

We’ve had situations recently where perhaps a sole trader has applied for £10,000 but funders aren’t available for that amount. So then they ask for £25,000 or £30,000 – but they’ve got to be able to afford that. It’s a bit of a minefield.

We also see a lot of sole traders who have just set up a limited company but have no accounts. They’re looked on as a new startup by a lot of lenders. But if you’ve recently incorporated into a limited company after being a sole trader for 10 years, we can still look at that. We can take into account those 10 years of trading.

How much can I borrow for my small retail shop? How is income assessed and what documents do I need?

We’d like to see your last six months business bank statements and a full set of your most recent year end accounts. When we say full set, it’s not the ones that are filed at Companies House but the set your accountant does.

If you have a turnover less than a certain amount, you’d only need to file an abbreviated set with Companies House – it’ll only contain essentially a balance sheet. We need to see the full set with the profit and loss account, as well.

In terms of how affordability is assessed, that’s what the bank statements are for. We look at how much you want to borrow, how long you want to borrow it over, the realistic amount you will get approved for and whether you can afford to pay it back.

What is the repayment term for a small retail shop loan? What options do I have here?

The terms are between 12 months to five years. We primarily do things for cash flow and working capital, or perhaps a one-off bill. Sometimes we have businesses that apply for cash flow but want to put it over five years.

We would ask if they are expecting a cash flow problem for the next five years. Cash flow is a temporary thing – we typically want to do that over six months to 12 months, and sometimes 24 months. Around 90% of what we do is 12 months if it’s cash flow.

If it’s for a larger project – perhaps a refit, or to buy another retail business as well as your existing one – typically you’d be looking at a five-year term.

What if I have bad credit?

Bad credit is a very broad brush and is often just in the eye of the applicant. They might think because they’ve a loan payment six months ago that they have bad credit.

It certainly doesn’t help their credit score, but to us that’s not bad credit. Bad credit is somebody who likes to borrow money but never pays it back. Or someone who has put several of their businesses into liquidation in the last few years and keeps setting up new ones.

The best thing to do is give us a call, tell us why you think you’ve got bad credit and we’ll tell you whether it’s worth you applying or not.

What happens if a borrower defaults on a loan?

If a borrower defaults, they will be contacted by the lender. A default is different from a missed payment, where you have just missed your monthly payment.

In that case, the funder will make contact with you and see if there’s any problem and how they can help. They might give you another few weeks to pay. A default is different. It normally happens when somebody’s buried their head in the sand and ignored all the emails, calls and letters from the lender. They can’t do anything else, so they put you into default.

Every business experiences financial difficulty, irrespective of size. The best thing to do when that happens is not to ignore anything. Although it can be embarrassing or stressful to have to call or email, it doesn’t do you any favours to pretend it will go away – because it doesn’t, sadly.

How do I apply for a loan for a small retail shop? What is the process and how long does it take?

Go onto our website and click the ‘check eligibility’ so you know you’re not wasting your time. That will then take you to the application form which takes about two minutes to fill out.

You’ll then get a dedicated account manager who will take your application through from start to finish. They will be your sole point of contact throughout your relationship with Century.

Once we have your bank statements and accounts you’re probably looking at 24 hours for a decision. It does depend on how much you’re applying for. Larger transactions sometimes do tend to take a little bit longer. If it’s anything up to £100,000 it’s usually 24 hours