Where to Find Loans for Liquor Stores When Your Cash Flow Dries Up

Financing For Liquor Stores

Beer, wine and liquor stores have been invigorated during the past few years because of the popularity of high-end beverages. Consumer taste preferences have shifted away from mass-produced global beer brands toward local craft styles that boast high-quality ingredients and unique flavors, according to IBISWorld’s Beer, Wine and Liquor Industry Report. The industry generates $54 billion in annual revenue and employs more than 175,000 people nationwide.

The spirits industry has grown in recent years and now commands 35.9% of the total alcohol market vs. 47% for beer and 17.1% for wine. Beer made up close to 60% of the alcohol market in the 1990s, according to Fortune magazine.

Independent liquor store owners often struggle to maintain a healthy cash flow. Reasons can include the high overhead and staffing costs, expensive inventory, and financial mismanagement. A significant issue facing liquor store owners is a lack of access to working capital. Because a typical liquor store has a high percentage of cash sales, coveted merchandise, and long hours, it is particularly susceptible to crime. Security costs must be factored in. Financing for liquor stores is not easily obtained through conventional sources.

In most locations, wine and specifically alcohols with a wide array of flavors are becoming the “taste du jour“. Wine boutiques and mega stores are growing rapidly, according to Richard Parker, President of The Business For Sale Buyer Resource Center™ and author of How to Buy a Good Business at a Great Price.

Parker also writes that liquor store owners are notorious for keeping poor books and skimming off cash, which actually has a negative impact on a business because it becomes impossible to determine the real profits and can cause cash flow issues.

So, despite being one of the most profitable sectors of the retail industry, liquor store financing in not readily available through traditional lenders, such as big banks, that believe the industry is high risk. This presents a challenge for startup companies and business owners who lack established business credit histories. If and when this is the case, a liquor store owner may have to consider non-bank alternative lenders. These lenders provide access to a variety of business financing — from term loans and lines of credit to invoice financing and short-term loans.

Loans for liquor stores are becoming an area of specialty. Alternative lenders are tech savvy and data-driven. They make quicker loan approval decisions than traditional bank lenders. Additionally, they are typically more willing to fund businesses in industries that are considered risky and make decisions more quickly than banks do. The Biz2Credit Small Business Lending Index for February 2018 found that big banks typically fund 25.2 percent of business loan applications, which is a high mark in the post-recession era.

Meanwhile, alternative lenders provide funding at much higher interest rates than traditional banks do. There is a premium that is paid in the form of a much higher cost capital because alternative lenders assume greater risk than more conservative bank lenders. Non-bank lenders offer financing in a matter of days – sometimes as soon as 24 hours – as opposed to the weeks it takes to process traditional term loans or SBA loans.

Alternative lenders filled the void in small business lending during the post-Great Recession “credit crunch” when banks hunkered down and approved a very small percentage of the small business loan applications they received. In fact, during the spring of 2011, big banks funded less than 10 percent of their small business funding requests. Entrepreneurs looked elsewhere for capital. They learned to use the internet to find funding deals in much the same way that consumers discovered Amazon as an option to traditional retailers. Alternative lenders were willing to make deals at a time when banks were unwilling to do so. Subsequently, banks lost market share.

Alternative lenders also require their loans to be paid off in shorter periods of time. While a bank loan will allow for a borrower to pay off debts on a monthly basis of a fixed amount over a period of years, alternative lenders, such as merchant cash advance (MCA) companies, look for daily repayment. MCA lenders are repaid by skimming a percentage — often 20 percent – of a company’s daily credit card receipts. Thus, obtaining credit from cash advance lenders will hurt cash flow over the long haul. Liquor store owners must consider their financing options carefully.