With the environmentally-friendly sentiment of reusing and recycling, thrift stores have been popping up more and more across Canadian cities. If you’re interested in fashion and retail, a thrift store could be a great business idea for you. However, as with any business, owning a thrift store comes with a lot of work. This is why it’s so important to be aware of all the financing options and possible expenses you will need to consider before opening up your shop.
Here are some tips on starting your business.
To get a business loan, your lender will look at a variety of criteria. This criteria changes in priority, however, depending on the type of lender you borrow from. Let’s take a look at your options for lenders for your business loan.
Banks offer the lowest interest rates for business loans, so they are often a desirable lender for borrowers. However, it is difficult to secure a business loan from a bank because they often have strict lending requirements. A bank will want to see that your business has been operating and bringing in revenue for at least 6 months. If not, they will be very observant and critical of other factors such as your credit score, savings and capital, and proof of income. If you have bad credit, you will be more likely to secure a loan from a different lender.
Credit unions tend to offer a more personal experience than banks because they are usually smaller. Their rates are comparable to banks if not lower, and they tend to be more lenient in their loan requirements. However, becoming a credit union member takes longer than most banks, and it will take even longer for a credit union to approve you for a loan, as they need more time to establish trust.
If you have a low credit score and low savings, you may want to consider an alternative lender. This should only be considered if you are unable to receive financing from a bank or credit union because the interest rates with alternative lenders are much higher. The tradeoff is less strict requirements for obtaining the loan, which works in the favour of someone who has bad credit.
The Canada Small Business Financing Program (CSBFP) is a program that entails the Government of Canada sharing the financial risk when a lender provides a loan to a small business. With an eligibility amount of up to $1 million, borrowers can use the loan to renovate or update their commercial space and purchase new equipment. Like all loans, a fee and interest rate is decided, but can be negotiated by the lender and borrower.
Learn more about the available government business financing programs.
| Amount | APR | Term (months) | ||
 | 1k-300k | Fee-Based: Starting at 9% | 12- 60 | Learn more |
 | 5k-300k | 8% – 29% | 6-18 | Learn more |
 | 1k-500k | +5.9% | 3-60 | Learn more |
 | Up to 300k | 8%-22% | 6-12 | Learn more |
 | 5k-500k | - | 6-18 | Learn more |
 | 100K + | 6.05% + | 60 | Learn more |
 | 5K-100k | 15%+ | 12-18 | Learn more |
As described above, different lenders will place different weight on criteria for lending to a business. Some of the factors lenders look at are as followed:
Your credit score is your history of paying back debt. Most lenders will look at your credit score before deciding to lend to you. Your business also has its own credit score; however, for newer businesses, banks will look more heavily on your personal credit score.
Bank statements give lenders a general idea about your income and business revenue. The main reason lenders want to see your bank statements is because they want to verify if you have the funds necessary to cover the loan payments.
Tax returns give lenders the history of your business’ earnings over the last few years. It’s also important to note that while many entrepreneurs write off expenses, or deduct expenses from their income, to save money during tax season, this might backfire sometime if you want to show that your income is high.
Sales records are supporting documents that help lenders see your business earnings if your bank statements or tax returns aren’t detailed enough.
Your business plan is a document that describes everything about your business – expenses, financing, sales plans, market research, inventory pricing, and more. Your business plan should document your business goals and financial projections.
Although thrift stores have used and sometimes cheap clothing as inventory, this doesn’t mean that opening a shop won’t be expensive. Opening a thrift store comes with many expenses. Let’s take a look at some of the costs associated with opening a thrift store:
Rent, especially if you are operating in a major city, will be your biggest expense. Account for a few thousand dollars per month for rent, and try to have a few months of rent saved up before jumping into your business. You will also need to account for utilities, like electricity and hydro, and other monthly costs such as phone bills and internet. It’s a good idea to budget a few hundred dollars a month for these bills.
Check out how you can boost profits by reducing common business expenses.
Your thrift store will need strong clothing racks to display all of the inventory, merchandise tagging equipment to indicate prices, as well as a cash register, cash float, and point-of-sale system to process payments. You may want to also consider shelving, glass cases, and lighting fixtures to better present your products. Finally, most retail stores could benefit from security cameras to deter stealing. Start looking at used options first, like online buy and sell platforms, or retail stores closing a location, as you can save money that way.
Getting the name of your store out to the public isn’t easy; however, advertising and marketing tactics can help you increase your popularity. Radio advertising and newspaper ads are one route to take, but experts say that they are not as effective as having a strong social media presence. Organic social media is a cost-effective way to market your store, specifically if you maintain your store’s social media accounts yourself. Signage is also important, but promoting on signs can cost prohibitive with a price tag of anywhere between $500-$1000.
To entice buyers to come into your store, you need to ensure that the commercial space is clean and well maintained. Customers won’t be as likely to buy clothing from you if it’s being held in a dirty bin. Account for nightly cleans and deeper cleans every so often to keep your space neat and tidy. Furthermore, you’ll want to budget for cleaning the actual products. Vintage clothing is used, so it’s important to wash all products before presenting them to the customer.
Learn how to manage your small business inventory.
Insurance provides you with the security you need for your commercial space and inventory, in the event of an accident or theft. Since each thrift store item is so unique and you won’t be likely to find the same product immediately, having insurance to cover damaged or stolen inventory can help offset the cost and delay of replacing it.
Unless you plan on working in your thrift store alone, you’ll need to account for labour costs, or payroll, in your budget. Payroll costs also include wages, vacation time, insurance, and taxes.
Learn how to set up payroll for your small business.
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Apart from the classical business loan, there are a couple of other routes to take when financing your thrift store expenses.
Merchant cash advances give business owners an advance payment on future sales. So, if your projected sales for the year is $50,000, you can borrow a percentage of those sales (say 30%, for example), and pay it back through an agreed-upon payment every day that sales have been processed. There is also a predetermined fee and interest associated with a merchant cash advance. It’s important to keep organized records of sales, including all credit card receipts, so that you can keep track of your revenue and payments.
A business line of credit is also known as a revolving loan. This line of credit is a fixed amount of capital that can be accessed at any time to help small businesses with their expenses. They often have lower interest rates than credit cards and have more flexible timelines for repayment.
Since acquiring inventory isn’t usually expensive for thrift store items, you might want to consider a microloan for smaller expenses. A microloan is a loan lent by a person rather than a bank with a low-interest rate, usually meant for new businesses.
This particular loan can only be used to purchase equipment. However, you are more likely to be approved for an equipment loan than for a business loan. This is because the lender assumes a lower risk because the loan is covered by the equipment themselves. So, the equipment you buy with the loan acts as a defence to the risks normally associated with a lender lending money.
Although new thrift stores would prefer to use their own savings for financing, this is often not realistic for a new business owner. With many financing options to choose from, and with careful planning, aspiring thrift store owners can successfully start their new venture.
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