Ian Gloer
January 6, 2026
You know you need capital. You've built your projections, stress-tested your assumptions, and you're ready to move forward. Now comes the part that trips up most operators: convincing someone else to give you the money.
Whether you're applying to a bank, an alternative lender, or a revenue-based financing partner like Homegrown, the people evaluating your application are asking the same fundamental questions: Can this business support the debt? Will this operator pay us back? And what happens if things don't go as planned?
Understanding what lenders look for (and why) gives you a massive advantage. It helps you prepare stronger applications, negotiate better terms, and avoid surprises during underwriting.
Here's what really matters when lenders evaluate storefront expansion financing.
Proof Your Current Business Works
This is the foundation. Before any lender gives you capital to expand, they need to see that your existing business is healthy and sustainable.
That means:
Consistent revenue over time. Lenders want to see at least 12 to 24 months of stable or growing sales. One great month doesn't prove anything. Twelve months of steady performance shows you've built something that works.
Positive cash flow. Are you generating more money than you're spending? Can you cover your operating expenses and still have cash left over? If your existing location is barely breaking even, lenders will worry that a second location will make things worse, not better.
Clean financials. Your books need to be organized and accurate. If your financials are a mess, lenders assume your operations are a mess too. You don't need a Big Four audit, but you do need clear profit and loss statements, balance sheets, and cash flow reports that tell a coherent story.
Lenders are investing in your track record as much as your future projections. If you can't prove the first location works, no one will bet on the second.
Your Personal and Business Credit History
Like it or not, your credit score matters. A lot.
For traditional bank loans and SBA financing, you'll typically need a personal credit score of 680 or higher. Some lenders will work with scores in the 600s, but you'll pay higher rates and face stricter terms.
Why does personal credit matter for a business loan? Because most lenders require a personal guarantee, which means you're personally on the hook if the business can't pay. They want to know you have a history of managing debt responsibly.
Business credit matters too, especially if you've been operating for a few years. Lenders will check your business credit report through agencies like Dun & Bradstreet or Experian. Late payments to vendors, maxed-out credit lines, or unresolved disputes all show up here and raise red flags.
If your credit isn't perfect, don't panic. Alternative financing providers exist who can work with lower credit scores, but you'll face limited terms and higher rates. Major red flags like bankruptcies, defaults, or ongoing lawsuits will still make it harder to secure any financing at all. If you have time, work on improving your credit before you apply—pay down existing debt, dispute any errors on your credit report, and make all payments on time for at least six months.
Revenue and Growth Trajectory
Lenders want to see that your business is growing, or at minimum, holding steady.
If your revenue has been flat or declining over the past year, that's a concern. It suggests the market is saturated, competition is increasing, or your concept isn't resonating the way it used to. Expanding in that context feels risky.
On the other hand, if your revenue has been growing consistently (even modestly, like 10% to 20% year over year) that signals demand and momentum. It tells lenders that you're not just surviving, you're building something with staying power.
For brick-and-mortar businesses, lenders also pay close attention to seasonality. If you do 50% of your annual revenue in Q4, they want to see that you've accounted for that in your cash flow projections. They'll model out whether you can afford debt payments during your slow months, not just your strong ones.
If your business is seasonal, be ready to explain how you manage cash flow during the off-season and why you're confident you can handle the additional obligation of a new location.
Profit Margins and Unit Economics
Revenue is important, but profit is what pays back debt.
Lenders will look closely at your profit margins to understand how much of each dollar you keep after covering costs. If you're running on razor-thin margins (think 5% net profit or less) there's not much room for error. A small increase in rent, labor costs, or supply chain expenses could wipe out your ability to make payments.
They'll also evaluate your unit economics. How much does it cost you to serve a customer or produce a sale? How much do you earn per transaction? Are your margins improving or shrinking over time?
For multi-location businesses, lenders want to see that each location can stand on its own financially. If your first location is only profitable because you're subsidizing it with savings or outside income, that's a problem. The second location needs to generate enough profit to cover its own costs and contribute to debt repayment.
One of the clearest ways to demonstrate strong unit economics is to show a healthy EBITDA margin. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. It's a measure of your operating profitability before accounting for financing costs.
Lenders like to see EBITDA margins of at least 10% to 15% for brick-and-mortar businesses. Higher is better. If your EBITDA margin is below 10%, expect questions about whether your model can support additional debt.
Debt Service Coverage Ratio
This is one of the most important numbers in any lending decision, and too many operators don't know what it is.
Your debt service coverage ratio (DSCR) measures whether your business generates enough cash flow to comfortably cover your debt payments. It's calculated as:
DSCR = Net Operating Income / Total Debt Service
A DSCR of 1.0 means you're generating exactly enough to cover your debt. That's not good enough. Lenders want to see a cushion (and you should want it, too!)
Most traditional lenders require a DSCR of at least 1.25, meaning you're generating 25% more cash than you need to make your payments. Some conservative lenders want to see 1.5 or higher.
If your DSCR is below 1.25 based on current financials, lenders will either decline your application or require you to put up additional collateral or accept higher rates.
Before you apply for financing, calculate your projected DSCR for the new location. Model it out for year one, year two, and year three. If you can't maintain a DSCR above 1.25 even in your conservative scenario, you're either asking for too much capital or your ROI isn't good enough for this project.
Collateral and Personal Guarantees
Most lenders want some form of security in case things go wrong.
For traditional bank loans and SBA financing, collateral is almost always required. That might include the equipment you're purchasing, the buildout you're financing, or even personal assets like your home or other property.
Collateral reduces the lender's risk. If you default, they have something they can seize and sell to recover their money. But it also increases your risk. If the business fails, you could lose personal assets you've worked years to build.
Personal guarantees work similarly. By signing a personal guarantee, you're agreeing to repay the debt personally if the business can't. This is standard for most small business loans, especially if the business is relatively new or doesn't have significant assets.
Some lenders (including Homegrown) offer financing without requiring collateral or personal guarantees. These structures are typically based on revenue-sharing agreements rather than traditional debt. You're not pledging assets, but you are committing a percentage of future revenue until the funding is repaid.
If you're uncomfortable with personal guarantees or putting your assets at risk, focus on lenders who offer alternative structures. Just know that the tradeoff can be a higher cost of capital.
Your Expansion Plan and Use of Funds
Lenders don't just want to know how much you need. They want to know exactly how you're going to use it.
A strong application includes a detailed breakdown of your use of funds:
How much for buildout and construction?
How much for equipment and furniture?
How much for initial inventory?
How much for pre-opening marketing?
How much for working capital to cover the ramp period?
Vague requests like "I need $500,000 for expansion" raise red flags. It suggests you haven't done the work to understand your actual costs.
Lenders also want to see a realistic timeline. When will you sign the lease? When will construction start? When do you expect to open? When will the location reach break-even?
If your timeline is too aggressive (like assuming you'll be profitable in month one) or too vague (like "hopefully by the end of next year") lenders will worry you're not thinking through the realities of expansion.
The more specific and thoughtful your plan, the more confidence lenders have in your ability to execute.
Your Experience and Team Strength
Lenders are betting on you as much as they're betting on your business.
If this is your first expansion, they'll want to know: Have you managed multiple locations before? Do you have a strong general manager ready to run the new site? Have you built systems that can scale beyond one storefront?
If this is your third or fifth expansion, they'll want to see that you've done it successfully before. What were the results of your previous openings? How long did they take to reach profitability? What lessons did you learn?
Your team matters too. If you're doing everything yourself (managing operations, finances, marketing, and hiring), lenders will worry about what happens when you're stretched across two or three locations. Strong operators have strong teams, and lenders know it.
If you don't have deep experience with multi-location operations, consider bringing on an advisor, fractional CFO, or experienced operator who can help guide the process. Lenders value that kind of humility and self-awareness.
Industry and Market Conditions
Not all industries are created equal in the eyes of lenders.
Some sectors (like quick-service restaurants, fitness studios, or specialty retail) have well-established playbooks and predictable unit economics. Lenders understand these models and feel comfortable financing them.
Other sectors (like experimental concepts, hyper-niche retail, or categories with declining foot traffic) are harder to underwrite. If your concept is new or unusual, you'll need to work harder to prove it's viable.
Lenders also pay attention to market conditions. Is the location you're expanding into growing or shrinking? Is there strong demographic support for your concept? Are there competitors nearby, and if so, how are they performing?
If you're entering a saturated market or a market with a declining population, expect lenders to ask tough questions about how you'll differentiate and win customers.
What Homegrown Looks For
At Homegrown, we evaluate brick-and-mortar operators through a slightly different lens than traditional lenders.
We care deeply about your business fundamentals: revenue, profitability, cash flow, and unit economics. But we're also focused on whether your concept is ready to scale and whether you have the operational foundation to support multiple locations.
We work exclusively with multi-location operators who have at least two sites open and operating. You've already proven your concept works in more than one place. You understand what it takes to manage a small portfolio, and you're ready to keep growing.
We're particularly well-suited for neighborhood staples: gyms, salons, quick-service and full-service restaurants, coffee shops, retail concepts, and other community-focused businesses. These are the types of operations we know well, and where our flexible revenue-based structure makes the most sense.
We don't require collateral or personal guarantees. And we're comfortable with businesses that have some seasonality or variability, as long as the overall trajectory is strong.
What we do require is honesty about your numbers, clarity about your expansion plan, and a realistic understanding of what it takes to grow. A bad credit score doesn’t hurt, either!
If you're preparing to apply for financing, whether with Homegrown or anyone else, take the time to build a strong application. Organize your financials. Know your numbers cold. Be ready to explain your plan in detail and defend your assumptions.
The operators who get funded aren't always the ones with the best concepts. They're the ones who demonstrate that they understand their business, they've done the work, and they're ready for what comes next.
If you're ready to apply, or if you want to talk through what a strong application looks like, reach out. We're here to help.
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