Finding The Best Retail Business Loans
In an ideal world, a small business would always be able to finance itself, there would be enough cash in the bank to enable growth and cover any emergencies. But as we all know, life simply isn’t like that. All businesses need some extra cash to help them move up to the next level, and the best way to do this is often with a retail business loan.
So, what kinds of retail business loans are available to you? Below, we’ll guide you through everything you need to know to move forward with your decision.
What Are The Best Loans For a Retail Business?
Essentially there are six types of business loans you should know about before making a choice. They all differ and which is best often depends on what you need the money for.
Small Business Administration (SBA) loans are justifiably popular because these government-backed loans offer arguably the lowest rates and most generous terms out there. Banks love them because up to 85% of the capital advanced is covered by the government, if you fail to repay the money the government steps in, so they are low risk for the lender.
There are two types of SBA loans a retail business is interested in:
SBA 7(a) loans are catch-all loans with few restrictions on what you can spend the money on. If there is a problem with this choice, it is that because of their popularity, they are difficult to get. Your business needs to be doing well, your credit record excellent, and your finances in order to stand any chance of getting one of these. It is certainly not for anyone trying to hold up a struggling business.
SBA 504/CDC loans are all about providing capital for expansion and job creation, i.e., buying real estate and fixed assets. They have the same advantageous rates and terms as the 7(a) loans and offer funding up to $5 million. The fact that there is now a 25-year term option has made these loans even more sought after. As with the 7(a) program, applicants need to meet stringent requirements to qualify.
Term loans, both medium and short, can be attractive options. Medium-term loans are a great option if you’re looking for a lump-sum to pay back over 1-10 years (typically 2-5 years). These can be used for anything you need in the business, and are unsecured. You often need a good credit score and reasonable revenue to qualify for these, though obviously lender requirements vary.
Short-term loans are not the cheapest option but may be perfect for an emergency when you have an unexpected drain on your bank balance and still need to pay your staff or find a deal you need to jump on. Online lenders usually have remarkably short approval times, and the money can be available in hours or a couple of days at most. You pay for this convenience and have less than 18 months to return the money, but they can be a life-saver.
Lines of Credit
Simply put, a business line of credit is like a credit card for your business. Once a limit has been agreed with the provider, you can borrow up to that limit, only paying interest on what you actually borrow. They are usually rolling agreements so that as you pay the advance back so that money is available to borrow once again.
Cash flow can be a small business’s single biggest problem, and a rolling line of credit can ease that considerably.
The retail business has to respond rapidly to changing customer demands, and with the rise of social media, those changes can take place in the blink of an eye. To take advantage of these trends, you need that hot item on your shelves now if your retail store is to keep pace with the market. But if you haven’t got the cash, how can you respond?
The great thing about inventory financing is that the stock you buy acts as its own collateral, the lender can sell it if you were to default. Without having to tie up your capital, you can have the stock on your shelves (or in your warehouse) as soon as possible. Traditional banks are unlikely to be of help to the small business, and you are better off looking at online loan providers for your inventory financing.
Merchant Cash Advance
Technically, a merchant cash advance (MCA) is not a loan but a cash advance against your future takings. The provider then takes a predetermined amount from your credit and debit card sales plus a fee. Some MCA lenders accept cash as well, using an automated clearing house (ACH) to do so.
On the upside, the application for an MCA is fast and simple (since they already have proof of your income) and once approved, you receive the cash quickly. The downside is the cost, the APR equivalent is often way more than for alternative forms of borrowing.
The retail sector may not be equipment centered like manufacturing or construction, for example, but you would be hard put to operate without computers, cash registers and lighting. This is where equipment financing might be for you.
Like inventory financing, the equipment provides its own collateral. You work out what equipment you need and how much it will cost, and the loan company gives you most of the money to pay the invoice (usually around 85%). Interest runs at 8-30%, depending on what you are buying and your credit score.
Best SBA Loans for Retailers
SmartBiz makes SBA loan application straightforward and comparatively fast, a long way from the long, drawn-out process of most traditional banks. They will guide you through the steps and try and match you with the most appropriate lender. Should you fail to qualify for an SBA loan, they have many alternative products that might suit you.
|Loan Amount:||$30,000 – $350,000|
|APR Range:||9.7% – 11.04%|
|Time To Fund:||Typically take several weeks to fund, but can fund as quickly as within seven days.|
|Loan Term:||Maximum loan term is 10 years.|
|How To Qualify:||675+ Personal credit score
$50,000+ Annual revenue
|Great Option For:||Borrowers with good credit
Funding real estate purchases
|Credit Check?||Soft credit check and hard pull|
|Co-Applicants Accepted?||No cosigners|
|Direct Pay-Off To Creditors?||No|
|Click “Check Rates” to apply to SmartBiz|
Fundera, like SmartBiz, allows you to access a large pool of lenders for SBA loans and other financing options, rather than having to apply separately, saving you time and allowing you to compare what’s on offer. Not only does this make the whole process simpler, but Fundera is helpful and has set terms and fees.
|Loan Amounts||$5,000 to $500,000|
|APR Range||Term Loans: 7% – 30%
Startup Loans: 7.9% – 19.9%
|Repayment Terms||Term Loans: Up to 10 Years
SBA Loans: Up to 25 Years
|Time to Funding||Varies|
|Click “Check Rates” to apply to Fundera|
Top Small Business Retail Term Loans
BlueVine offers term loans as one of its financing options. Your business receives the funds, and you pay it back either weekly or monthly, the terms usually running from 6-12 months. Loans of up to $250,000 are available, and interest rates start at 15%.
|Loan Amounts||$5,000 to $250,000|
|APR Range||15% to 78%|
|Repayment Terms||6 or 12 months|
|Time to Funding||As fast as 24 hours|
|Click “Check Rates” to apply to Blue Vine|
Kabbage also offers loans of up to $250,000, which can be used for investing in new technologies, marketing, hiring employees and inventory purchase, among other things. They utilize a fully automated online application process, which speeds up the entire procedure, giving you the money quickly.
|Loan Amounts||$2,000 to $250,000|
|APR Range||24% to 99%|
|Repayment Terms||6, 12 or 18 months|
|Time to Funding||A few minutes to several days|
|Click “Check Rates” to apply to Kabbage|
OnDeck offers same day funding, loans of $5,000-$500,000 with 3-36 month terms plus 100% prepayment benefit if you pay off the loan early. Your repayments are made weekly or monthly, and there are loyalty benefits too.
|Loan Amounts||$5,000 to $500,000|
|APR Range||As low as 9.99%|
|Repayment Terms||Term loans up to 3 years|
|Time to Funding||As fast as 1 day|
|Click “Check Rates” to apply to OnDeck|
What Are The Top Lines of Credit for Retail Stores?
BlueVine has business lines of credit of up to $250,000, with rates starting at 15% and boasts of approvals in as little as five minutes. You pay back with fixed monthly or weekly payments over six or 12 months.
Fundbox specializes in lines of credit. The application won’t affect your credit score, and a decision will be made quickly; funds will be transferred as early as the next business day. They have an easy to use dashboard for their customers, allowing you to keep track of what you’ve borrowed and what you have repaid.
Kabbage Funding will make a decision in 10 minutes, but you won’t have to make any payments until you start using the facility. They have transparent terms and offer a personal service. And you can use your computer or their mobile app to withdraw money, and they also provide a swipeable Kabbage Card.
Costs for Retail Business Loans
So, how much can you expect your loan to cost you? While, of course, specific amounts will differ depending on how much you want to borrow, for how long, your credit score, and other circumstances, there are average figures and costs associated. For most, the costs will be included in the APR, but there are sometimes additional fees and down payments.
SBA loans are difficult to get, but are worth pursuing if you’ve been in business for at least 3 years, have good credit, and good annual revenue. SBA loans typically cost 7-8% APR and are paid back over 5-25 years. You will also need a downpayment of 10-20% of your overall loan.
Short-term loans have high interest by nature, and if you’re looking to borrow for just a short time (up to 18 months), you should do your research and find one that won’t take advantage of you. Short-term loans typically have 10-110% APR, so try to get the best deal you can.
Medium-term loans are much better, and if you’re looking for a loan for 1-5 years, are a great choice. They generally cost 7-30% APR, so while they are more expensive than SBA loans, they are also easier and faster to get.
A Business Line of Credit
For most lenders, you’ll need a personal credit score of over 600, to have been in business for a year, and have annual revenue of over $100,000, though some will consider over $50,000.
The costs associated will usually be a $20 monthly fee for maintenance (though this is often waived if you use a certain amount) and APR of 7-80%, so you’ll need to do your research and find a lender that will give you good terms, especially if you plan to take out a lump sum early.
However, a line of credit is a great way to build your credit rating and have flexible cash flow.
Other Loan Costs
The other types of business loan financing – equipment loans, merchant cash advances, and invoice factoring – have varying costs, depending on each business’s individual circumstances. Due to the nature of retail, you’ll likely only be interested in merchant cash advances, which have relatively high costs. You’ll typically see APR of 40-350%, so you need to be sure it’s worth it before agreeing to their terms.
Should you qualify for an equipment loan, you can expect to pay a downpayment of around 10%.
Remember to always read the terms of any potential lender carefully to find out any additional fees. These can add to the overall cost of your loan, so it’s worth spending an additional 10 minutes double-checking if you’re happy with them.
Whether they sell high-end automobiles or locally grown vegetables, most businesses in the US are retail businesses. One thing all retail businesses have in common is the need to react to an ever-changing marketplace. This can be caused by swings in the economy, trends in consumers, or seasonality.
The resulting fluctuations in revenue often cause cash flow problems for the retail business owner. After all, you (as the business owner) still have to pay the fixed costs of running a business. These difficulties can often be eased with judicious use of external finance like a retail business loan or storefront loan.
Why Retail Businesses Need Financing
There are any number of reasons why retail businesses need to secure loans and financing, but the main ones are:
If you are in the retail sector, you’ve got to have things to sell; you have to keep your shelves stocked. Inventory has to be the number one reason why retail businesses seek finance. Not only do you have to pay for the goods before you sell them, but you have to keep up with constantly changing demand.
As a retail business, you need to be able to react to the changes in the consumer climate, take advantage of good deals when offered by suppliers, and sudden fads. You cannot plan ahead for these ups and downs but to be left without inventory is to lose sales and profits.
Customer service is even more important today than it has ever been. People need a reason to buy from your business and not go elsewhere, and your employees’ ability to interact with potential buyers is key to the success of your retail business. You need that customer experience to be the best possible, and that is down to your staff. In order to attract the right sort of employees, you need to pay them well.
Staff are vitally important to your business, and they won’t work for nothing. They have a right to be paid on time, and you can’t mess them around because your business has had a bad week. Cash flow can be a struggle for retail businesses, and financing can be used to smooth out the peaks and troughs of the trading year.
Equipment & technology
Every retail business needs equipment. While the nature of that equipment will vary according to your particular retail niche, it is important that it should be fit for purpose. This means regular servicing and replacement when necessary. Things like security, point of sale systems and card processing need to be as up to date as possible both for your business and the customer experience you offer.
Technology allows you to stay in contact with your customer base. Apps, social media and the internet are vital marketing tools. If you can involve people with your brand and engage with them, you will generate loyalty so that one sale will guarantee others. An ecommerce presence can work in tandem with a bricks and mortar store to widen your appeal. Technology shouldn’t be regarded as simply an add-on; it has to be a core of your business strategy and budgeted for accordingly. Retail funding solutions can help to ensure that you keep your equipment and technology at the cutting edge.
Rent, business taxes, store fittings and the rest all cost money and can be adversely affected by poor cash flow. A retail and storefront loan or another form of finance can help you make sure your business thrives and never looks shabby.
Expansion usually means large financial investment, which might be impossible to fund from within the business itself. But growth is important, whether it means looking for bigger premises, or multiple outlets.
Benefits of Retail Inventory Financing
To compete in a crowded sector, a retail business needs the flexibility to deal with a dynamic, ever-changing marketplace. When a product line becomes the next must-have, it has to be on your shelves as a disappointed customer may not come back. But you may not have the capital available to take advantage of this business opportunity. Inventory finance can help cover the lack of cash and put the right stock in your store at the right time.
Retail inventory financing has one great advantage over a traditional loan. Most loans require some sort of collateral. Often, providing this guarantee means a business owner has to risk his home or other property to secure the loan. If all goes as planned, that is not a problem, but we live in an uncertain world, and no one knows what lies around the next corner. Just the threat of losing your home is enough to make most people nervous. That is not the case with inventory financing, as the inventory itself is the collateral. Should circumstances force you to default, all you lose is the inventory; the loan company can’t seize your house and property. Inventory financing could help you sleep easier at night.
By its nature, the retail trading period is full of highs and lows. Inventory financing provides a way of ironing out this unevenness while making sure your store has products to sell.
Benefits of SBA Loans for Retailers
If you are looking for a traditional loan, you can’t do better than an SBA loan. The Small Business Administration doesn’t actually lend money, it has trusted providers for that, but it does guarantee a large proportion of each loan. Lenders love this government-backed loan as the majority of the risk is removed.
It is also sought after by borrowers because of the low-interest rates and favorable terms. The interest figures bear comparison with those for non-guaranteed loans, and there can be up to 25 years to repay for some large loans (though they are typically 3-7 years). They also start at as little as $500 and go all the way up to $5.5 million.
The SBA offers several loans programs, but the two most popular are:
The 7(a) loan program is the most commonly used and most flexible SBA loan. There are several variants, but, in general, 7(a) loans can be used for a whole variety of purposes, including the purchase of machinery and equipment, for acquiring real estate, working capital or even helping with existing debt. If you are using the loan to invest in fixed assets, the maximum term is 25 years, and for working capital, you can have up to 10 years to repay.
The other loan program of general interest is the 504. This tends to be given for real estate and to help with expanding businesses and modernizing. It is an opportunity to get a long-term fixed-rate loan for major development and growth involving job creation.
SBA loans are, rightly, popular with small retail businesses but be warned, competition for these loans is high and the qualifications tough. Businesses with poor credit and financial records will not cut it. Another thing to bear in mind is that the application process is not likely to be fast. An SBA loan won’t help you in an emergency or when you need to obtain inventory in a hurry.
Financing For Starting a Retail Business
We must start out by saying that getting funding to start a new retail business is not straightforward and, indeed, is what holds back a lot of would-be entrepreneurs.
Without a financial history to back up your business plan, qualifying for most financing is difficult. The SBA Microloan program is one possibility for sums up to $50,000 and is available for startups. Like all SBA loans, the application process for a Microloan is lengthy, and you need a detailed and realistic business plan and a very good personal credit rating to succeed.
There are other loan providers that may help with startups but be careful as some alternative loan companies have quite steep interest rates. Providing you have a good personal credit score, you might look at getting a personal loan to fund your enterprise as it is likely to be a cheaper option.
You have to understand that some lenders regard the retail sector as unreliable. You may find you have to do a lot of virtual leg work to find finance for any retail operation.
Retail Storefront Financing For Bad Credit
With the difficulties that have beset the retail market in recent times, it is not surprising that some retailers suffer from bad credit scores. That can make getting extra finance a problem, but it is not impossible. Here we’ll list some of the retail funding solutions that are available for those with poor credit:
- Asset-based funding
- Commercial real estate collateral loans
- Equipment leasing
- Short-term business loans
- Retail merchant cash advance
- Inventory finance
None of these require high credit scores, and many are designed for high-risk businesses. Be careful when looking for funding, as lenders that are prepared to advance money to those with bad credit scores may charge high interest rates and you need to be realistic about what you can afford.
There are many avenues open to the owner seeking retail business loans and storefront financing. Which you choose depends on your situation and what you need the money for. It may be that all you need is inventory financing, as that is a common need among retailers. On the other hand, if expansion is your plan, then perhaps you should look at securing an SBA loan or similar.
PrimeRates are here to help by simplifying the application process, presenting you with the best finance offers and pairing you with an appropriate lender. We take the stress out of small retail business loans. If you’re ready to start your search, click here.