Retail Business Loans

What is a retail business loan?

There are many finance packages available for retail businesses. They range from the big-ticket long-term business loan, through inventory financing and equipment loans, to business credit cards. Which one(s) you use depends on whether you are looking to stock up with this week’s hot item, simply ease a difficult cash flow situation, or buy real estate and build a retail outlet.

How does a retail business loan work?

For normal term loans, either long or short, the lender agrees to lend the borrower a sum of money at a certain percentage over a fixed term. That term may vary from as little as a few weeks to 25 years but the principle is the same. These sorts of loans often need high credit scores and a good trading history to qualify.

Inventory and equipment financing is usually easier to come by as what you are buying provides insurance for the lender.

Business lines of credit and business credit cards are similar to each other. Broadly, the lender gives you a maximum amount you can borrow which is paid back regularly and as the money is paid back so it becomes available to borrow once again.

Compare retail business loan options

Kabbage

✔ Funding: Borrow $1,500 - $150,000
✔ Minimum Credit Score: 640
✔ Loan term: 6, 12 or 18 months
✔ Funding turnaround: As soon as 1-3 business days

Kabbage offers borrowers a credit line up to $150,000 with monthly repayment options and no prepayment penalties. Approval as fast as same business day.

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SBA 7(a) loan

✔ Funding: Borrow up to $5,000,000
✔ Minimum Credit Score: 650
✔ Best For: SBA loans
✔ Funding turnaround: Varies.

The SBA 7(a) program features lenders such as Wells Fargo in their network and provides capped interest rates and long repayment term flexibility. Term loans and lines of credit access available. Typically, collateral will be required with a personal guarantee. Funding times vary and may be longer than most other lenders.

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Fundbox

✔ Funding: Borrow $2,500 - $150,000
✔ Minimum Credit Score: 600
✔ Loan term: 12-24 months
✔ Funding turnaround: as fast as next business day

Fundbox requires minimal documentation and access to a revolving line of credit without origination or maintenance fees. Borrowers are not required to have collateral (with exception of larger credit lines which are subject to a personal guarantee).

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Funding Circle

✔ Funding: Borrow $25,000 to $200,000
✔ Minimum Credit Score: 700
✔ Loan term: 6-12 months
✔ Funding turnaround: 24-48 hours

Funding Circle offers affordable business loans with interest rates lower than alternative lenders with monthly repayment schedules for borrowers with good to excellent credit scores.

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How do retail businesses get funded?

For many businesses that will lend money to the retail sector, just Googling business loans will bring up countless options, though not all will be the best option for you so you’ll need to do your research to find the best form of funding for your business.

With the newer alternative online lenders, the application process is often simple and fast. They are also likely to come to a swift decision whether they are prepared to lend to the borrower. If the application is successful the funds will be in your account within a few days.

More traditional institutions commonly have rather lengthier procedures with the lender having to climb through a few more hoops. However, these lenders are often lending large sums of money and need to make sure they are likely to get it back. The plus point is that these loans are almost always the most affordable with the longest terms.

How can I get a business loan to open a store?

You have to be realistic. Finding finance for any startup is hard and is the number one reason new businesses fail to get off the ground. Lenders want some security and nothing can replace a good credit score and time in business.

While getting funding to open a store, either bricks and mortar or online, is difficult it is not impossible. The Small Business Administration has its Microloan program and there are several other lenders prepared to offer startups funding.

If your personal credit score is good or excellent, you might consider getting a personal loan to help get you off the ground. Other alternatives are borrowing from family or friends, finding an angel investor, or applying for peer-to-peer lending websites.

How can a business benefit from a retail loan?

Almost all businesses require outside finance from time to time, especially when upscaling, but retail in particular has to respond quickly to market demands. Whatever your retail niche, you must have the hot-ticket inventory to survive whether you have the working capital or not. Retailers also need to be on top of the latest technology, be savvy with marketing, and have committed staff to get to the top and stay there.

What can a retail business loan be used for?

Most retail business loans will not be tied to any one purpose and can be used for:

• Purchasing inventory
• Hiring employees
• Investing in expansion and growth
• Marketing
• Renovations and repairs
• Store fixtures and supplies
• Buying/renting brick and mortar office space
• Legal fees
• Utilities
• Insurance

What are the different types of retail business loans?

• Business line of credit: A business line of credit is the most common form of financing inventory and improving cash flow. Having agreed on a maximum sum, you can borrow against this and repay in regular installments – usually monthly. The money you repay is then available to borrow again and you only pay interest on the amount you actually borrow, not the maximum amount. So, if you have a credit limit of $150,000, but only use $30,000, you only pay the interest on the $30,000.
• SBA 7(a) loan: The 7(a) loan is the most commonly used SBA loan program, being very flexible. The SBA operates it through approved lenders so does not lend the money itself, rather it guarantees between 75% and 85% of the loan amount. The SBA 7(a) is a blanket term for several variants but can be used for everything from purchasing real estate, buying machinery, or even loan consolidation. Terms are generous and interest rates low, but the qualification levels are high.
• Business term loans: This is the traditional form of bank loan and once approved the money can be used for almost anything. Like SBA loans, a business term loan often offers competitive interest rates and long-term repayment but can be hard to qualify for, though short-term loans usually aren’t. A short-term loan tends to be more expensive than a long-term loan but may be easier to get. It can be used to purchase inventory, though a line of credit is more usual.
• Equipment loan: Commonly, equipment is bought with a leasing package, though a loan is another option. Most often the finance company will offer you up to 85% of the total cost with you providing the remainder. The main point is that the equipment purchased acts as collateral for the loan so the borrower does not need to guarantee the loan or provide other collateral. Leasing deals vary. Sometimes you will own the equipment outright at the end of the contract, in other cases, you are free to walk away. Make sure you understand exactly what is involved and how much it will cost.
• Business credit card: A credit card is best used to help cash flow and streamline your purchasing. It is not good for major investment as the interest rates tend to be higher than for other methods of borrowing.