Retail Business Loans

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Retail business owners are facing unprecedented headwinds on several fronts. Supply chain disruptions and competition from online retail giants like Amazon have created significant challenges for small business owners. More than ever it’s imperative that retail business owners are well-capitalized. If you are looking for a retail business loan it’s important to take a few steps before you apply for a business loan. Below we will discuss some competitive strategies for the retail industry, review types of financing for small business owners, and discuss preparing for the loan application process.


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Retail Business

No matter what type of retail business you operate, you are likely to require business capital on an ongoing basis. A business loan can be one type of financing, but there are several funding alternatives to a conventional loan.

Whether you sell products at a brick-and-mortar store, are engaged in eCommerce (or both), or are a retail service provider there is a loan option that can be tailored to your business needs. Here “business needs” is the operative word. Lenders will typically assess the business need to determine loan amounts and eligibility. Some of the typical loan requirements cover costs for purchasing new equipment, purchasing inventory, expansion/acquisition, renovations, and working capital. An example of working capital may be the need to bridge cash flow shortfalls during a slow season or conversely, adding additional employees during your busy season.

There are many other reasons that a small business owner may have to borrow money, but identifying the need will be very helpful in identifying the right type of financing.

Financing Options

Small business owners have several options to borrow money. However, depending on factors such as: credit score, cash flow, time in business (startup vs existing business), borrowers may have limited financing options. It’s surprising how many options are available to retail business owners, even those with bad credit. However, the better your credit score, the better (lower) your interest rate and repayment terms will be.

Keep in mind today’s lenders look at several factors when qualifying applicants for a loan. So, it’s important that you know what lenders will consider besides your personal credit score. Also, it is almost always necessary to have an active business bank account to get any type of financing we are discussing here. So, if you plan to apply for a loan or other type of financing, open a business bank account and conduct all business transactions through your business bank account.

It is advisable to check your credit report before you apply for any loan or financing. If there is anything on your credit report that is incorrect or outdated, you have the right to dispute it.

Types of Retail Business Loans

Business Line of Credit

A business line of credit is similar to a credit card in many ways. The lender agrees to allow you to borrow money up to a pre-set limit. The business owner or borrower then can draw the funds as needed but is not required to take the full amount all at once. The benefit of this type of funding is that the borrower only pays interest on the amounts borrowed. This is like having a cash reserve and usually has a much lower interest rate than most credit cards or credit card cash accounts. Retailers typically use a business line of credit for unexpected purchases or expenses. A business line of credit should be a priority for

Short Term Loan or Term Loan

This is the most popular type of loan given by a bank or credit union. A term loan is a loan that usually is given as an upfront, lump-sum amount that has fixed monthly payments and a fixed term when the money must be paid. Many online lenders offer terms from three months to three years for their short-term loan programs. A shorter-term usually will reduce the total cost of borrowing but result in higher monthly payments. Retailers may use a term loan for higher-ticket price items.

Equipment Financing

Purchasing equipment can mean a lot of out-of-pocket expenses. In many cases, small business owners will choose to lease expensive equipment to reduce the hit to working capital or cash on hand. Most equipment can be financed as a lease resulting in small monthly payments for the business owner. In addition, leasing allows the retail business to update equipment at the end of the lease term. In many cases, it makes sense to lease equipment versus buying outright.

Merchant Cash Advance

A merchant cash advance or MCA is a financing arrangement where a retailer will be given a lump sum amount of money by a lender based on their credit card sales. That lump sum will have a fixed cost of borrowing called a factor rate. Unlike an interest rate, a factor rate is a pre-set amount that the retail business owner agrees to pay in return for getting the cash advance.

The application process for a merchant cash advance is relatively simple and seldom requires submitting a personal credit report since it is based on the volume of credit card sales of the business.

The MCA repayment is typically paid through future credit card sales and deducted directly from the credit card merchant account. An MCA is almost always a more expensive method of business financing.

Retailers who use MCA financing should anticipate steady or increasing credit card sales as this type of financing reduces future cash flow. An example of an ideal time to take a merchant cash advance would be just prior to the busy holiday season when credit card sales are expected to increase.

As a general rule, MCA financing tends to have a higher cost of borrowing and should be used as a last resort or when funds are needed quickly.

Retail Business Financing Best Practices

Identifying Financing Needs

Retail business owners should first identify their financial needs by listing and cataloging the loan purpose. If you need capital to make tangible purchases like machinery, point of sale equipment, or inventory, you may be able to get better terms because those items may be used as collateral for the loan. By contrast, non-tangible expenses have no recourse for the lender.

  • Inventory Financing – If borrowing for inventory financing then you should list the inventory amounts and what discounts may be available for larger volume purchases. Create a simple sales business plan to show your profitability for the loan purpose. This may help your retail store in getting lower borrowing rates and repayment terms.
  • Equipment financing – For this type of funding option, it’s important to project the value of the equipment to your company. Will it help you sell more, reduce costs, etc.? The great thing about equipment financing is that the lender generally will use the equipment as collateral for the loan so most companies qualify. Once you have identified the equipment you need, shop around for finance companies. There are many companies that will provide lease options for business equipment. Often times the manufacturer or wholesaler will work with a finance company so ask if they provide financing. But keep in mind, this may not be the best financing option.
  • Non-tangible purchases – For working capital loans or new business loans create a brief business plan on how the financing loan will help increase or retain revenue to your business. Showing a lender that you have a solid plan for the use of funds will show how you will be able to repay the loan.


Finally, once you have submitted your application take the time to understand the terms of the financing agreement. Before signing you should fully understand the total cost of borrowing and the terms of repayment. If leasing equipment, is there a buyout at the end? Are you responsible for maintenance?

Knowing all the terms of the agreement is one of the most important parts of borrowing. Financing and loan terms can be full of “fine-print” clauses. Read it carefully and consult a financial advisor if you don’t fully understand it.