Retail Business Loans And Financing Options

Owning a retail business isn’t without its challenges. Whether you’re growing rapidly and need extra money for expansion or you’re in the middle of a slow season that’s impacted your cash flow, one thing is clear: you need money for your business to operate smoothly.

Sure, pulling the money you need from your own bank account is ideal, but this isn’t always possible. Maybe the money’s not there … or maybe you don’t want to put yourself in a bind by tying up your funds. In these situations, what do you do when you need a financial helping hand? Take a cue from other smart retailers and find a retail business loan that’s right for you.

There comes a time when most small businesses have to take out a loan, and retail businesses are no exception. The key is to understand your options to find the best, most affordable loan that you can use to take your store to the next level, cover an unexpected emergency, or even get your business off the ground. Read on to learn more about the retail business loan and financing options available for any situation.

The Best Loans For Retail Businesses

Financing Need Best Loan Type Recommended Lender
Business Expansion SBA Loan SmartBiz
Purchasing Equipment Equipment Financing Lendio
Emergency Funding Short-Term Loan LoanBuilder & IOU Financial
Cash Flow Shortages Business Credit Cards Ink Business Preferred from Chase
Purchasing Inventory Line of Credit OnDeck
Purchasing a Point of Sale System POS Financing CDGcommerce

1. Business Expansion

Business is booming, and you’re ready for an expansion. Maybe you’re an online retailer and you’ve decided it’s time to open your first brick-and-mortar store. Perhaps you want to open an additional location, or you want to do a complete overhaul of your facilities. No matter what the situation, your retail business is growing, which is exciting … but also very expensive.

Instead of hindering your growth by draining your checking account, consider applying for a loan that provides the funds you need, but spread out into affordable monthly payments.

Small Business Administration 7(a) Loans

The Small Business Administration is a government organization that provides resources to small business owners just like you. One of the most popular resources the SBA offers small business owners is low-cost loan options. Although there are several great programs to consider, the SBA 7(a) loan is one of the most popular among small business owners.

The SBA 7(a) loan is a loan that can be used for essentially any business purpose. This includes business expansion, the purchase of equipment, to use as working capital, or to even save money by paying off high-interest debt.

Through the 7(a) program, you can receive up to $5 million. Because up to 85% of the loan proceeds are backed by the government, SBA-approved lenders (known as intermediaries) are more willing to give these loans out. This is ideal if you’ve been unable to qualify for traditional loan options.

SBA 7(a) loans have low interest rates capped at a maximum of 4.75% — added to the prime rate — based on the loan amount and your repayment terms. Repayment terms are available up to 10 years for most uses, while loan proceeds being used for commercial real estate come with maximum terms of 25 years. SBA 7(a) loans are available to qualified borrowers with a credit score in the high 600s.

Recommended Option: SmartBiz

The SBA 7(a) loan sounds pretty great, doesn’t it? If you’re interested in this loan, you could visit an intermediary lender in your area, such as a bank or credit union. However, this process can often be a hassle for the busy retail business owner. Simplify the process of applying for an SBA 7(a) loan by working with SmartBiz.

With SmartBiz, you can fill out an easy online questionnaire to find out if you’re qualified for an SBA loan. Once you’re prequalified, the service will match you with a lender and assign a relationship manager to help you through the application process.

Getting approved and funded takes several weeks for most applicants. Other times, the process may drag out over several months if more information is needed by your lender. Even though the waiting time to receive this type of loan exceeds that of other financing options, the low overall cost and the flexibility that comes with the 7(a) loan is often worth the wait for many small business owners.

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2. Purchasing Equipment

Your technology and equipment are seriously outdated. Or maybe your business is growing so fast that your problem is not replacing equipment, but adding more. Instead of spending thousands out of pocket, there’s a more affordable solution when you need to replace or purchase long-term equipment: equipment financing.

Equipment Financing

Equipment financing is a type of business financing used to purchase new equipment for your business. With equipment financing, you’ll be able to take possession of much-needed new equipment immediately without paying the entire cost up front.

With an equipment loan, you’ll pay a down payment that is usually 10% to 20% of the total cost of the equipment. The remaining amount, along with interest and fees charged by the lender, will be loaned to you and is paid back through scheduled payments over a longer period of time. At the end of your repayment period, you will own the equipment. This makes the purchase of new or replacement equipment much more affordable.

Equipment leases are another form of equipment financing. With equipment leasing, you’re essentially paying to use the equipment. At the end of your lease, you can return the equipment and take out another lease on the latest model. Unlike a loan, you will never own the equipment unless you pay a lump sum at the end of the lease. However, if you upgrade equipment frequently or want a lower down payment, a lease may be the right option for you.

Recommended Option: Lendio

If equipment financing sounds like the right loan option for your business, find a lender using Lendio. Lendio is a loan-matching service that connects you with the right lender that offers loans to best fit your needs.

Equipment financing through Lendio lenders is available in amounts from $5,000 up to $5 million. Terms of up to 5 years are available. Interest rates for the most qualified buyers start at 7.5%.

Column Heading Data

Credit limit:

$5,000 – $5,000,000

Term length:

1 – 5 years

Interest rate:

7.5%+

Origination fee:

By lender

Collateral:

Usually the equipment being financed

When using Lendio, you’ll fill out an application and within 72 hours, you’ll receive loan offers from multiple lenders. This allows you to review your options to find the most affordable loan with the best repayment terms.

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3. Emergency Funding

Even if you’re on top of your business and finances, there may come a time when an unexpected emergency arises. It happens to the best of us, usually when we are least prepared for it. If an emergency pops up and you need extra cash immediately, a short-term loan could offer just what you’re looking for.

Short-Term Loans

A short-term loan is exactly what the name suggests: a loan that comes with short terms of 1 year or less. These loans have their benefits for small business owners. Borrowers with low credit scores, a short time in business, or with low annual revenues often qualify. However, the biggest benefit is how quickly you can receive the money with a short-term loan. With some lenders, you can apply, be approved, and have the money in your bank account in just 24 hours.

However, short-term loans don’t come without their drawbacks. This fast form of financing comes at a cost. Short-term loans do not have interest rates, but instead, use something called a factor rate. This fee is paid back along with the principal balance over a short period of time. Often, this factor fee, along with other costs such as origination fees, can make these loans more expensive than long-term options. However, when you’re in a financial bind and need money quickly to keep your retail business running smoothly, a short-term loan may be your best option.

Recommended Options: PayPal LoanBuilder & IOU Financial

PayPal’s LoanBuilder provides short-term funding up to $500,000, which can be repaid over a period of 13 to 52 weeks based on the amount of the loan received. The LoanBuilder application takes just 10 minutes to complete. Once approved, you can receive your funds as soon as the next business day.

Qualified borrowers must be in business for 9 months and have at least $42,000 in annual revenue. All borrowers must have a minimum credit score of 550.

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Another short-term loan option is IOU Financial. This lender offers loans up to $300,000. Requirements include being in business for a minimum of one year, bringing in revenue of at least $100,000, and making at least 10 deposits per month into your business bank account.

Repayment terms are available from 6 to 18 months, and once your loan is 40% paid off, you can renew if additional funding is needed. Repayments are made through fixed daily or weekly payments.

4. Cash Flow Shortages

From time to time, a retail business may face cash flow shortages due to a slow season or other challenges. When this happens, daily operations may be affected. You have the same expenses, but your revenues are down, posing a financial challenge for your business. You don’t have to sit back and let these situations drag your business down. Instead, a business credit card can help you fill in these gaps.

Business Credit Cards

A business credit card provides you with a revolving line of credit that you can use to pay your suppliers, vendors, and other expenses. The issuer of the credit card will provide you with a credit limit. You can spend up to and including that limit, using the card as often as you need.

A business credit card allows you to make an instant purchase without having to wait for approval from the lender. You’ll only pay interest on the amount of the credit line that has been used. Payments are made monthly and are applied to the interest and the balance on your card.

One great feature about business credit cards is that many offer rewards programs. With qualifying business purchases, you can earn cash back or points that can be redeemed toward rewards.

Recommended Option: Ink Business Preferred from Chase

The Chase Ink Business Preferred credit card is a top choice among retailers and other business owners because of its great rewards program. If you spend $5,000 within three months of opening your account, you receive 80,000 bonus points. For every purchase, you’ll continue to rack up points.

This credit card also offers additional benefits not offered by other credit card issuers, such as cell phone protection. This card comes with a variable APR of 17.99% to 22.99% with a $95 annual fee.

This credit card is reserved for borrowers with good to excellent credit. Check out our other top picks in business credit cards.

Chase Ink Business Preferred



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Annual Fee:


$95

 

Purchase APR:


17.99% – 22.99%, Variable

5. Purchasing Inventory

You need inventory, and you need it now. If you need to purchase inventory to keep your business running and time is of the essence, a business line of credit may be just what you need out of a small business loan.

Line Of Credit

With a line of credit, a lender issues you a credit limit. You can make multiple draws up to and including this limit whenever you want. The funds will typically be in your account within a few business days, although some lenders offer immediate transfers.

Interest is only applied to the portion of the funds that have been withdrawn. Interest rates vary by creditworthiness, with the most qualified borrowers receiving rates around 6% while high-risk borrowers may see rates of 20% or more.

Payments are made on a scheduled basis and are applied toward the principal and interest. Repayment terms and schedules vary by lender.

Recommended Option: OnDeck

OnDeck is an alternative lender that provides lines of credit to business owners. Lines of credit up to $100,000 are available to eligible borrowers. Repayment terms up to 12 months are available. Rates are as low as 13.99%, and weekly payments are automatically deducted from your business bank account.

OnDeck is known for its fast application process and low borrower requirements. Borrowers of this loan must have a credit score of at least 600, have been in business for at least 1 year, and have a minimum revenue of $100,000 per year.

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6. Purchasing A Point Of Sale System

POS hardware

 

If you own a retail business, you already know the importance of a point of sale system. This centralized system allows you to keep track of inventory, receive payments, and provide receipts for purchases.

Whether you’ve opened a new store or you want to upgrade your outdated system, you can receive a new POS system without paying a lot of money up front with POS financing options.

POS Financing

POS financing allows you to purchase or lease a POS system without paying the full amount up front. Depending on the company you work with, full financing options for all hardware and software may be available.

In addition to POS financing, you may also consider a credit card processing app. These are usually more affordable, are less complicated, and don’t require lengthy contracts. This option is best for smaller retail businesses, while larger businesses should stick with a full POS system.

Recommended Option: CDGcommerce

CDGCommerce is a retail credit card processing company that offers affordable point of sale systems. The company offers the Harbortouch Echo featuring the CDG POS+ app that can be rented for just $49.00 per month. An annual equipment insurance fee is also required at a cost of $79.00, but compared to the costs of purchasing a system, these fees are quite affordable.

Ready to upgrade but unsure of which POS is right for you? Read on to learn more about choosing the right retail POS system for your business.

When You Want To Start A Retail Business

All of these options are great for established retail businesses, but what if you haven’t even gotten your business off the ground yet? For most aspiring business owners, financing is the barrier that is holding them back.

It may be difficult to qualify for a startup loan. After all, you don’t have the sales, revenues, and financial documents to back up your success. When you want to start a business, you have to get creative with your funding options.

If you want to apply for a business loan, you can look to options such as the SBA Microloan program, which provides up to $50,000 to small business owners. These low-cost loans aren’t easy to obtain, though. You’ll need to make sure that you’re prepared for the lengthy application process by preparing your personal financial documents, creating a detailed business plan, and outlining future projections. Your score must be in the high 600s to qualify.

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

Other startup loan options are available, such as online lenders like Fundwise Capital. For borrowers with a poor credit history, there are other alternative loan options but these often come at a much higher cost.

If you have a high personal credit score, you can also consider taking out a personal loan to fund your startup costs. With a personal loan, your income and personal credit score will be considered. This could potentially help you score a lower cost loan that can be used to start your retail business.

Lender Borrowing Amount Term Interest Rate Min. Credit Score Next Steps

$2K – $25K 2 – 4 years 15.49% to 30% 600 Apply Now

$1K – $50K 3 or 5 years 8.16% – 27.99% 620 Apply Now

$2K – $35K 3 or 5 years 6.95% – 35.99% APR 640 Apply Now

lending club logo

$1K – $40K 3 or 5 years 5.32% – 30.99% 640 Compare

Ways To Improve Your Chances Of A Successful Application

Improve Business Loan Application

Once you’re ready to apply for your business loan, you can do some prep work in advance to expedite the process. Before you even start filling out an application, the first step is to know your credit score and determine whether it is high enough to qualify for the loan you’re seeking.

You can receive your free credit score online to find out where you stand. Review your credit report carefully for any errors. If there are any negative items on your report, be prepared to explain those to your lender.

If your credit score is low and your funding need isn’t urgent, you may consider taking a few easy steps to raise your credit score. You’ll be rewarded with lower interest rates, better terms, and more financing options.

You can also prepare your paperwork and documentation in advance. Although requirements vary by lender and the type of loan you’ve selected, you’ll generally need a few items, including:

  • Bank Statements
  • Personal Financial Statements
  • Business Balance Sheet
  • Profit & Loss Statement
  • Income Statements
  • Business Licenses
  • Articles Of Incorporation

When the time comes to apply for your loan, you’ll need to know exactly how much you need and why you need the loan. It’s also important to remember that most loans require a blanket lien or personal guarantee. Most lenders require a personal guarantee to be signed by anyone with at least 20% ownership in the business, so be prepared to have all owners ready to sign the contract as needed.

Finally, when you do apply for your loan, be sure to make yourself available to the lender. Sometimes, lenders require additional documentation or have questions about your application. Taking the time to work with your lender will help you finish the process smoothly.

Final Thoughts

Getting a business loan can be tough, whether you’re an established retail business owner or just getting started. However, there are plenty of options available if you take the time to do your research, go into the application process prepared, and have a good reason for taking out the loan which will improve the return on investment for your business.

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