7 Retail Business Loans You Can Apply for Today
The retail industry is tough but rewarding. Whether you run a specialty grocery, a hardware, or a boutique clothing store, you know that making your business work relies on more than knowing which inventory to order and how to dress the display window.
Taking out a retail business loan can help you overcome many of the obstacles store owners face, like seasonal fluctuations, finding the capital to expand, or investing in your store to improve customers' shopping experience.
In this article, you’ll learn more about the unique challenges retail business owners have to overcome and what business financing options are open to you.
What Financial and Operational Barriers Do Retailers Face?
As a small business owner in the retail sector, you face many unique pressures and difficulties. Six major constraints and risks you must navigate include:
High startup costs: Opening a shop is expensive. You need to find money to rent a retail store, carry out renovations, purchase inventory, hire and pay staff, buy point-of-sale equipment, design your e-commerce website, and more. By the time you open your door to your first customer, you may have spent over $100,000.
Seasonal fluctuations in demand: Although some stores do the same level of business month after month, others experience wild swings at different times of year. If you’re a retailer that experiences seasonality, you need to make a lot of money during the busy season and be prepared to stay afloat in the quieter months through strong cash flow management.
Changing consumer preferences: Consumer preferences change all the time, meaning you’ve got to keep on top of trends to satisfy demand. This involves market research, finding the cash to pay for new stock, and running regular marketing campaigns to let customers know of your latest product lines. What was hot last year may sit unloved on the shelves this year, tying up cash.
Balancing inventory levels: Once you’ve figured out what people want, then you need to figure out how many people want it. Ordering too much drains your working capital and risks unsold products sitting on the shelves, while running out of popular items disappoints customers and costs you sales.
Rising operational expenses: Day-to-day operating expenses like rent, utilities, wages, and insurance seem to climb year after year. These bills eat into your profits so you have less cash to invest in improvements or growth. While negotiating better supplier deals can help, sometimes what you really need is just access to more cash to give you breathing room.
Securing suitable financing options: Retail business loans can be hard to find, especially for owners with bad credit. Many traditional lenders want detailed paperwork, a thorough business plan, bank statements, annual revenue forecasts, copies of tax returns, collateral, and personal guarantees, all of which hold up loan approvals.
7 Retail Business Loans Available to Small Businesses
Let’s take a closer look at some of the different types of retail business loans available.
1. Inventory Financing
Inventory financing gives you the cash you need to buy stock for your stores. You repay these short-term loans once you’ve sold the inventory or when sales receipts from the sale of the products make repayment manageable.
Retailers often use financing to purchase inventory so they can take advantage of bulk discounts from wholesalers. For example, buying 500 units at a 20% discount can boost profits on each sale.
Two other popular types of financing based on inventory are:
Purchase order (PO) financing: PO financing is used when you receive a very large order from a customer, and you don’t have the money to buy the stock to fulfill it.
Loans against inventory: Some lenders will pay you a lump sum of capital against the inventory you already hold. These loans are normally repaid within a few months and are often used for working capital purposes like meeting payroll or rent.
2. Equipment Financing
Equipment financing might be a suitable option if you want to purchase equipment such as point-of-sale technology, shelving, security systems, delivery vehicles, and more.
The equipment you purchase or lease with the funds serve as the collateral for the loan, which means the lender will take possession of the equipment if you fail to meet the repayment terms.
Even though the equipment is the collateral, you may also have to make a down payment to secure the equipment you want.
3. Standard Bank Loans
These are standard small business loans that are available from banks and credit unions.
Most traditional lenders have high eligibility requirements that borrowers must meet. They often have the most complex and time-consuming application processes as well. So depending on your time frame, the process may be too long for your financial needs.
Most banks and credit unions offer secured and unsecured retail business loans. With a secured loan, you need to put down collateral, but you’ll likely benefit from lower interest rates. With both types of loans, you’ll need to sign a personal guarantee.
If you have had your business bank account for years with a particular bank or credit union, you may have a greater chance of being accepted.
4. SBA Loans
If you apply for a retail business loan at a bank and they don’t approve your application, it may be worth trying again through the SBA loan program.
The program, run by the Small Business Administration, has lower eligibility requirements because the SBA guarantees to pay a significant part of the loan to your bank if you fail to keep up repayments.
There are four main types of SBA loans:
SBA 7(a) loans: You can borrow up to $5.5 million to purchase and renovate real estate, buy land and build a new retail property, use it for working capital or equipment purchases, refinance existing debt, or purchase an existing business.
SBA Express loans: These are similar to the SBA 7(a) loan but have a 36-hour approval process and a maximum loan amount of $500,000.
SBA 504 loans: Borrow up to $5.5 million to purchase and renovate real estate, buy land and build a new property, or consolidate or refinance debt. You can’t use an SBA 504 loan for working capital.
SBA Microloans: Borrow up to $50,000 for a maximum of six years for working capital, inventory, equipment, or other assets to grow your store.
To qualify for an SBA loan, you must be a U.S.-based for-profit business. In most cases, you’ll have to offer collateral and a down payment. Please note that the loan application process for SBA 7(a) and 504 loans is complex and may take weeks to finalize.
5. Business Lines of Credit
A business line of credit works similar to a business credit card.
You receive a credit limit from your lender, which is the maximum amount they are willing to lend you at any given time. You can withdraw as much as little as you need within that credit limit. Once you make repayments, you can borrow that money again. You only pay interest on the money you withdraw.
Backd offers a business line of credit of up to $750,000. You can borrow what you need when you need it and then make weekly repayments over six or 12 months. Plus, the application only takes about three minutes, and the approval time is about 24 hours.
6. Working Capital Advances
Working capital advances provide fast, flexible financing that retailers can use to stock up on inventory before the holiday rush, pay rent, or handle everyday bills during slow seasons.
This popular form of financing is ideal for meeting temporary business needs so you can stay on top of expenses and focus on keeping your business moving forward. Backd offers a working capital advance with term lengths of up to 16 months. This financing option provides just as quick of an application and approval as the business line of credit.
7. Merchant Cash Advances
A merchant cash advance lets you borrow against your future credit or debit card sales. The lender takes a percentage of your daily settlements from your payment processor until you’ve repaid the advance in full.
While they’re easy to qualify for and quick to set up, merchant cash advances can be expensive. This option may not be suitable for businesses with low profit margins or significant revenue swings.
Choose the Right Retail Business Loan for Your Store
You’re faced with unique financial challenges as a retail business owner, but there are traditional and flexible lending options available to help you get the funding you need. Be sure to look at the complexity of a retail business loan’s application process and approval timeline when selecting the right one for you.
Backd is an online lender with both a fast application and approval process. We offer two main business funding options suitable for retailers looking for finance:
Working capital advance: Access between $25,000 and $2 million (minimum one year in business required).
Business line of credit: Borrow between $50,000 and $750,000 (minimum two years in business required).
To qualify, you must be based in the U.S., have an established business credit history, operate from a brick-and-mortar address, hold a minimum credit score of 625, and have a minimum monthly revenue of $100,000.
Apply now and get the retail business loan you need as soon as the next business day.
