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Retail business loans: everything you need to know

The retail industry has undergone massive transformations, particularly during the pandemic. With the acceleration of digital demand, retail business owners have had to adapt quickly to the needs of their customers. However, the question is, what does the future of retail look like in a post-pandemic world? Annually, throughout 2019-2021, the number of new stores has continued to grow, and their role has evolved into a fundamental factor in the consumer experience. Also, the National Retail Federation (NRF) forecasts sales will increase by 6% and 8% to more than $4.9 trillion in 2022.

If you are part of this growing industry and want to know what financing options can help you invest in your business growth, you've come to the right place. Understanding and choosing the right financing can help you purchase inventory, pay overhead expenses like a marketing campaign, or cover your payroll. This article will review everything you need to know about retail business loans and financing options so you can make the best decision possible.

How business financing can help your retail business

Running a retail business has many costs, whether it's an online store or a physical store (or perhaps both). You can run out of cash flow for a few weeks or even months because there is typically a lag between buying new merchandise and selling it. A retail business loan can be helpful for many things within your business, mainly because you want to be directly competitive with other retailers. You may need it to buy new merchandise, for marketing expenses, or to invest in new technology. And so, in these scenarios, loans and other types of business financing are excellent solutions for retail enterprises that require external money to pay all of their expenses. You can use a retail business loan for things such as:

  • Balance sales vs. customer demand

  • Buy products and merchandise

  • Increase cash flow during the low season

  • Have the appropriate amount of employees

  • Develop new initiatives

  • Invest in new technology

  • Invest in marketing

In the following sections, we'll review the most popular financing options you have as a retail business owner so you can determine which one is right for your business.

5 financing options and business loans for retail businesses

1. SBA loans: Best for general expenses

Several banks, internet funders, and other financial institutions supported by the U.S. Small Business Administration (SBA) offer loans. Depending on the type, loan amounts might range from $30,000 to $5 million, and interest rates could change depending on the funder and loan type, which is why this is a good option for general expenses.

Revising which SBA loans apply to you and your retail business is essential. In this case, you can consider SBA 7(a) loans for working capital and inventory and 504 CDC Loans for equipment and real estate, two SBA funding programs that may benefit retail enterprises. However, they usually have strict requirements, and due to their high demand, they take time to be approved.

Business lines of credit: Best for sustained cash flow gaps

A business line of credit can help retail business owners keep up regular access to capital or money to deal with fluctuations in expenses and earnings. A business line of credit is a good option for those who experience very low seasons. Nonetheless, there are specific differences between credit lines and regular loans. For instance, when using a line of credit, you frequently receive lesser sums of money yet are exempt from disclosing your intended use.

To learn more about the differences between a business line of credit and a regular loan, you can consult our article: What is a business line of credit and how to qualify?

Merchant cash advances: Best for time-sensitive expenses 

A merchant cash advance MCA (also known as an MCA) is a loan based on your business's future revenue. It is an alternative type of financing to traditional business loans with payment terms based on your business sales, ranging from three to 18 months. The higher your business sales, the faster you repay the cash advance. If you own a retail business and have a poor credit score, this can be a quick and easy option if you need immediate access to capital to invest in the industry. For more information, please read our guide on cash advances and how they work.

Equipment financing: Best for specific fixed assets

If you need financing for equipment only, you could receive up to 100% of the value of your company's needs. With this method, which may satisfy the needs of business owners with significant equipment assets but will lower credit ratings, the actual collateral is the equipment itself. 

You can use a loan for equipment from office furniture to supplies for the store, to exhibition mannequins, and anything in between. This particular form of small-business loan is the main focus of some businesses.

Inventory financing: Best for stocking shelves

As the name suggests, you can consider inventory finance if the money you require is just for acquiring inventory. Similar to equipment financing, your inventory purchases act as collateral, which minimizes the funder's risk and lowers your interest rate.

For inventory loans, small businesses are typically better off looking outside the network of large banks; otherwise, securing the funding they require may be difficult. Your best option is to apply for an inventory loan through an alternative financing company or internet funder because most major funders only work with wholesalers and larger stores.

Ask about financing today

The most important advice we have for your retail business is something you probably know: your business will succeed with the right partner as a funder. Finding capital can be challenging for startups since traditional funding options could demand a perfect credit score or years of business experience.

But not with One Park Financial. We are here to mark the difference and help your small business grow. The business funding solutions we offer aim to provide quick working cash to business owners with at least three months of operating history and a monthly revenue of at least $7,500.

Our funders are experts in offering solutions tailored to the requirements of small enterprises. Your company's potential is more important to us than your credit rating. Verify your pre-qualification by filling out our online form and establishing your company for success today!

Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction. 

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