What are Retail Business Loans?
Put simply, a retail business loan provides you with cash to pay for a wide array of expenses for your retail business. There are a number of different loans available, each with their own pros and cons. Most of these loans are offered by banks, credit unions, and online lenders and available to most retail ventures, regardless of the types of goods served.
How Can You Use Retail Business Loans?
Retail business loans are flexible so you can use them to cover virtually any expense to start or run your retail store, including:
- Inventory: The right amount of inventory for your target audience is vital. Retail business loans can help you ensure you alway have enough on hand.
- Expansion: If your retail store is a real hit and you’re pleased with your profits, you might want to open new locations. You can use a retail business loan to assist with your expansion costs.
- Equipment: Even if you run your retail business loan online, you’ll need to invest in equipment, which is often very expensive. Equipment financing offers a great way to buy or lease equipment.
- Technology: Advanced technology can help your store stand out from the crowd. You may want to take out a retail business loan to pay for an intuitive mobile app, cutting-edge CRM system, or payment services, such as Apple Pay and Google Pay.
- Interior Updates: If you have a brick-and-mortar location, you want to ensure it's inviting and attractive. A retail business loan may help you finance renovations.
- Marketing: Even if you’ve been around for years and have a loyal customer base, you can’t go wrong with marketing. With a retail business loan, you can fund social media ads, direct mail, email marketing, radio spots, and other marketing initiatives that may take your retail store to the next level.
How Much Does It Cost To Finance a Retail Business?
The costs to open a retail business depend on the type of goods you sell, the size of your store, and your location. Whether it’s brick-and-mortar, e-commerce, or both will make a difference as well. On average, however, you can expect to pay around $48,000 for a brick-and-mortar store and a bit less for a solely online venture. You’ll likely have to pay these startup costs:
- Permitting and licensing fees: These vary from state to state and must be obtained before you open your retail store.
- Business entity formation: Once you decide what kind of entity you want to be, you’ll need to pay anywhere from $150 to $300.
- Insurance: At the very least, you’ll need worker’s compensation, general business, and liability insurance, which may run you between $500 to $2,000 per year.
- Commercial property: The amount it will cost you to lease or buy a storefront will depend on location.
How to Qualify for Retail Business Loan?
Each lender has their own unique qualification requirements. In most cases, however, they will consider the following factors:
- Financial history: Most lenders like to see at least several months of financial history to prove that you can repay what you borrow. Rest assured if you’re a startup, they may still approve you.
- Business plan: A well-written business plan can show lenders what you intend to do with the funds. It should include descriptions of all of your major expenses, including startup costs, working capital costs, and expansion costs.
- Credit scores: Lenders will look at your personal and business credit scores to determine how creditworthy you are as a borrower. Of course, the higher your scores are, the more likely you are to get approved with favorable rates and terms.
- Business history: A business history is often just as important as a financial history. The longer you’ve been around, the more comfortable a lender will be with lending you money.
How do Retail Business Loans Work?
Oftentimes, retail business loans provide you with large sums of money at one time. You then repay them plus interest and fees over an agreed upon term, which can range from several months to several years or even longer.
Other retail business loans, like business lines of credit and credit cards are revolving lines of credit, meaning you can withdraw funds whenever you’d like, up to a set credit limit, which is usually based on your credit score and other factors. You’ll only pay interest on the amount you borrow.
There are also loans like merchant cash advances and invoice factoring, which you’ll repay with a percentage of your future card sales or customer invoices. These typically offer quick approvals and fast funding.
When you do your research on various retail business loans, you’ll find that some of them are easier to qualify for than others. Merchant cash advances and equipment financing, for example, are more lenient than traditional term loans and line of credit.
How to Improve Your Chances of Getting a Retail Business Loan?
There are a number of ways you can increase your likelihood of getting approved for a retail business loan, including:
- Choose a realistic amount: Be sure to ask for the right amount of funding. While you don’t want to overestimate this figure, you also want to ensure it’s large enough to meet your needs. Consult a CPA or a financial professional for guidance.
- Find the right type of loan: Not all retail business loans are created. Apply for the financing options that make sense for your unique situation.
- Offer collateral: If you’re a startup or newer business, you may have greater success with secured loans that require collateral or an asset that you own. This may be commercial property, a company vehicle, or equipment.
- Be professional: While this may seem obvious, it’s important to remember to be professional any time you communicate with a potential lender via phone or email. In addition, be honest and transparent.
Launch or Grow Your Retail Business
Retail business loans can make your life easier if your goal is to start or expand any type of retail store. Before you sign on the dotted line, however, make sure you understand the loan terms and feel confident that you’ll be able to repay what you borrow. Best of luck with your retail venture.