Retail Business Loan

What Is a Retail Business Loan and How Does It Work?

If you’re planning to establish your own retail business, taking out a retail loan can help you out a lot. Aside from giving you the funding you need, it’s a great way to improve your credit history and make your business more financially flexible, all while enjoying low-interest rates and other perks.

So what is a retail business loan? What are the different kinds of retail loans? And what are the benefits of taking out one? Find out the answers to these and other questions below!

What Is a Retail Business Loan?

Retail Business Loan

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As defined by 1West Finance, a retail business loan is a type of loan specifically made for retailers. From bringing your dream retail business to life to covering the expenses needed to maintain or expand it, this financing option can help spur your anyone’s retailing career to success. Below are a couple of ways it can help your retail business out:

  • Keeping your inventory well stocked
  • Hiring employees or consultants
  • Paying for accounting or legal services
  • Covering insurance costs
  • Buying equipment (e.g., cash registers, CCTV cameras, store furniture, etc.)
  • Renting or buying a physical location for the retail business
  • Paying for utility expenses (e.g., electricity, water, gas, etc.)
  • Funding a marketing campaign
  • Paying for repairs or renovations in the store
  • Funding a comeback after a disaster

Types of Retail Business Loans to Consider

There are various types of retail business loans, each catering to a retailer’s specific needs. Check some of them out below:

Sba 7(a) Loans

Retail Business Loan

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Everyone has been raving about SBA 7(a) loans for quite a while now, and for a number of good reasons. With its generous interest rates and repayment terms, it’s definitely out there as one of the best financial assistance programs in the US. And being backed by the US Small Business Administration, there’s little risk for both lender and borrower.

More specifically, retailers like you can take advantage of SBA 7(a) loans, either for general expenses or for expanding operations. All you have to do is meet the following requirements:

  • The retail business must be in operation for at least 3 months
  • The business must have a  monthly revenue of $5,000 or higher
  • The borrower must have a FICO credit score of 500 or higher
  • The borrower and their retail business must be based in the US.

Sba 504/cdc Loans

Retail Business Loan

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On the other hand, the SBA 504/CDC loan is specially designed to provide aspiring entrepreneurs with “long-term, fixed-rate financing for major fixed assets”. For retailers, it offers a great way to acquire real estate, new facilities, and long-term equipment for their business.

So if you find your retail business booming and you want to open up a new store, the SBA 504/CDC loan is for you. Below are the requirements for it:

  • The business must have an average net income of less than $5 million (after federal income taxes) two years before applying.
  • It must have a tangible net worth of less than $15 million.
  • The borrower and their retail business must be based in the US.

Equipment Financing

Meanwhile, you could try equipment financing to gain funds for the rest of your retail business’ equipment. Through it, you could get the equipment and furniture not covered by the SBA 504/CDC loans, as well as allow you to repair or upgrade the equipment you already have.

That being said, equipment financing comes with a few downsides. For example, if the equipment you bought with the borrowed money breaks before you settle the loan, you’ll still have to pay for it. And even if the equipment doesn’t break, you’ll still have to deal with the fact that it will depreciate in value as time passes.

Business Lines of Credit

Retail Business Loan

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Cash flow for retail businesses can be very unpredictable sometimes, and even a decent traditional business loan might not be able to help keep it more stable. Thankfully, business lines of credit are available to help you sustain your business’ cash flow and solve any issues that come your way.

Working pretty much like a credit card, business lines of credit provide you with a constant source of money you can borrow anytime. As long as you don’t exceed the set limit, you can take out and return cash in it as you see fit. As with other types of loans, there are certain requirements when getting lines of credit, which will depend on which provider you pick.

Also Read: A Detailed Overview On Term Insurance Before Starting The Financial Plan

Inventory Financing

Retail Business Loan

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Keeping your inventory well-stocked and organized is crucial for your retail business’ success. Through inventory financing, you can rest easy knowing that you won’t lack funding to do just that.

Additionally, inventory financing can help you build a decent distribution network for your retail business. And it can improve customer relationships since you’ll ensure they get what they need from your stores. Combined, these will lead to increased sales for your business, not to mention improved cash flow.

Wrapping Up

A retail business can be a very fulfilling venture, provided you constantly have funding to keep things running smoothly. Through retail loans, not only will you be able to maintain daily operations; but you’ll also be able to slowly but surely expand your business until it rises to the top.