March 18, 2023 By Megan Grant

The retail industry faces many unique challenges, such as frequent high and low seasons, and ever-changing trends. The retail industry also has quite a bit of upfront expenses, such as inventory, salaries, and real estate for retailers with physical locations. To support retailers, lenders typically offer a wide range of available loans.

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In this blog, we cover six kinds of loans that may be available for retailers to help you choose the best fit. While there is indeed some overlap between these loans, one may be a better fit for your unique business. 

1. SBA 7(a) loans

SBA loans are the go-to loans for retailers and small businesses, and for good reason! They typically offer generous terms of repayment and competitive interest rates, making them appealing to those in need of working capital, debt refinance, equipment, hiring, and more. 

One of the reasons that SBA 7(a) loans are good for retailers is that they are guaranteed up to 85% by the Small Business Administration (SBA). This means that, should your business be unable to repay the loan (under the agreed-upon terms), a huge part of it will likely be covered by the government. This layer of security typically means that you are less of a liability and banks are more likely to take on your loan. 

  • Amount of loan: Maximum of $5 million
  • Period of repayment: Up to 10 years
  • Terms of repayment: Monthly payments toward the principal and interest

Time needed for approval/funding: 5-10 business days, but it can take more than a month for your funding to be available. If you work with SmartBiz®, once your application is approved by the bank, funds may be deposited into your bank account in as fast as seven days.

2. SBA 504/CDC loans

Another loan offered by the SBA is the 504 Loan. It’s also called a CDC loan because it’s offered exclusively through the organization’s community-based partners that aim to boost economic development in their areas, also known as Community Development Companies (CDCs). 

The SBA 504/CDC loan can be used to create jobs and grow your business, including buying or improving your facilities, and equipment or machinery for long-term use. But it cannot be used for inventory, refinancing or repaying existing debts, or investing in real estate.

  • Amount of loan: Maximum of $5 million for major fixed assets
  • Period of repayment: Available in 10 and 20-year maturity terms
  • Terms of repayment: Monthly payments toward the principal and interest
  • Time needed for approval/funding: 30-90 days, although it typically varies

3. Lines of credit

Retailers generally experience many periods of highs and lows — whether it’s natural seasonality because of holidays, or specific consumer behaviors such as lower sales before payday weekends. To cope with this tide, businesses typically must be liquid to meet their short-term obligations and necessities. 

A business line of credit is an agreement with a lender that enables you to access a finite amount of cash instantly when needed. You will only have to pay back, with interest, the amount that you withdraw or use. A line of credit can be accessed through different ways — check, credit card, etc. 

  • Amount of loan: $30,000 to $300,000
  • Period of repayment: May be between 2 and 5 years
  • Terms of repayment: Monthly (amount used and interest)
  • Time needed for approval/funding: Differs between financial institutions

SmartBiz facilitates lines of credit through our lending partners and additional information including requirements is available here.

4. Merchant cash advances

A merchant cash advance is not necessarily a loan; it’s an agreement that the business will use a percentage of its future sales to repay the upfront capital that it borrowed from the lender. This is in contrast to paying through monthly or yearly installments as you would in a traditional loan. The repayments are generally automatically deducted from your credit card sales until the amount borrowed, plus any fees or interest, are repaid.

An MCA is typically a good option for retailers that need access to cash in a flash — some financial institutions may allow the business to access the money within hours of applying online. This type of loan for retailers typically has a high approval rate, it doesn’t require collateral, and you generally don’t have to worry about meeting a certain credit score requirement. 

  • Amount of loan: Maximum of $500,000
  • Period of repayment: Varies from 3 months to 3 years
  • Terms of repayment: Daily
  • Time needed for approval/funding: Typically a week or less

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5. Business credit cards

Business credit cards function similarly to how they do for individual consumers — they generally allow you to access cash immediately so that you can purchase what you need, and then repay it in installments over a certain period. You only pay back what you used for the month — with interest, although some financial institutions use 0% interest to gain an edge over the competition.

While there are different kinds of credit lines, credit cards are arguably the most popular form because they tend to come with extra benefits. For example, many banks partner with other establishments to offer cash back rewards, which means that you may get some money back when you pay with a credit card. You can then allocate this extra cash toward other expenses for your business. 

  • Amount of loan: Maximum of $250,000
  • Period of repayment: Ongoing, as long as you use the card
  • Terms of repayment: Monthly payments (amount spent plus interest, if applicable)
  • Time needed for approval/funding: Between a week and 10 days

6. Inventory financing

Inventory financing is another type of business line of credit that is specifically used to purchase products (also known as inventory) that will be sold by a borrower at a later time. This type of loan is typically used by small to mid-sized and privately-owned businesses that need a lot of inventory but struggle to get major loans because they don’t have the financial history or current assets as big-name players, and they cannot issue bonds or stocks. 

Inventory financing for retailers may be used to maintain your cash flow, update your product lines, increase your products in stock, and respond to higher levels of customer demand. 

  • Amount of loan: Depends on the appraised value of inventory needed
  • Period of repayment: Can be anywhere from approximately 3 months to a year
  • Terms of repayment: Monthly payments (amount spent plus interest, if applicable)
  • Time needed for approval/funding: Typically less than two weeks

Finding loans for retailers with SmartBiz

With all these options, do you need help narrowing down the best loan for your retail business? SmartBiz makes it easy for you to apply and helps match you with the best lender that meets your needs. Our financial professionals are available to answer questions and help guide you through the streamlined application. 

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