Retail business owner applying for a loan

The 8 Best Loans for Retail Businesses

10+ min read • Jan 18, 2020 • Grant Olsen

There are numerous costs related to starting and sustaining any business, including licenses and permits, office space, equipment, website, utilities, marketing, advertising, communications, insurance, inventory, and staffing. While this list is hardly exhaustive, it gives an idea of the diverse demands that pull on a small business owner’s time and resources.

The Small Business Administration (SBA), ever ready to provide resources to entrepreneurs, offers calculators to help you estimate the expenses that will likely apply to your retail business. It’s a usual exercise to crunch the numbers regularly and get a “state of the union” for your business.“Those individuals who are interested in the business world simply need to understand how much it costs to start up a business,” says Forbes. “By knowing the relative costs, they will be able to spend their money wisely and hopefully turnover more profits. This, in turn, ought to allow them to survive in this harsh business climate. Quite often we see businesses failing as they have failed to pay attention to the finer details.”

Finding the Right Funding for Your Expenses

While there are sundry expenses that small business owners must deal with, it’s worth pointing out that there are also a vast number of financing options available. This variety hasn’t always been the case. In the past, entrepreneurs often felt compelled to visit their local bank for a loan. Fewer routes for financing meant more competition for bank loans and more rejections.

Modern innovations, such as the rise of online lending platforms, have spread the opportunity around in a way that would’ve seemed unimaginable only a couple of decades ago. The money you need to start and run your business may not be growing on trees, but it’s available from an increasingly diverse number of sources.

When it comes to selecting the best loans for retail businesses, you’ll need to first prepare a plan for using the financing.

“Your business plan will help you figure out how much money you’ll need to start your business,” explains SBA.com. “If you don’t have that amount on hand, you’ll need to either raise or borrow the capital. Fortunately, there are more ways than ever to find the capital you need.”

Crucial elements in your plan include how much money you’ll need and when you’ll need it. Research shows that the median small business loan is $140,000. Your loan could be smaller than that or substantially bigger, but it’s a good baseline to consider.

As for the speed of the loan, be advised that there’s a broad array of options. The fastest financing can hit your bank account within 24 hours, while other loans can take up to 3 months to fund. If you’re on a tight timeline, you’ll choose from a narrower field. If you have some time to spare, you’ll enjoy the full buffet.

The Best Loans for Retail Businesses

Because each loan has unique details, there’s no such thing as a perfect loan for all retail businesses. What’s ideal for the business located at 105 Main Street could be an awful match for the business located next door at 107 Main Street.

Regardless, there is a collection of small business loans that generally work well for retail businesses. Here are the top 8:

  1. Business Term Loans: There’s an undeniable upheaval in the retail world, as online juggernauts like Amazon change the way consumers think about shopping. Business term loans stand out as a bastion of the past amid this shift. They’ve been around for decades and have barely changed. Most importantly, they still work beautifully for many retail stores.Business term loans can be used for all kinds of purchases related to your retail business. This flexibility is important, as it allows you the freedom to make the best decisions for your business without worrying about usage limitations from your loan.Another major benefit is that these loans move quickly. Once approved, you can usually expect the money to become available in just a couple of days. The maximum amount is about $2 million, with interest rates beginning around 6%. Repayment terms can last up to 5 years.With a business term loan, you usually get a fixed interest rate from the onset. In other cases, it will be a fixed flat fee. Both ensure your payment won’t go up over time, as you’ve already locked in your rate. This helps you with your budgeting and can potentially save you a significant amount of money over the life of the loan.
  2. Short Term Loan: When a business term loan is too large or cumbersome for a business’s needs, the owner may want to consider a short term loan. This type of financing shares many similarities with term loans, but is more nimble.For starters, short term loans can fund in as little as 24 hours. So when speed is of the essence, this expedited form of financing delivers like few other options can. You’ll notice right off the bat that the application process is more streamlined. And the loan will be paid off more quickly as well, given that the repayment terms only last 1–3 years.Just as expedited shipping is always more expensive than standard shipping, a short term loan has higher interest rates than a standard term loan. Expect them to start at 8% and potentially go much higher.To qualify for a short term loan, you’ll need to have an established business history. If your store has been open for 2 or more years, you should be in great shape. Lenders will also look at your credit score, so be sure to get your ducks in a row long before applying.
  3. Business Line of Credit: With amounts up to $500,000, a business line of credit can be a versatile financing option for retail businesses. It doesn’t provide you with a lump sum, as a term loan would, but instead provides access to a revolving pool of money. A personal credit card works the same way—you’re approved for a set amount of money and then can borrow from that amount whenever you want. As long as you repay what you borrow, you can continue borrowing from the amount whenever you like.A business line of credit is ideal for small recurring expenses related to your business. There aren’t many restrictions on how you can spend the money, so plan on it being available for everything from staffing to inventory, renovations to advertising.Qualifying for a business line of credit is easier than for many other types of financing. The application is fairly streamlined, with simpler paperwork than you’d find with a traditional loan. Better yet, the funds are often available in just 7 days.
  4. Equipment Financing: It often takes equipment to run a business and this type of financing provides as much as $5 million to help you keep your business equipped for success.Most people associate equipment financing with items like fleet vehicles, box crushers, forklifts, and other large pieces. These items would indeed be legitimate purchases with equipment financing, but the definition of “equipment” is actually much broader. For example, you could use the money to purchase new software for your computer, a security system for your store, or a refrigerator for your breakroom.One unique aspect of these loans is that the equipment you’re purchasing can serve as collateral on the loan. So if you’re buying a delivery truck, it could be used to secure the loan. This is beneficial because it means you won’t need to put your personal property at risk. Of course, if you were unable to repay your loan, the equipment would then go to the lender to compensate for what you still owed.
  5. SBA 7(a) Loans: Small business owners often covet financing from the US Small Business Administration (SBA).The loans can be worth as much as $5,000,000, and the agency divvies out tens of billions in total loans each year.What makes an SBA loan unique is that the agency isn’t personally providing any of the money. They serve as an intermediary, connecting you with lenders from around the country. In order to incentivize the lenders to work with you, the SBA guarantees a portion of each loan. And with their risk diminished, lenders will be much more keen to share their money with you.Although SBA loans provide favorable terms and interest rates, they’re also known for tedious paperwork and slow approval processes. To put this into perspective, while a short term loan can fund in just 24 hours, the money from an SBA loan may not appear in your account for up to 3 months.The most popular of all SBA loans are those from the 7(a) program. They offer borrower-friendly terms and rates that can compete with even the best loans from a traditional bank. Better yet, these loans are made available for small business owners who have been rejected multiple times by other lenders.You can use funds from a 7(a) loan for nearly any expense associated with your retail business. This flexibility makes it a great catch-all for the sometimes unpredictable expenses associated with the retail industry.Qualifying for a 7(a) loan isn’t as easy as some of the other loans listed above. Not only will your credit and payment history be scrutinized, but you’ll also need to ensure you meet the SBA’s other requirements. This includes confirming your business operates in the US or its territories, you meet the agency’s size and financial requirements, and you have an airtight business plan.
  6. SBA 504 Loans: While 7(a) loans are known for their broad usage, 504 loans are tailored specifically for real estate. So if you’re planning on building a new facility, buying an existing store, renovating your office, expanding your parking lot, or any other project related to property, this form of financing could be ideal.The application process for a 504 loan is typical of other SBA loans. The paperwork is plentiful and the process is lengthy. So if you’re interested in pursuing one of these loans, be sure to give yourself plenty of time to jump through the necessary hoops before you’ll need to begin work on your project.Qualifying for a 504 loan largely comes down to a handful of factors. Your credit and payment history will need to be solid, your retail business needs to have a tangible net worth at or above $15 million, your average net income needs to be below $5 million, and you need to fall within the SBA’s size standards.
  7. SBA Express Loans: Perhaps the SBA got tired of hearing people complain about how long their approval process can take because they cut the waiting time down substantially when they created their Express Loans. They can still take about a month to fund, but that’s basically lightspeed by SBA standards.These loans are built smaller to enable this speed, with lower maximum amounts and less paperwork. Similar to other types of expedited loans, the interest rates are also higher than you would find with a typical-paced loan.Express loans also have tighter rules for what borrowers can spend the money on. Usually, the funds can only be used for increasing working capital, financing equipment, or debt consolidation.As long as your retail business has been running for 2 or more years and you have a credit score above 680, you will probably be a strong candidate for an Express Loan.
  8. SBA Disaster Loans: These loans are extremely situational, meaning you’ll never need to consider them unless disaster strikes. Small business owners need to know financial assistance is available if they’re negatively impacted by something like an earthquake, flood, or wildfire.The SBA provides these loans to connect small businesses with low-interest financing that can help them with recovery. It’s worth noting that they’re intended to restore a business, so you’re not allowed to expand things beyond where they were before the disaster. Instead, you can use it to replace inventory, repair property, fix equipment, or whatever else you need to do to get back up and running.While other SBA loans can be fairly competitive, the agency tries to make qualifying for these loans easier so that they can help as many businesses as possible.There are 4 loan options for those impacted by disaster:
    1. Business Physical Disaster Loans
    2. Economic Injury Disaster Loans
    3. Home and Personal Property Loans
    4. Military Reservists Economic Injury Loans

If your business is operating in a disaster area and could benefit from one of these loans, the first step is to search the SBA’s online database to ensure you are in an official presidential and SBA declared disaster area.

Acquiring Your Best Loan

When you’ve had a chance to survey the field, it’s time to begin the decision process. Regardless of the nature of your retail business, you likely have multiple routes you can take.

“The good news is as a business owner, you have many options when it comes to business financing, but the key is choosing which option will work best for your situation,” says the SBA. “Each financing option has its advantages and disadvantages, and some could be a much better fit for existing businesses than to startups. It’s important to do your due diligence by conducting a fair amount of research so you can ensure you make an informed decision prior to moving forward and submitting a business credit application.”

To identify your prime choice, it’s best to line up the comparables between your various loans. The 4 most effective metrics to look at are usually Annual Percentage Rate (APR), Average Monthly Payment, Total Cost of Capital (TCC), and Cents on the Dollar.

Once you’ve found your winner, it’s time to apply to the lender. Be sure to read through all of the instructions carefully and take the time to follow every step with exactness. This process is your chance to show the lender how organized and reliable you are.

Some of the documents needed for your application may include:

  • Resume
  • Business plan
  • Personal and business tax returns
  • Personal financial statements
  • Personal background information
  • Projected financial statements
  • Personal and business bank statements
  • Credit reports
  • Details of potential collateral
  • Business licenses and registrations
  • Articles of incorporation
  • Copies of contracts with third parties
  • Franchise agreements
  • Commercial leases

The lender will look at multiple factors while reviewing your application. One of the major considerations will likely be your business and personal credit. For this reason, it’s important to always safeguard your credit by scouring your credit reports for errors. It’s not uncommon for reports from the 3 major credit bureaus to include mistakes that drag your scores down.

By proactively monitoring your credit and resolving any issues you encounter, you’ll make yourself the best possible candidate for a lender. And every positive step you take gets you closer to your desired loan.

SHARE

Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.