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Retail Business Loans – Finding and Using Loans for retailers

With a different holiday always just around the corner, retailers often struggle just to keep up with trends and diversity of inventory to satisfy the season.  But there are also economic realities that come with operating a retail business and they often require a quick turnaround or infusion of funds to get the inventory needed just to compete and stay afloat.  For larger retailers with terms on their inventory purchases this isn’t an issue.  But with medium and smaller retailers who rely on bulk inventory purchases, the lack of funds needed to purchase at the right price can make or break a season.

Funding the Gap

One way to get past this thorny issue is to find and obtain the working capital needed to fund the gap in cash flow and secure the goods needed to operate.  There are many ways a retailer can acquire the funds required to operate and bridge the cash flow gap:

  • Term Loans: This common type of loan has the greatest flexibility in terms of amounts and repayment terms. If a retailer is looking to start or expand a new location a term loan can get the store up and running. They are most commonly used by businesses that have an established operating history and a good credit history.
  • Merchant Cash Advance: If a retailer doesn’t have the credit rating of a larger operation, or if they can’t qualify for a better rate through a traditional lender, this may work short term. A merchant cash advance uses future sales to calculate a payment for use as operating cash. It can vary over time as it is tied to sales and the rate is more expensive than a traditional lender, but it can be used as a bridge as well.
  • Inventory Financing: This method allows a retailer to use their existing inventory as collateral against the amount borrowed. These are very short term bridge loans and if a retailer can pay back in a short period this method may do the trick.

  • One caution to consider with inventory financing; there are often “inventory aging” requirement so inventory older than a certain age may not be considered as part of the loan structure. For example, some inventory financing companies will lend up to 80% of the value of inventory that is less than 180 days old (or some other length as determined by the lender).