Retail store operations You need a large amount of capital. Whether you’re making a down payment on a new location or investing in the inventory you plan to sell in your store, you don’t have to use your own money to fund your business. A retail loan gives you a lump sum of money up front that you can pay back later.
Looking for financing options can feel like a daunting task, especially if you’ve never borrowed money before. In this guide, we’ll show you the different types of retail loans you can consider and the top retail lenders you can use to secure financing for your business.
What is a personal loan?
What is a personal loan? Business Financing Offered by banks, credit unions, or online lending companies, retailers can use these loans to operate and expand their stores, whether that be to buy inventory in bulk, pay a lease deposit on a new store, launch a marketing campaign, or pay staff salaries.
Types of personal loans
Personal Loans
A personal loan is funding provided to individuals rather than businesses. The interest rate on a personal loan is usually based on your credit score. The higher your credit score, the lower the interest rate banks are likely to offer you.
The downside to taking out a personal loan for retail is that you are personally responsible for repayment, and if you can’t repay, your personal assets, like your home or car, could be repossessed.
Business Term Loans
business Long-term loans A lump sum of money paid to your company by a financial institution. The lender adds their own interest rate. There are two types to choose from:
- Secured LoansThis requires collateral (such as inventory or real estate), which the lender can seize if you fail to make your monthly payments.
- Unsecured loansdoes not have any specific collateral requirements. If you don’t repay the loan, the lender can choose what to seize.
if you Eligibility Criteria for Retail Loans Based on your current financial standing (such as a good business credit score and loan repayment history), you’ll be set up with a repayment schedule of fixed monthly payments. Each payment will cover the principal amount borrowed and interest.
Credit card loans
A credit card is a type of credit that you can use to grow your retail business. There are personal credit cards, which are in your name and you are responsible for them, and business credit cards, which rely on your business’ credit history.
Credit cards are a great option for short-term retail loans. Most lenders won’t charge you interest if you pay it off in full at the end of the grace period. For example, if you need $500 to buy inventory to sell within the next month, you could use a business credit card to improve your cash flow.
The disadvantages of business credit card This means that interest rates can rise sharply if you don’t pay it off in full, and if the card is issued in your name, you are responsible for all repayments.
Merchant Cash Advance
If necessary Working capital If you need to pay your expenses before you make sales, it might be worth considering a merchant cash advance, which is a type of immediately disbursed retail loan that can be used for retail expenses like payroll, inventory, and rent. Merchant Cash Advance A percentage of your sales will be automatically deducted to repay your lender.
Credit facility
A line of credit is a flexible type of personal loan that allows you to borrow money as needed. Lines of credit usually have a limit. For example, if your line of credit is up to $5,000, you can withdraw $1,000 per month for five months.
The most attractive aspect of a line of credit is that you only pay interest on the amount you borrow (rather than the full amount of the line of credit). If you know your retailer will need to borrow certain amounts throughout the year, you can spread the borrowing out and pay interest only when you need to spend the money. Most lenders also offer flexible repayment options on lines of credit.
SBA Loan Programs
America Small Business Administration (SBA) is a government agency that lends money to startups, including retailers. Popular options include:
- SBA 7(A) Loans. The maximum amount for this loan is $5 million. Interest rates range from 7.5% to 10%, and you’ll need a credit score of at least 680.
- CSC/504 Loan. This loan is for businesses that want to buy real estate. It’s a good option for retailers. You can borrow up to 50% of the cost of purchasing a retail store.
- Disaster loans. If you’ve faced unexpected hardship and need funds quickly, you may want to consider this loan. This type of SBA retail loan protects you from losses if your retail store is damaged by a natural disaster that’s officially declared by the President of the United States, such as an earthquake or tornado, and your insurance doesn’t cover it.
Equipment Financing
Most retailers need equipment to run their stores and manufacture their products. If you don’t have the funds to buy the equipment outright, Equipment Financing.
If you choose this type of retail loan, you won’t own the equipment. You simply rent the tool, machine, or vehicle from a lender and use it while paying a fixed interest rate over a set period of time. If you want to take ownership of the equipment after the contract period is over, most lenders offer the option of a balloon payment.
Inventory Financing
Inventory financing allows you to take out a retail loan using your inventory as collateral. With this type of loan, the lender will usually provide up to 80% of the value of your inventory, but if you can’t repay, the lender can seize the inventory and ask for their money back.
Inventory loans tend to be riskier because valuations can fluctuate. If the market shifts and demand for your inventory decreases, you risk having to pay back more than you could make from selling the inventory.
Benefits of a personal loan
Many retail store owners turn to loans as a way to expand their business because of the following benefits:
- Improve cash flow. A loan gives you a lump sum of money up front to cover expenses like rent, utilities, and inventory. This can be useful if you’re going through a slow season and aren’t making enough sales to cover your short-term costs.
- Build business credit. If you need to secure a larger loan in the future, a small personal loan will prove that you’ve been paying back your loans on time – evidence you can use when negotiating more favorable terms with future personal lenders.
- Keep your retail business fair. Unlike Equity FinancingWith a retail loan, you don’t have to give up any equity in your business – you retain full control over your company.
What are retail lenders?
A retail lender is a financial institution that lends money to retail businesses. Unlike traditional lenders who borrow money from individuals or online stores, retail lenders have strict standards and only require registered businesses with a brick-and-mortar presence as collateral for their loans.
Personal Lenders to Consider in 2024
Shopify
Shopify has provided over $5.1 billion in funding to merchants through Shopify Capital, which provides retail financing to eligible merchants selling on the platform. Shopify CapitalEligible businesses can borrow up to $2 million and have their retail loans automatically repaid based on daily sales.*
Getting a loan through Shopify Capital means you maintain full control over your business without having to give up any equity. The loan application process is simple, and once approved (in as little as two business days), funds are deposited directly into your account so you can start spending right away.
American Express
American Express offers retail loans to business owners. Open a personal or business credit card with American Express and earn points on purchases. If you pay off your balance in full at the end of each month, you won’t pay any interest.
If you need to borrow more money for a longer period of time, American Express also offers business lines of credit.You must have a FICO credit score of at least 660, average monthly revenue of at least $3,000, and be in business for at least a year.
Tracking
Chase is one of the more traditional banks that offer retail business loans. Depending on your business credit score, the amount you want to borrow, and how you want to use the funds, you have the following options:
Bank of America
Although Bank of America only offers business loans, you can choose from every type of personal loan you can think of. This includes:
- business credit card
- Credit facility
- Long-term loans
- Car Loans and Auto Loans
- Commercial Real Estate Loans
- Equipment Loans
- SBA Loans
according to Bank of AmericaTo apply for most of these retail loans, you’ll need to have been in business for at least two years and have annual revenue of at least $100,000, and most options also require a minimum FICO credit score of 700.
Understanding Retail Loans for Businesses
If there’s one thing you should never rush, it’s Business LoansMake sure you can repay the money you borrow (including interest) – missing even one payment can lower your credit score and make it harder to secure finances in the future.
Take the time to compare your options and choose the type of retail loan that’s best for your business. If it’s an online lender that offers loans that you can repay as a percentage of your daily sales, consider it. Shopify Capital.
Frequently Asked Questions about Personal Loans
What does retail lender mean?
A “retail lender” is a financial institution willing to make loans to retailers. Examples of retail lenders include banks, credit unions, and many online lenders, such as Shopify Capital.
What is the difference between a personal loan and a business loan?
A retail loan is a specific type of business loan available only to retail store owners. These loans can be used to pay for rent, in-person marketing, and inventory for your brick-and-mortar store.
What is a personal loan?
Retail borrowing occurs when a customer borrows money from a retailer. For example, if you want to buy an expensive sofa, you can borrow from the retailer and pay for the item plus interest in installments.
Are retail loans secured?
Lenders offer personal loans with or without collateral. In a secured loan, your property or assets are used as collateral. Some lenders allow you to borrow more money if your personal loan is secured because the lender can seize whatever you have used as collateral if you are late with your repayments.
* Shopify Capital loans must be repaid in full within 18 months, with two minimum payments within the first two six-month periods.
This article focuses on industry standards and is not specific to Shopify’s financing product suite. To understand Shopify’s lending product capabilities, see: shopify.com/rental.
Available in some countries. An offer to apply is not a guarantee of financing. All loans through Shopify Lending, including Shopify Capital, are issued by WebBank in the United States.
