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Getting Loans & Funding For Your Retail Business

By Spodek Law Group | February 20, 2024

Getting Loans & Funding For Your Retail Business

Starting or expanding a retail business requires significant upfront capital. Whether you need money to open your first storefront, invest in inventory, or upgrade your technology, securing business financing is often essential for retail success. Though loans and funding can seem intimidating, being prepared and exploring all your options can set you on the path to retail growth.

Determine Your Financing Needs

Before applying for any loans or funding, take time to thoroughly evaluate your business finances. Create detailed financial projections and determine exactly how much money you need and what you will use it for. Outline one-time startup costs like store renovations and ongoing operational expenses like inventory and payroll. Having a clear picture of your funding needs will help target lenders and increase your chances of approval.

Improve Your Eligibility

Lenders want to work with businesses likely to repay their loans. Before you apply, take steps to strengthen your company’s financial health:

  • Build your credit score – Having a credit score over 700 will qualify you for more financing at better rates. Pay all bills on time and lower your credit utilization ratio.
  • Raise capital – Injecting even a small amount of your own money inspires confidence in lenders. Save up or sell assets to raise capital.
  • Keep detailed financial records – Maintain updated profit/loss statements, balance sheets, tax returns and other documents. Thorough record keeping proves creditworthiness.

Choose the Right Financing Option

With a variety of credit products available, it’s essential to select the one that aligns with your business needs and eligibility. Common financing options include:

SBA Loans

Backed by the government, Small Business Administration loans feature low interest rates and long repayment terms. However, the application process is extensive. Popular SBA loans include:

  • 7(a) Loans – Up to $5 million for various business purposes
  • 504 Loans – Up to $5 million for major fixed assets like real estate
  • Microloans – Up to $50,000 for working capital

Business Credit Cards

Business credit cards require a much simpler application process than loans, making approval more accessible. However, credit limits rarely exceed $100K. Use cards for smaller, short-term needs only. Manage balances to avoid high interest charges.

Alternative Online Lenders

Online lenders like Fundera, Kabbage, and Credibly offer quick access to capital through streamlined applications. However, interest rates are higher and loan amounts smaller than traditional bank loans.

Retail Industry Loans

Specialty lenders like Credibly, Forward Financing, and Stripe understand retail’s unique capital requirements. They may offer higher loan amounts and better rates than standard online lenders along with perks like no collateral requirements.

Equipment Financing

Financing through leasing companies allows you to pay for essential equipment like registers and shelving over time. This preserves capital for other startup costs.

Improve Your Chances

Follow these best practices when seeking loans and funding:

  • Get pre-qualified – Before completing full applications, submit abbreviated paperwork to determine what lenders may approve you for. Pre-qualification protects your credit score from hard inquiries unlikely to result in approvals.
  • Apply to multiple lenders – Each lender has its own eligibility standards and risk tolerance. Applying to several increases your odds over submitting just one application.
  • Provide collateral – Putting up property or equipment you own signals your commitment to repaying the loan, making approval more likely.
  • Bring a co-signer – Adding a co-signer with better credit or collateral improves deficient applications. Offering business partners as co-signers also shows faith in your company.
  • Communicate clearly – Clearly explain exactly why you need financing and how it will grow your business. This evidence of careful planning and loan purpose reassures risk-averse lenders.

Alternative Funding Strategies

If you get declined for loans, don’t panic. Consider these other funding options to get your retail store running:

  • Use personal credit cards and savings
  • Seek investment from friends, family, and private investors
  • Launch a crowdfunding campaign
  • Apply for retail-specific grants and incentives
  • Enter business plan competitions for prize money
  • Consider an SBA 8(a) microloan for women-owned businesses

Weigh the Pros and Cons

Compare all options to select financing that works for your business:

Pros

  • Quick access to large capital amounts
  • Fixed regular payments
  • Potentially lower interest rates
  • Longer repayment terms

Cons

  • Strict eligibility requirements
  • Extensive documentation and paperwork
  • Must put up collateral
  • Debt accrues interest
  • Missed payments damage credit

Though it requires effort, finding the right funding can empower retailers to actualize their visions and achieve new levels of prosperity. Consult with a small business lender like Credibly to explore your options today. With personalized guidance and advocacy, the path to financing does not have to be intimidating or frustrating. The right loans or credit products do exist to fund your dream retail store.

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