Retail Business Loans

Identifying your loan purpose will help you determine the type of financing you should be looking for and how much borrowed capital you actually need. Some common loan purposes include:

Purchasing inventory. Inventory purchases are a good use for a short-term loan or a line of credit. Determine which type of inventory financing makes the most sense for your situation. For example, it might not make sense to use a long-term loan to pay for inventory over several years that will be sold in a month or two. The payments on a short-term loan will likely be higher than a long-term loan — but the total amount of interest paid will probably be less.

Buying equipment. This could be a very different loan decision than purchasing inventory, and could better match longer-term financing. Depending on the cost and your current situation, you can determine whether a long-term or short-term equipment loan makes the most sense.

Launching a marketing initiative. Depending on the expense, the projected ROI and the nature of the campaign, a business owner can choose the best loan term and type of financing. This is another loan purpose that could be a good use of a line of credit or short-term loan.

Expansion project. This is another potential use case for a longer-term loan, but a short-term loan isn’t out of the question either. Many restaurants, for example, that are contemplating the addition of an outdoor dining area often leverage short-term financing or a line of credit to pay for that type of project. The nature of the project, the expense, existing cash flows and the long-term value of the project will help you determine the best type of financing for your expansion or renovation needs.

Cash flow to bridge a slow season. Many business owners will borrow to pay business expenses over a seasonal slump or to overcome some other short-term cash flow hiccup. A line of credit is typically well suited for this type of business need, while a short-term loan may also be a good option. This strategy only works if the business has enough cash flow to make the periodic payments during the slow season.

There are always costs associated with borrowing. Understanding your loan purpose will help you determine how much capital you really need to borrow. A wise borrower’s requested loan amount matches their loan purpose.

For example, if adding an outdoor eating area is going to cost $10,000 to build, a restaurant owner probably shouldn’t ask for $20,000 or more. The increased expense associated with borrowing more than you really need could burden your business with too much debt and negatively impact the ROI of the project.

To determine the best retail financing option for you, make sure you fully understand the terms of each type of loan. In addition to the interest rate, take into account the total cost of capital (including any fees), the frequency of the periodic payments and the payment amount.

Line of credit. The flexibility of a business line of credit (LOC) makes it possible to access the credit line when needed, make a repayment and access the credit line again as needed over the term of the line of credit. Unlike a term loan, interest is only paid on the funds drawn against the credit line.

OnDeck’s loan requirements look beyond a business owner’s personal credit score and whether or not the business has specific assets that could be used as collateral. Of course, personal credit score, business credit profile, and other data are part of the equation, but metrics that demonstrate the overall health of the business are also considered when evaluating a business’ creditworthiness.

Short-term business loans. A short-term business loan could be a good fit for a retail business that needs to purchase inventory or meet other short-term business needs.

A short-term loan with OnDeck does not require specific assets to be identified as collateral. Instead, a general lien on business assets and a personal guarantee will be required to secure the loan. This makes it possible for a healthy business — without any specific asset to use as collateral — to qualify for a loan.

SBA guaranteed loans and terms. The SBA 7(a) loan program is the most popular and probably the most flexible SBA loan. This loan is designed to fit a number of small business lending scenarios and could be a good fit if you meet the qualification criteria.

The SBA Loan Guarantee Program will sometimes qualify a borrower who might not otherwise meet the more rigid criteria required by a bank. If your store is an established business with a few years under its belt, and your personal credit score is above 680, this could be an option for your business.

While SBA guaranteed loans typically have some of the lowest interest rates, the loan application process can take weeks or even months to complete. OnDeck is not an SBA lender, but it does offer alternatives if an SBA loan isn’t a good fit.

A weak credit profile won’t necessarily exclude you from retail financing, but it will probably limit your options. A healthy retail business with an impeccable credit profile and several years in business will have several options, while a borrower with bad credit and a short track record will have few (if any) choices.

Understanding your current credit position is a good first step when looking for financing. Do you know what your business credit profile looks like? What about your personal credit score?

Many business owners find themselves somewhere in between and will have financing options to choose from. If you have a less-than-perfect profile, there are steps you can start taking today to help you make improvements.