Retail Business Loans: Costs, Terms & Where to Find

Retailers obtain financing to help grow their business or to purchase inventory and ramp up for a busy 4th quarter. Retail business loans come in various forms, such as a short term business loan used to purchase needed inventory to prepare for the busy season or an SBA loan to buy real estate and expand.

OnDeck, which sponsored this article, offers a short term working capital loan up to $500k. You may qualify if you have a 500+ credit score, have been in business for 1 year or more, and currently have $100k+ in annual business revenue. OnDeck can fund your loan in as quick as 1 day. Pre qualify in minutes by filling out an online application.

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Best Working Capital Retail Business Loans

How We Determined the Best Retail Business Loans

Retailers typically have thin margins and seasonal businesses. Typically, when it comes time to fund inventory to prepare for your busy season or to replenish your levels before they run out, you haven’t yet received cash from your customers. This is the biggest cash flow need for retailers and it’s the first thing we took into consideration when determining the best retail business loans.

When deciding on the best retail business loans we considered:

• Speed of funding
• Loan amounts
• Minimum qualification requirements
• Repayment terms
• Costs
• Collateral needed
• Inventory level requirements

Retailers are a unique business when it comes to financing because needs can vary a lot from one retailer to the next. The products you sell and the time of year will determine which retail business loan is right for you. For example, if you’re just looking to fund small inventory amounts or prepare for the unexpected, then a business line of credit is the right choice. However, if you need commercial real estate for a new location, then an SBA loan is the right fit.

When looking for retail business loans the option that will help the largest amount of retailers is a short term loan. Lenders that offer these loans, like OnDeck, can fund amounts up to $500k and offer the right repayment terms for a retailer just looking for short term capital until they can pay it back through increased revenue.

Short Term Retail Business Loans

Short term loans offer lump sum financing that will enable you to spend a large chunk of money all at once to help prepare for your busy season and replenish your business inventory. Short term business loans can be for amounts up to $500k with 1-3 year terms but carry an expensive APR of 30-50%.

Short term retail business loans are the best fit for many retailers looking for capital to fund known and forecasted inventory purchases. As a retailer, you should be able to accurately predict how much inventory you’ll need to prepare for the 4th quarter demand. A short term loan is a good lump sum amount you can use to prep for that busy time.

Short Term Loan Costs

The costs of a short term retail business loan are:

• APR: 30 – 50%
• Prepayment Penalty: None

Short Term Loan Terms

A short term retail business loan carries these general terms:

• Loan Amount: Up to $500k
• Repayment Term: 3 – 36 Months
• Repayment Cycle: Weekly
• Time to Funding: 1-3 Days

Short Term Loan Qualifications

To qualify for a short term retail business loan you’ll need to meet or exceed these minimum qualifications:

• Minimum Credit Score: 500 (check your credit score for free here)
• Minimum Time in Business: 1 Year
• Minimum Annual Business Revenue: $100k

Many traditional lenders, like banks, will find it difficult to approve a retailer who needs working capital because of the risk involved in the industry. Many banks have lost money in charge offs to retailers and are reluctant to jump into lending to retailers, which is why short term lenders can be a better fit.

What’s Missing With Short Term Retail Business Loans

Short term retail business loans are great for retailers looking to grow their business or replenish their inventory, but these loans carry expensive costs if you’re looking for long term capital. They’re typically not a good fit to buy real estate or large equipment like a display case. Additionally, a business line of credit is a better fit for retailers needing to finance recurring operational costs or cover expenses during slow periods.

Where to Find Short Term Retail Business Loans

Short term retail business loans can be found at alternative lenders like OnDeck. They offer short term loans up to $500k and you can pre qualify by filling out an online application that takes about 10 minutes. If approved, OnDeck can fund your loan in as little as 1 day.

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Business Line of Credit for Retailers

A business line of credit (LOC) is a pre-approved amount of money you can draw down against over and over again until you reach the maximum borrowing amount. You’ll only pay interest on the amount you’re currently borrowing and you won’t have to reapply every time you need additional capital.

A business line of credit is great for retailers that need quick access to capital but the amount needed isn’t easy to predict. For example, your seasonal headcount might vary based on your daily sales, and you may need quick access to capital to hire more 1099 employees than you previously anticipated once your busy season begins. Similarly, seasons can impact a retailer’s marketing needs and an LOC can be a great way to fund promotional efforts.

Business Line of Credit Costs

A business line of credit will carry these costs:

• APR: 13.99 – 40%
• Prepayment Penalty: None

Business Line of Credit Terms

A business line of credit will carry these terms:

• Loan Amount: Up to $100k
• Repayment Term: Up to 12 Months
• Repayment Cycle: Weekly or Monthly
• Time to Funding: 1 – 3 Days

Small Business Line of Credit Qualifications

To qualify for a business line of credit you must meet these minimum qualifications:

• Minimum Credit Score: 600 (check your credit score for free here)
• Minimum Time in Business: 1 Year
• Minimum Annual Business Revenue: $100k

You can learn more about the qualification requirements by reading our guide to a business line of credit.

What’s Missing With a Small Business Line of Credit for Retailers

A business line of credit is a great fit for retailers that have recurring working capital needs or that want to prepare for unexpected expenses. However, you can only typically borrow up to about $100k at one time so it’s not a good fit for large purchases like equipment or real estate. This amount may also not be enough for retailers looking to replenish a lot of inventory, particularly if you’re able to predict how much inventory you’ll need.

Where to Find a Small Business Line of Credit for Retailers

A business line of credit (LOC) can be found at alternative lenders like OnDeck. They offer a LOC up to $100k if you have a 600+ personal credit score, have been in business for 1 year, and have $100k+ in annual business revenue. You can pre qualify by applying online in about 10 minutes and you could be funded in as quick as 1 day.

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Equipment Financing for Retailers

Equipment financing comes in the form of a loan or lease and is used to purchase large equipment with a long shelf life. The equipment itself serves as collateral for these loans which helps lenders offer low interest rates and makes it easier for you to qualify for than other large loans. A lease offers lower monthly payments but you won’t own the equipment at the end of your term.

The retailers that will find this type of loan the most beneficial will be grocers or hybrid stores that have large display cases, freezer cases, or equipment for prepared foods. This can also be helpful if you’re a large box retailers that need to replace equipment in your backroom, like a forklift or loader. The only downside is that you can’t use the funds for other working capital needs.

Equipment Financing Costs

Equipment financing carries these costs:

• Interest Rates: 6 – 9%
• Prepayment Penalty: None

Equipment Financing Terms

Equipment loans typically carry these general terms:

• Loan Amount: $10k – $500k (up to 95% of equipment costs)
• Repayment Terms: 2 – 7 Years

Equipment financing will typically fund 85-95% of the value of your equipment you’re purchasing, which means you’ll need to come up with the remaining as a down payment. For example, if you buy a series of display cases or end caps for $100k, then you’ll need to come up with $15k yourself in order to close the deal. Typical repayment terms for large equipment is around five years.

Equipment Financing Qualifications

To get equipment financing you’ll need to meet these minimum qualifications:

• Minimum Credit Score: 600 (check your credit score for free here)
• Down Payment: 5%+ (10-20% for owner-operators)
• Collateral: Financed equipment
• Time in Business: 2+ Years from many lenders. Some will fund startups with industry management experience.

What’s Missing With Equipment Financing for Retailers

Equipment financing is a great fit for retailers looking to only replace a large piece of equipment but you can’t use this retail funding for any other purpose. This option also isn’t available to you if you don’t have equipment you’re buying or if the equipment won’t last at least five years.

Where to Find Equipment Financing

Equipment financing can be found at traditional lenders like banks. You can learn more about equipment financing by reading our guide to equipment loans.

Business Credit Cards for Retailers

Business credit cards are small credit lines you can use over and over again and earn rewards in the process. You can get approved for as much as $100k, but most retailers generally are approved for no more than around $30k. Some cards offer 0% interest on all purchases for the first 7-18 months, which can help you make a purchase you can’t afford that you can repay over time without paying extra for interest charges.

Business credit cards can be a good fit for any retailer because these cards can be used for many short term working capital needs. These cards also offer rewards that you can take advantage of like cash back or points you can spend on merchandise or travel. You can often take advantage of these rewards just by using your card to pay for routine monthly expenses that you’d be spending on anyway, like setting up automatic payments to pay your monthly retail insurance premiums.

Business Credit Card Costs

Business credit cards typically carry these costs:

• Interest Rate: 12 – 29%, some have 0% introductory offers
• Annual Fee: $0 – $350+

Business Credit Card Terms

A business credit card will generally carry these terms:

• Loan Amounts: Up to $100k but typically less than $30k for most businesses
• Repayment Terms: 30 days interest free
• Time to Funding: Instantly – 2 weeks (time it takes to receive your card)
• Initial Rewards: Introductory APR of 0% for 7 – 18 months
• Ongoing Rewards: Cash back or points to redeem for rewards

Retailers will likely want to find cards that provide cash back rewards because of the thin margins. However, retailers with several locations will benefit from fuel or office expense related rewards.

Business Credit Card Qualifications

To qualify for a business credit card you’ll need to meet these minimum qualifications:

• Minimum Credit Score: 650+ for best offers (check your credit score for free here)

Your annual business revenue is also taken into consideration during the application process but typically there isn’t any requirement you must meet to get approved.

What’s Missing With a Business Credit Card for Retailers

A business credit card is easy to qualify for compared to other financing options, and you’ll be able to use it over and over again without reapplying. However, these cards won’t likely give you a large amount of financing and they can become expensive if you need long term capital. If you need more than $30k at any one time then you’ll need to choose one of the other alternatives.

Where to Find Business Credit Cards

You can learn more by reading our guide that provides the best small business credit cards. If you’re an owner-operator you might need to instead read our article on the best personal cards for business owners since you’ll have a better shot at getting approved for those cards.

SBA Loans for Retailers

An SBA loan is guaranteed by the Small Business Administration (SBA) and they carry long repayment terms with some of the lowest rates available to retailers. SBA loans are typically originated and serviced by approved lenders. There are many types of SBA loans but the best one for both working capital and commercial real estate is typically the SBA 7(a) loan.

SBA loans are best for retailers wanting to purchase their own location or invest in an entire shopping center. Location is everything in the physical retail business and owning your own locations can help you build brand equity and customer loyalty. Plus, this could be a great fit for a retailer looking to rent out as much as 49% of their commercial space.

SBA Loan Costs

SBA loans will carry the following costs:

• Interest Rate: 5% – 10% (check current SBA loan rates)
• Prepayment Penalty: None
• Origination Fee: 0.5 – 3.5%
• Loan Packaging Fee: $2k – $4k
• SBA Guarantee Fee: 3 – 3.5% (Waived if loan amount is under $150k.)

SBA loans generally have low interest rates but the fees can be expensive if you’re only looking for short term financing and you can save money by paying it off early. You can learn more about these fees by reading our article on the SBA guarantee fee.

Loan Terms

SBA loans will generally carry these terms:

• Loan Amount: Up to $5 million
• Repayment Terms: Up to 10 years
• Repayment Cycle: Monthly
• Time to Funding: 30 – 90+ days

SBA loans take a long time to get funded. You’ll generally have to complete a lot of paperwork and make several trips to the bank or take many phone calls from your lender. You can learn more about the SBA loan process by reading our article on how to apply for an SBA loan.

SBA Loan Qualifications

To qualify for an SBA loan you’ll need to meet these minimum qualifications:

• Minimum Credit Score: 680 (check your credit score for free here)
• Collateral: Typically required
• Down Payment: 10-20%
• Time in Business: Startup – 2+ years

The SBA requires that lenders maintain their standard qualifications in addition to the lender’s underwriting requirements so it’s difficult to qualify for these loans. If you’re a new retail business you can read our article on how to get SBA startup loans for more information.

What’s Missing With an SBA Loan for Retailers

SBA loans offer the largest loan amounts and longest repayment terms of pretty much any loan option available to retailers, but they’re difficult to qualify for and can take a long time before you would see your retail funding. They’re best for retailers wanting to buy real estate but can be hard to get for working capital because many traditional lenders don’t like working with retailers.

Where to Find SBA Loans for Retailers

SBA loans can be found by applying at a traditional lender like a bank. You can read our article on the top 100 SBA lenders to learn more about your best options.

Merchant Cash Advance for Retailers

A merchant cash advance (MCA) is an advance for your debit and credit card receipts in return for a percentage of those receipts. MCAs are expensive with an APR that can be as high as 120% or more. In most cases, an MCA is considered a last resort option because of these costs.

MCAs can be a good fit for retailers that need flexibility in their repayments because you don’t owe a set amount each day or week. You’ll instead pay a percentage of your daily credit card receipts until it’s paid off, with terms as high as 18 months. Many retailers make most of their sales from debit and credit card receipts so it can be a good way to get financing that doesn’t burden you during slow periods before you ramp up for the 4th quarter.

Merchant Cash Advance Costs

A merchant cash advance will carry these costs:

• APR: 80 – 120%
• Factor Rate: 1.2 – 1.5
• Holdback Percentage: 8 – 30%
• Prepayment Penalty: None

Merchant Cash Advance Terms

A merchant cash advance will carry these terms:

• Loan Amount: Up to $500k
• Repayment Term: Up to 18 Months
• Repayment Cycle: Daily (between 8% – 30% of daily credit/debit sales)
• Time to Funding: 2 – 5 Days

Merchant Cash Advance Qualifications

To qualify for a merchant cash advance you must meet these minimum qualifications:

• Minimum Credit Score: 600 (check your credit score for free here)
• Minimum Time Accepting Credit Card Payments: 2+ Years
• Minimum Annual Credit Sales: $50k

You can learn more about the qualification requirements by reading our merchant cash advance guide.

What’s Missing With a Merchant Cash Advance for Retailers

A merchant cash advance can be a good option for retailers that process a lot of credit/debit card receipts every day, but they can be expensive for any retailer. You’ll also be required to make daily repayments, which can be a strain on your cash flow if your revenue dips for any reason. Luckily, repayments are based

Where to Find a Merchant Cash Advance for Retailers

A merchant cash advance is offered by specialized lenders. You can learn more about the best options by reading our article on the best merchant cash advance providers.

POS Financing for Retailers

Point of sale (POS) financing is similar to a merchant cash advance (MCA) in that it’s a lump sum payment based on the value of your credit and debit card sales. Unlike an MCA, POS financing is typically offered by online companies like Square or PayPal. However, repayments are still based on a percentage of your daily credit and debit card sales.

This type of retailer financing is best for those who use Square or PayPal to accept payments and need lump sum financing for their working capital needs. It’s a great option if you know how much you need but want the flexibility of variable repayment terms while you cycle from one season to the next.

POS Retailer Financing Costs

POS financing will carry these costs:

• APR: 30-35%
• One-Time Fee: 1.1 – 1.16
• Prepayment Penalty: None

Square’s only fee will be between $0.10 – $0.16 for every dollar you borrow. So you can expect to pay fees of $10k – $16k for every $100k you borrow.

POS Retailer Financing Terms

POS financing will carry these terms:

• Loan Amount: Up to $100k
• Repayment Term: Up to 18 Months
• Repayment Cycle: Daily
• Time to Funding: 1 – 3 Days

Remember that repayments are daily and based on your credit and debit card sales. The repayment percentage is typically between 8-15%, which can be significantly lower than a merchant cash advance.

POS Retailer Financing Qualifications

To qualify for POS financing you must meet these minimum qualifications:

• Minimum Credit Score: N/A
• Minimum Annual Credit Sales: $120k ($10k+ per month)

Your POS provider will typically qualify you based on the history of your sales through their platform. Often times, with companies like Square or PayPal, you’ll even be pre approved without having to apply yourself.

What’s Missing With POS Financing

POS financing is a good fit for retailers that process a lot of credit or debit card sales through a POS provider that offers financing. However, you can only borrow up to $100k and in order to qualify you must use a POS provider that offers these types of loans. POS financing also requires daily payments so it’s not a good fit if your cash flow is tight from day to day.

Where to Find POS Financing

POS financing is offered by POS providers like Square. You can learn more by reading our article about Square Capital loans. You can also check out our article on PayPal Working Capital if they’re your primary POS provider.

3 Ways To Improve Retail Funding Chances

When retailers are being evaluated for a potential loan, one of the most important things is how your future cash flow looks. Retailers have thin margins and the industry is very seasonal so a mistake or a dip in revenue can be disastrous for your ability to repay the loan. That’s why traditional lenders are so heavily focused on your cash flow during the application process.

For example, during the holiday season in 2017 retailers received $691.9 billion in revenue, which is over a 300% increase from the first quarter of the year. If your revenue falters during your busy season then you may not have enough capital to survive the rest of the year.

Nate Masterson, Finance Manager at retailer Maple Holistics, says:

“Cash flow is at the heart of retail. Managing cash flow competently is the primary job of a manager. Cash flow is important for mainly because liquidity of funds is equal to the possibility. If you have poor cash flow your possibilities for future success are in jeopardy, while if you have high cash flow you’re in a position to improve your business.”

You can’t change the industry you’re in so your cash flow will always be heavily scrutinized. However, there are some things you can do to improve your chances at being approved for the financing you need.

You can improve your chances at getting approved for a business loan by considering these 3 things:

1. Improve Your Inventory Turns

The faster you’re able to turn your inventory the more your revenue will grow and the less cash you have tied up into inventory sitting on the shelf. The faster your inventory turns are the better your chances will be at getting a traditional loan, like an SBA loan.

Retailer and speaker Andy Curry says:

“One of the big struggles retailers have is too much inventory that’s not turning fast or at all. One of the reasons it doesn’t turn fast is ineffective marketing and not knowing your inventory problems. To solve this requires knowing your Gross Margin Return On Inventory (GMROI) GMROI measures how much money each dollar of your inventory returns to you. If you have $1,000 inventory and your profit is $500, you have a 1.5 GMROI which is decent for some businesses, not so much for others.”

Keeping a close eye on your GMROI can help you better order inventory so that it turns effectively. Being able to show a potential lender that you have a good handle on your financials and your inventory will go a long way to increasing their confidence in your business and improve your chances at getting approved for a loan.

2. Choose the Right Time to Apply

The amount of annual business revenue your business generates is the second most important thing that will be considered during an alternative loan application process. To maximize your potential at getting approved you should be strategic about when you apply. You should wait and apply when your revenue has been up for 3-6 consecutive months.

As a retailer you can apply during or right after your busy season. While the lender will know you’re in the middle of your best financial quarter, they’ll expect to see strong revenues and it will help your overall approval chances.

3. Use Inventory as Collateral

Retailers might not have a lot of assets to use as collateral, like real estate. This can cut down the number of options you have when looking for financing. However, you can use your inventory for many business loans as collateral to reduce the amount of risk to your lender. The only downside is that your lender will require you to keep your inventory at a certain value at all times so that they can keep their collateral.

Your other option is to find a lender that doesn’t require collateral. Many alternative lenders will look more closely at your revenue and personal credit score to approve you for a loan than how much collateral you have.

According to Ty Kiisel, Editor at OnDeck,

“Unlike a traditional lender, OnDeck does not require specific collateral for a small business loan to purchase inventory or a retail business loan. Instead, we will apply a general lien on business assets until the loan is repaid. This allows otherwise healthy businesses that might not have assets a lender would consider for collateral to still qualify for a small business loan.”

Bottom Line

Retailers need capital to fund growth through marketing efforts or to purchase inventory to prepare for your busy season. Retail business loans can help your business get the capital needed to grow and maintain appropriate inventory levels to maximize your sales. The best loans will fund quickly and provide enough capital to buy enough inventory to fill up your store.

OnDeck offers loans up to $500k and you can typically qualify if you’ve been in business for at least 1 year, have a 500+ credit score, and have annual revenue of $100k or more. Pre qualify by filling out an online application that takes about 10 minutes and you could be funded in as quick as 1 day.

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