Retail Business Loans: Costs, Terms & Where to Find

Retailers get financing to grow their business or to purchase inventory and ramp up for busy times of the year. 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 SBA retail funding to buy real estate and expand.

OnDeck, which sponsored this article, offers a short-term working capital loan up to $500,000. You may qualify if you have a 600 or higher credit score, have been in business for one year or more, and have at least $100,000 in annual business revenue. OnDeck can fund your loan in as quick as one day. Prequalify in minutes by filling out an online application.

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Best Working Capital Retail Business Loans

Retailers often need to quickly fund new inventory purchases, marketing efforts, or unexpected expenses. But it’s not always clear which financing option is best for the situation. In our free webinar, we review all your business loan for retail store options and discuss costs, qualifications, and how to choose the right loan.

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How We Determined the Best Retail Business Loans

Retailers typically have thin margins and seasonal revenues. 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 you can get.

When deciding on the best retail business loans, we considered:

• Speed of funding: How quickly your business can receive the funds, ranging from a few days to as long as several months.
• Loan amounts: The amount of funding your business can qualify for, from a few thousand dollars to several million.
• Minimum qualification requirements: What lenders consider when approving your business for funding. This includes annual revenue, time in business, and credit score.
• Repayment terms: How long you have to repay the loan and how frequently your business needs to make payments.
• Costs: The total cost of financing, including any application or origination fees and the interest charged on the loan.
• Collateral needed: Whether you need to provide collateral, like real estate or equipment to receive funding for your business.

Retailers are a unique business for 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 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 fast 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 $500,000 and offer the right repayment terms for a retailer to grow their business. The online application process takes a few minutes, and funding is available as soon as the next day.

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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 retail business loans can be for amounts up to $500,000 with one- to three-year terms but carry an expensive average APR of 30% to 50%.

Who Short-term Retail Business Loans Are Best For

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 predict how much inventory you must prepare for the fourth quarter demand. A short-term loan is a good lump sum amount you can use to prep for that busy time.

Short-Term Retail Business Loan Costs

The costs of a short-term retail business loan are:

• Average expected APR: 30% to 50%; can be as low as 9.99% for prime borrowers
• Prepayment penalty: None
• Origination fee: 0% to 5%

Short-term retail business loans have costs that start as low as 9.99% for borrowers that have credit scores of at least 700 and increasing annual revenue. You’ll also typically pay an origination fee, which your lender deducts from the loan before you receive it. This means that if you qualify for $100,000 in funding, with a 1% origination fee, your business will receive $99,000.

Short-term Retail Business Loan Terms

A short-term retail business loan carries these general terms:

• Loan amount: Up to $500,000
• Repayment term: Three to 36 months
• Repayment cycle: Weekly
• Time to funding: One to three days

Most retail businesses will need less than $500,000 for investment in their business to purchase inventory, add staff, or renovate their locations. Retailers employ more than 29 million people across 3.8 million establishments, and nearly half of small business owners estimate at least 30% of expenses are payroll related. The weekly payment requirement on these loans are more frequent than SBA loans but help small businesses better manage their cash flow.

Short-term Retail Business Loan Qualifications

The qualification requirements for short-term retail business loans include:

• Personal credit score: At least 600 (check your score for free)
• Time in business: At least one year
• Annual business revenue: At least $100,000

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 lend, 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. 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 Business Loan for Retail Store

Alternative lenders like OnDeck offer short-term retail business loans up to $500,000. You can prequalify by filling out an online application that takes about 10 minutes. If approved, OnDeck can fund your loan in as little as one day.

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Business Line of Credit for Retail Funding

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

Who Business Lines of Credit Are Best For

A business line of credit is great for retailers needing 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 employees than you expected once your busy season begins.

Business Line of Credit Costs

A business line of credit will carry these costs:

• Expected average APR: 20% to 40%; can be as low as 13.99% for prime borrowers
• Prepayment penalty: None

A business line of credit has higher starting rates than a short-term business loan for a retail store, of 13.99%. However, you only pay interest on the funds you borrow, bringing the expected average interest cost to 20% to 40%. This makes it a great option for retail funding, especially if you often have unexpected short-term expenses.

Business Line of Credit Terms

A business line of credit will carry these terms:

• Loan amount: Up to $100,000
• Repayment term: Up to 12 months
• Repayment cycle: Weekly or monthly
• Time to funding: One to three days

A business line of credit offers retail funding up to $100,000, which is less than you can expect with a short-term loan. However, the line of credit is revolving, which means that, once you repay the balance, you can borrow funds again without reapplying. You can also expect shorter repayment terms, but the time to get funded for your business is still only one to three days.

Small Business Line of Credit Qualifications

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

• Personal credit score: At least 600 (check your score for free)
• Time in business: At least one year
• Annual business revenue: At least $100,000

Business line of credit qualifications are the same as a term loan. Your business will need to be generating at least $100,000 in annual revenue to qualify with at least one year of business history. This factor will play the largest role in determining the line of credit limit you qualify for, with businesses that have upward trending revenues able to qualify for more funding.

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 want to prepare for unexpected expenses. However, you can only typically borrow up to about $100,000 at one time, so it’s not a good fit for large purchases like equipment or real estate. To get retail funding for equipment, your business can take advantage of the lowest rates with equipment financing.

Where to Find a Small Business Line of Credit for Retailers

A business LOC can be found at alternative lenders like OnDeck. It offers an LOC up to $100,000 if you have a 600 or higher personal credit score, have been in business for at least one year, and have $100,000 or more in annual business revenue. You can prequalify by applying online in about 10 minutes, and you could be funded in as quick as one 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 retail business loans, which helps lenders offer low interest rates and makes it easier for you to qualify for than other large loans.

Who Equipment Financing Is Best For

The retailers that will find this loan most beneficial are 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 retailer needing 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% to 9%
• Fees: Varies by lender, but there is typically an origination fee

Equipment financing offers some of the lowest interest rates we evaluated for retail funding. This is because the equipment purchased acts as collateral for the loan, reducing the risk for the lender. A business will still need to meet certain requirements to qualify and can only use the loan proceeds to purchase the equipment.

Equipment Financing Terms

Equipment loans typically carry these general terms:

• Financing amount: $10,000 to $500,000; up to 95% of equipment costs
• Repayment term: Two to seven years, based on the expected useful life of the equipment
• Payment frequency: Monthly
• Funding speed: Two to five business days

Equipment financing will typically fund up to 95% of the value of your equipment you’re purchasing, which means you must come up with the remaining as a down payment. For example, if you buy a series of display cases or end caps for $100,000, then you must come up with at least $5,000 yourself to close the deal.

Equipment Financing Qualifications

To get equipment financing, you must meet these minimum qualifications:

• Credit score: At least 600 (check your score for free)
• Collateral: Equipment being financed
• Down payment: At least 5%
• Other requirements: No bankruptcies, foreclosures, or repossessions on your credit report

To qualify for equipment financing, you will need to have a personal credit score of at least 600, similar to a short-term loan and line of credit. You also must pledge the equipment as collateral for the loan and provide a down payment. The down payment amount depends on the equipment your business is financing and your personal and business qualifications.

What’s Missing With Equipment Financing for Retailers

Equipment financing is a great fit for retailers looking only to 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 that you’re buying or if the equipment won’t last at least two years. If equipment is not the only thing you need funding for, consider getting a short-term loan instead.

Where to Find Equipment Financing

Traditional lenders offer equipment financing for retail businesses. These equipment loans can take a few weeks to qualify for and require extensive paperwork. Retail business owners should work with the bank that handles their business accounts and other financing, to reduce the time to get funded.

Business Credit Cards for Retailers

Business credit cards are small credit lines you can use repeatedly while earning rewards. You can get approved for as much as $100,000, but most retailers generally are approved for no more than around $30,000. Some cards offer 0% interest on all purchases for the first seven to 18 months, which can help you make a critical purchase.

Who Business Credit Cards Are Best For

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 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 by using your card to pay for routine monthly expenses you’d be paying for anyway.

Business Credit Card Costs

Business credit cards typically carry these costs:

• Interest rate: 15% to 29%; some have 0% introductory offers
• Annual fee: Up to $350

Business credit cards offer retail funding with perks. Many businesses can qualify for 0% introductory offers and earn rewards for day-to-day purchases like inventory and supplies. Although many business credit cards don’t have an annual fee, you could be responsible for up to $350 even if you don’t use it often.

Business Credit Card Terms

A business credit card will generally carry these terms:

• Loan amounts: Up to $100,000 but typically less than $30,000 for most businesses
• Repayment terms: 30 days interest-free
• Time to funding: Instantly to two weeks―the time to receive your card
• Initial rewards: Introductory APR of 0% for seven to 18 months, and a cash bonus or points bonus if you spend a certain amount within the first two to six months
• Ongoing rewards: Cashback or rewards points

Retailers will probably want to find cards that provide cash back rewards because of the thin margins. However, retailers with several locations can get fuel or office expense related rewards. Funding amounts are also typically less than $30,000 making this a great funding option for smaller expenses rather than large ongoing projects.

Business Credit Card Qualifications

To qualify for a business credit card, you must have a credit score of at least 680 for best offers (check your score for free).

Lenders also consider your annual revenue during the application process, but typically there isn’t any requirement you must meet to get approved. Your annual revenue will have a direct impact on the amount of funding your business receives. You’ll also want to have a credit score of at least 680 to qualify for the best offers and rewards.

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 repeatedly 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 $30,000, then apply for a small business line of credit instead.

Where to Find Business Credit Cards

The best small business credit cards offer retail funding with additional rewards like points, miles, or cash back on purchases. There are also startup business credit cards, which can be especially well suited for your retail business if you’re new and not generating much revenue.

SBA Loans for Retailers

An SBA loan is guaranteed by the SBA, and it carries long repayment terms with some of the lowest rates available to retailers. SBA business loans for retail stores 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.

Who SBA Loans Are Best For

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 retail business looking to rent out as much as 49% of its commercial space.

SBA Loan Costs

SBA loan rates and costs include:

• Interest rate: 8% to 11%
• Prepayment penalty: None
• Origination fee: 0.5% to 3.5%
• Loan packaging fee: $2,000 to $4,000
• SBA guarantee fee: 2% to 3.5%

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. The rates are set by the SBA and linked to the prime rate, so the rate varies from week to week, but once your loan is approved, the rate is locked in.

SBA Loan Terms

SBA loans will generally carry these terms:

• Loan amount: Up to $5 million
• Repayment terms: Up to 10 years (25 years for real estate)
• Repayment cycle: Monthly
• Time to funding: At least 30 to 90 days

SBA loans take a long time to get funded. You generally must complete a lot of paperwork and make several trips to the bank or take many phone calls from your lender. However, it can be worth the wait if you need retail funding to purchase a new location, acquire a competitor, or finance a major investment because of its long repayment terms.

SBA Loan Qualifications

To qualify for an SBA loan, you must meet these minimum qualifications:

• Minimum credit score: 680 (check your score for free)
• Collateral: Typically required
• Down payment: At least 10% to 20%
• Time in business: Any, from startups to mature businesses

The SBA requires that lenders maintain their standard qualifications besides the lender’s underwriting requirements, so it’s difficult to qualify for these retail business loans. You’ll also typically need to demonstrate that you have 10% to 20% of the loan value invested in the business already to qualify. One standout feature of SBA loans is the opportunity to receive startup retail funding, as long as you have significant experience in the industry.

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. However, for quick working capital, a short-term loan is a better option.

Where to Find SBA Loans for Retailers

Traditional lenders offer SBA loans for retail funding and rarely have an online application available. You must make several trips to the bank to complete the application and submit all the required paperwork. The underwriting team will then look at your SBA loan application and submit it for approval by the SBA. Overall the process typically takes 30 to 90 days or longer.

Merchant Cash Advance for Retailers

A merchant cash advance (MCA) is an advance that a lender provides against your debit card 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.

Who a Merchant Cash Advance Is Best For

MCAs can be a good fit for retailers needing 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 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.

Merchant Cash Advance Costs

A merchant cash advance will carry these costs:

• Expected average APR: 50% to 120%
• Factor rate: 1.1 to 1.5 times the loan amount
• Holdback percentage: 8% to 30%
• Prepayment penalty: None

A merchant cash advance is the most expensive retail funding option we evaluated. Typical APR ranges from 50% to 120%, and payments are usually made daily through automatic holdbacks from your credit card settlements. Your business has no control over how much is paid, and it’s important to remember that deductions are made before taxes, tips, and other payments are taken out.

Merchant Cash Advance Terms

A merchant cash advance will carry these terms:

• Loan amount: Up to $500,000
• Repayment term: Up to 18 months
• Repayment cycle: Daily, between 8% and 30% of daily credit and debit sales
• Time to funding: Two to five days

A merchant cash advance offers up to $500,000 in funding, like a short-term retail business loan. Although you can get up to 18 months to repay the loan, since the payments are made daily and are based on credit card revenue for the day, loans are typically repaid much sooner. Funding takes up to five days to receive and requires lenders to connect with your credit card processing provider.

Merchant Cash Advance Qualifications

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

• Personal credit score: No minimum requirement to at least 500 (check your score for free)
• Credit card receivables history: At least two years
• Annual credit card sales: At least $50,000

The biggest draw of a merchant cash advance is its low personal credit score requirement. Some lenders don’t have a stated minimum, while others will accept credit scores as low as 500. You typically must have at least two years of history accepting credit cards, to assist the lender in understanding the seasonality of your business and at least $50,000 in annual credit card sales to qualify.

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 card and debit card transactions 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. If your business can qualify for an alternative like a POS financing, we recommend trying that before getting a merchant cash advance.

Where to Find a Merchant Cash Advance for Retailers

A merchant cash advance is offered by specialized lenders. Most merchant cash advance providers can work with multiple credit card processing companies. However, check if your payment processing service also offers financing. Although it will typically be more expensive than a short-term loan, it will almost always save you money compared to a merchant cash advance.

POS Financing for Retailers

POS financing is like an 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.

Who POS Financing Is Best For

This type of retail funding 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:

• Expected average APR: 30% to 60%
• Factor rate: 1.1 to 1.5 times the loan amount
• Prepayment penalty: None

Square’s only fee will be between 10 cents and 15 cents for every dollar you borrow. So, you can expect to pay fees of $10,000 to $15,000 for every $100,0000 you borrow. Although there is no prepayment penalty, your business must repay the full amount even if it is paid early.

POS Retailer Financing Terms

POS financing will carry these terms:

• Loan amount: Up to $250,000
• Repayment term: Up to 18 months
• Repayment cycle: Daily
• Time to funding: One to three days

Remember that repayments are daily and based on your credit and debit card sales. The repayment percentage is typically between 8% and 15%, which can be significantly lower than a merchant cash advance. This leaves your business with more cash flow to reinvest, buy inventory, and pay staff.

POS Retailer Financing Qualifications

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

• Personal credit score: No minimum requirement
• Annual POS sales: At least $10,000 per month

Your POS provider will typically qualify you based on the history of your sales through its platform. Often, with companies like Square or PayPal, you’ll even be preapproved without having to apply yourself. This is true for both the first loan and subsequent retail business loans, with subsequent loans being offered around the point you repay 50% of the first loan.

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 $100,000. To qualify, you must use a POS provider that offers these types of retail business loans. POS financing also requires daily payments and, if your business needs less frequent payments, a short-term business loan for a retail store may be a better option.

Where to Find POS Financing

POS financing is offered by POS providers like Square and PayPal. Square Capital loans are offered directly to borrowers through the dashboard and don’t require an application. PayPal Working Capital loans require an application, and the funding amount is restricted by the value of the sales processed through PayPal.

4 Tips 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 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.

1. Make Sure Your Revenue Is on the Rise

During the holiday season in 2018 retailers received $505.8 billion in revenue, with the industry growth of 2.1% per year over the last five years. If your revenue falters during your busy season, then you may not have enough capital to survive the rest of the year.

Ken Stalcup, a certified public accountant (CPA) and accredited business valuation specialist certified by the American Institute of Certified Public Accountants (AICPA):

“Cash flow is critical to every small business, including retail. From the outside, looking in, a business will largely be judged by its cash flows. Cash flows from operations drive net earnings and the trend in cash flows indicates whether the organization is growing or in decline. Increases in cash flows from operations add value to the organization, and that increases its buying and borrowing powers.”

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 of being approved for the financing you need.

2. 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, 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 in 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 order inventory better 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 increase its confidence in your business and improve your chances at getting approved for a loan.

3. 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 three to six 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, it will expect to see strong revenues, and it can help your overall approval chances.

4. 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 retail 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 for 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 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 $500,000, and you can typically qualify if you’ve been in business for at least one year, have a 600 or higher credit score, and have annual revenue of $100,000 or more. Prequalify by filling out an online application that takes about 10 minutes, and you could be funded in as quick as one day.

Visit OnDeck