By | Jason Obrien
Retail companies need working capital to purchase inventory and keep their business going as they wait for peak season to roll in. Retailers need to buy materials or products in advance so they could have something to sell. However, retail companies rarely sell everything right away, which means they’ll need fast access to cash to ensure they can meet short-term expenses.
If you’re looking for additional funding for your retail company, here are four fast business loans every retailer should consider:
1. Inventory Financing
Inventory is the lifeblood of every retail business. It’s the reason why your business is thriving and why your customers buy from you. But even the most successful retailers may sometimes need extra funding to purchase additional inventory, make payroll, or pay for day-to-day expenses.
Inventory financing allows retailers to use unsold inventory as collateral to qualify for financing. The amount of money a lender extends to you depends on the value of the inventory. In most cases, retailers use the funds from an inventory loan to purchase more stock, but you can use it for other types of expenses.
Inventory financing is best used for businesses with large quantities of inventory, making it perfect for retail business owners.
2. Short-Term Loans
Natural disasters, inventory shortages, sudden sales downturn, and other emergencies can catch retail business owners off-guard. When unforeseen expenses arise, short-term loans can provide you with the funds you need to address immediate expenses.
Like the classic term loan most people are familiar with, a short-term loan provides you with a lump sum that needs to be repaid within a specified period. Instead of a repayment period of five years or more, you’ll need to repay a short-term loan within a year or less.
Small business owners with low credit scores, a few years in business, and low annual revenue can qualify for a short-term loan. But the most significant benefit of this type of financing is how quickly you receive the funds. Applying for a short-term business loan from alternative lenders only takes a few minutes of your time. Once approved, you’ll be able to receive the funds within 24 to 48 hours.
However, keep in mind that short-term loans can be more expensive compared to long-term loans. Lenders offset the risk they’re taking on by charging higher interest rates and fees. But when you’re in a financial bind and you need cash ASAP, a short-term loan may be your best bet. Be sure to pay your dues on time to keep the costs from piling up.
3. Invoice Financing
Retail companies that issue invoices are no strangers to slow-paying customers. Unfortunately, late payments can put a dent in your cash flow. Invoice financing provides retailers a way to leverage these invoices and turn them into instant cash.
This financing solution allows you to sell unpaid invoices in exchange for immediate funding. Lenders advance you 80% to 90% of the total value of your invoices upfront and you’ll receive the rest of the balance once your customers pay their dues directly to the lender, minus a small transaction fee.
You can use them for almost any business purpose, such as improving cash flow, paying for day-to-day expenses, reinvesting in growth operations, and more. Small businesses can easily qualify because you don’t need to pledge any of your assets as the invoices serve as collateral for the loan. Additionally, lenders aren’t interested in your credit rating as they’re more interested in your customers’ creditworthiness. After all, they’re the ones paying the invoices.
4. Merchant Cash Advance
For retailers that process a significant number of credit card sales, you might want to consider applying for a merchant cash advance. A merchant cash advance (MCA) is technically not a loan but rather a cash advance against your future card transactions. It allows you to leverage future sales to secure working capital for immediate expenses.
Lenders will give you a lump sum payment upfront (an advance), and you’ll repay the funds by automatically taking a percentage of your future sales. When your customers make a credit/debit card purchase, a portion of that payment will automatically go to your lender until the entire advance is paid.
The percentage you’ll need to pay per transaction depends on the health of your business and sales history. The higher the monthly sales via credit/debit cards, the better rates you’ll receive. The more sales your retail business makes, the fast you’ll pay off your advance.
Like invoice financing, it’s easy to qualify for an MCA because credit history, number of years in business, and assets don’t matter as much as your credit card sales.
Applying for a fast business loan can be overwhelming for retailers. Fortunately, there are plenty of loans available for retail companies. Evaluate your business, do your research, and find a lender you’re comfortable working with before applying for a loan.