Borrowed capital is the lifeblood for most small retail businesses and merchants. Without it, buying the inventory you need, expanding when the time is right, or just surviving through a short-term cash flow gap would be impossible.
But finding the right solution can be a challenge. Everything—from a reluctance of major banks to loan funds to new businesses to lenders who don’t want to be involved with industries they consider risky, such as retailers—means owners will have to work hard to find the best option.
See Your Business As Others View It
As with any small business owner, your personal credit score will play a key role when you seek a loan. Financial institutions have different requirements for minimum scores so you will have more choices if you have a high credit score. But many lenders, such as BFS Capital, are willing to work with people with lower credit scores.
You should evaluate your business’ current financial situation and know if it generates enough cash flow to repay a loan. If not, consider the risks both to your business and potentially to your personal circumstances if you default on the loan.
What’s the Money For?
You’re in a far better position if you identify a specific purpose for your loan rather than just getting money for a general need. The reason is certain types of loans are tailored for different purposes and time frames. Additionally, it helps determine how much you actually need. You don’t want to borrow significantly more than you need because your business could be hurt if your working capital is tied up in repaying an unnecessary amount.
Short or Long Term
If you want to stock up on holiday inventory and have a business line of credit, this is the time to tap into it because it is a temporary capital need. However, if you don’t have a credit line, it may be worth exploring a short-term loan as you want to free up your cash quickly to build your business.
For retailers and other merchants, there may be slow periods throughout the year. If your business has trouble getting through these times, you may want to consider a merchant cash advance, where the lender collects a set percentage of the company's daily credit card sales as repayment. These advances don’t have fixed interest rates, but they can be quite expensive. If your options are limited, this might be the best way to survive the slow sale seasons.
Retailers and merchants who are seeking funds for major capital improvement, such as opening a new location or purchasing new Point of Sale (POS) software and hardware would likely be better off with an intermediate or long-term business loan. The benefits from these investments generally last for at least several years, and given the expense, a short-term loan may prove to be a hardship to repay.
While banks may be the most obvious solution, many of these institutions have difficult requirements few small business owners can meet, which explains the 20% approval rate for small business loans.
Other options for owners to obtain intermediate and long-term loans include traditional banks and institutions affiliated with the Small Business Administration (SBA), as well as financing from alternative lenders, such as BFS Capital, that specialize in small business loans.