Retail Financing: Getting the Funding You Need for Your Store

Whether you’re thinking of starting your own retail business or currently own a retail store, you will need retail financing to get, and keep, your business up and running. Getting the funding you need for your store comes down to educating yourself on what you’ll need to run a successful business and the types of funding available to finance those needs. The three major funding sources are traditional bank financing, non-bank financing and asset-based financing.

Traditional Bank Financing

Traditional bank financing is the most familiar source retail funding. Bank loans generally require that the borrower have strong credit, a solid business plan, a current profit and loss statement and some form of collateral to secure the loan. Small business owners often find that they don’t qualify for traditional bank funding because of lower sales volumes and less cash reserves than larger businesses. However, of all the funding options available, traditional bank financing offers the lowest interest rates.

Non-Bank Financing

Non-bank, or alternative, retail financing is a more likely source for getting the funding you need for your store, although higher interest rates may apply. Non-bank financial institutions include credit unions, Community Development Financial Institutions (CDFI), and micro lenders. Credit Unions benefit from a non-profit tax status which allows them to offer lower loan rates. CDFI offer business financing to economically disadvantaged and under-serviced communities. Micro lenders provide small, short-term business loans that are generally spread out over a five year period.

Asset-Based Financing

This lending category encompasses a number of options for getting the funding you need for your store, including financing accounts receivables, business cash advances, revenue based financing, and purchase order financing. With financing accounts receivable, your business puts forth outstanding invoices as collateral and uses the payment of those invoices to repay the loan balance. Business cash advances involve using future credit card sales in exchange for instant cash to be used as working capital. Like cash advances, revenue based financing provides up front funding in exchange for a percentage of the businesses monthly revenue, and purchase order financing involves the use of inventory as collateral to pay for the inventory purchase.

While all of this may seem confusing, it really isn’t. Small business owners can take advantage of modern online quote and comparison services to reach a large pool of potential lenders. The ability to apply for multiple types of funding through a variety of financial institutions with a single application makes the process much easier.

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