Retail moves fast, with new product trends, changing consumer demand and upfront costs to stock and ship goods. Retail businesses are highly dependent on the speed of turning over inventory and the variable profit margins made sale-by-sale, so cashflow management can be challenging. Retail small business loans provide the necessary flexibility and financial resilient to maintain efficient operations and manage fluctuations and uncertainty.
What is a retail business loan?
A retail business loan is a type of financing designed specifically to help retail businesses manage their financial needs. They can be secured – against, say, inventory or assets – or unsecured business loans.
They can cover any of the wide ranging – and changing – needs that confront retailers on a daily basis. From day-to-day expenses, the costs of managing seasonal fluctuations, funding inventory purchases or investing in business expansion, the right capital can keep your operations running smoothly even when the market changes.
For example, you might need additional funds to stock up on inventory ahead of the busy holiday season, invest in a new point-of-sale system, or renovate your storefront to attract more customers. Delaying these initiatives could leave you out of pocket – or with fewer sales – but with extra capital on hand, you can move faster and reap the rewards sooner.
How does a retail business loan work?
Business loans for retail function similarly to other business loans. You borrow a lump sum of money, which you then repay over a set period with interest.
The terms, interest rates, and repayment schedules can vary depending on the lender and the type of loan. For example, some loans might have fixed interest rates, while others could have variable rates that fluctuate with the market.
Let's say you own a boutique and want to expand your product line and apply for a short term business loan.
- You apply for a retail business loan and get approved for £50,000 with a 5-year repayment term at a fixed interest rate of 7%.
- You'll receive the funds upfront and start making monthly payments that include both principal and interest.
- A fixed repayment repayment schedule allows you to manage your cash flow effectively while investing in your business growth.
How to get a retail business loan
Securing a retail business loan varies depending on the supplier and their terms and process, but general considerations mean you’ll have to:
- Assess your needs: Determine how much funding you need and what you’ll use it for. Whether it's for inventory, technology upgrades, or expanding your physical space, having a clear purpose will help in choosing the right type of financing. For example, if you’re looking to purchase stock, inventory finance might be the best option – but if you’re looking to update your premises, a small business loan might provide more flexibility.
- Check your credit score: Lenders will often review your credit history, among other checks. A higher credit score often translates to better loan terms, but if you have a lower credit score you may still be able to get financing via offering security or a personal guarantee.
- Prepare your documents: Lenders will want to review your financial performance via evidence such as financial statements or tax returns. Some lenders, particularly high street lenders offering larger sums, may want to see a business plan.
- Submit your application: Once you’ve chosen a lender, fill out the application form and submit the required documents. Alternative lenders often offer a fully online process, with iwoca providing approvals in as little as 24 hours.
- Review offers: If approved, carefully review the loan offers. Pay attention to the interest rates, repayment terms, and any fees associated with the loan.
Who can apply for a retail business loan?
Retail business loans are typically available to businesses that meet the following criteria:
- Registered in the UK
- Operational for at least 6 months
- Generate a minimum monthly turnover (often around £5,000)
What are the rates, amounts, and durations for a retail business loan?
The terms of retail business loans can vary widely depending on the type of loan, the provider or the economic conditions at the point of lending:
- Loan amounts: From £1,000 to £500,000 or more, depending on your business needs and lender policies.
- Interest rates: These can be fixed or variable, with rates typically ranging from 3% to 20% APR.
- Loan durations: Terms can range from a few months to several years. Short-term loans might be easier to qualify for but often come with higher interest rates.
For instance, if you’re a seasonal retailer, you might opt for a short-term loan to stock up on inventory before the holiday rush, while a well-established store looking to open a new location might go for a long-term loan to spread the cost over several years.
Different retail loan options on the market
- Term Loans: Term loans are lump-sum loans repaid over a fixed period. Ideal for significant, one-time investments. This would suit something like expanding premises, offering the necessary funds upfront, which you can repay over a set period, from the proceeds of your investment.
- Lines of credit: A line of credit is a flexible borrowing option that allows you to draw funds as needed up to a certain limit. Useful for managing cash flow and having a cushion for unexpected expenses.
This can come in handy if you’re looking to manage seasonal fluctuations in inventory costs, drawing funds during peak seasons and repaying them when sales increase. - Merchant cash advances (MCA): A merchant cash advance, or MCA, is an advance on future credit card sales. Repayment is tied to your sales volume, as a percentage rather than a fixed amount.
- Inventory loans: Inventory finance is specifically designed for purchasing inventory. As such, they’re often secured by the inventory itself – either existing or the stock you wish to purchase.
Application and funding requirements
While requirements can vary, here are some common elements lenders look for:
- Creditworthiness: Both personal and business credit scores.
- Business plan: Detailed plan outlining how the loan will be used and how it will benefit the business.
- Financial statements: Up-to-date financial records including balance sheets, income statements, and cash flow statements.
- Collateral: Some loans may require collateral, though many retail business loans are unsecured.
For example, Jane, who owns a thriving gift shop, might prepare her financial statements and a detailed business plan showing how the loan will help her expand her product range and attract more customers.
Secure a retail loan quickly with iwoca
At iwoca, our flexi-loan is designed specifically around the needs of small businesses. That means no long applications, no collateral and no waiting around for decisions.
- Fast and Flexible: Get access to funds within 24 hours with flexible repayment terms.
- Customer-Centric: Personalised support and quick decision-making processes ensure you get the funding you need without the hassle.
- Transparent: Clear terms and no hidden fees, so you know exactly what you’re getting.
To find out more, check out our small business loan.
{{calculator-cta="/components"}}
