Retailers of all sizes are increasingly using multichannel strategies to expand their sales base. But growing a multichannel retail business is easier when you have capital on hand to fund your needs. This could be where a business loan can help with making progress toward your growth goals.
Small business financing falls into one of two very broad categories: equity or debt financing. Equity financing involves getting funding from investors in exchange for an ownership share in your business. Debt financing involves borrowing money from a bank and repaying it over time out of your business’ cash flow.
Of the two, debt financing is more attractive if you don’t want to sacrifice any equity in your business, and maintain complete ownership in your labor of love. Business loan limits can be quite generous, with some offering amounts of up to $5 million. Repayment terms can last from a few months to 25 years, with fixed or variable interest rates.
How can you use a Business Loan?
Business loans are extremely versatile and they can offer a plethora of possibilities to you. For example, you might use a business loan to:
- Move or improve your space. A loan can provide financing to open a second retail location, purchase a warehouse for storage, create a pop-up shop, set up new office space or renovate your current location to give it a fresh feel.
- Purchase inventory or equipment. A business loan can make it easier to purchase inventory to stock your shelves. Alternatively, you could use a business loan to develop new products for your own line.
- Expand your team. If business is booming, you may need to add to your staff to keep up with the pace of demand. A business loan could help with the costs of hiring and training new team members.
- Cover operational costs. When you need working capital, a business loan can be used to pay for things like advertising, a redesign of your ecommerce website, expansion into wholesale operations, the development of a new sales channel, an investment in multichannel retail management software like Brightpearl, or simply to stock on up extra inventory ahead of your busy season. It can also be a solution to meet your cash flow finance needs, and alleviate pressure if you find yourself short on funds.
The flexibility that business loans offer, paired with higher borrowing limits and the opportunity to extend repayment over the long term, make them well suited to meeting virtually any need your business might have.
Business Loans: What are your options?
Business loans aren’t all alike and it’s important to understand how different financing avenues compare. With that in mind, here are some options to consider.
1. Term Loans
- Loan amount – $10,000 to $1 million
- Loan term – 1 to 10 years
- Interest rate – 6% to 30%
- Funding speed – As little as 2 business days
Best for: Established businesses that need funding for short- or long-term growth.
As the name implies, a term loan allows you to borrow and repay your loan over a set term. Borrowing limits can be generous and the interest rates are competitive for borrowers with good credit. Online lenders offer quick funding and depending on the lender and the loan amount, collateral may or may not be required. One thing term loan lenders will look for, however, is a longer operating history and established revenues so this one might not work for newer businesses.
2. Small Business Administration Loans
- Loan amount – $5,000 to $5,000,000
- Loan term – 5 to 25 years
- Interest rate – 6% to 13%
- Funding speed – 1 to 6 months
Best for: Both startups and established businesses who may need longer loan terms or the lowest interest rates.
The Small Business Administration is another source that multichannel retailers can look to for business loans. The SBA offers several loan programs that are designed to meet different needs, based on how long you’ve been in business for and how much you need to borrow. SBA loans typically offer the best interest rates, but there’s one caveat: of the various business loan options available, this one may have you waiting longer to receive funding.
3. Accounts Receivable Financing
- Loan amount – Up to 90% of outstanding invoices
- Loan term – Typically 30 days to 90 days
- Factor fee – 1% to 5% processing fee, plus a percentage of outstanding invoices
- Funding speed – 24 hours to 2 weeks
Best for: Business owners that need short-term funding and have accounts receivable.
Accounts receivable financing uses the value of your outstanding invoices as collateral. This kind of loan is often used to cover short-term needs. Funding speed may be quick, depending on the lender but one thing to watch out for is the cost. In some instances, accounts receivable financing may prove more expensive than term or SBA loans.
4. Equipment and Construction Loans
- Loan amount – $5,000 to $1,500,000
- Loan term – 6 months to 10 years
- Interest rate – 7% to 30%
- Funding speed – 4 to 10 days
Best for: Established businesses that need to purchase equipment or renovate their retail store premises.
An equipment or construction loan might make sense if you’re planning to buy expensive equipment for your business, or tackle a major construction project. You can typically use the equipment or property as collateral and longer loan terms may be an option if you need to borrow a larger amount. Bear in mind, however, that you’ll need to have an established business to qualify.
Advice for researching Business Loans
Business loans can be helpful to your multichannel retail operation in more ways than one and it’s important to choose the right financing option.
If you’re thinking of using a loan to expand your team or to open an additional location, it’s important to assess the value a growth opportunity adds to your business. If it would help to drive up sales, would the boost be big enough to justify the cost of borrowing?
Finally, the easiest way to answer this is to think about the ROI for the cost of capital. Comparing lenders, loan products and the costs of borrowing can help you pinpoint the loan that’s going to be most effective for growing your business, without being too taxing on your bottom line.