Why retail business owners take out business loans
If you own or manage a retail business there’s a good chance one of your biggest challenges is managing steady cash flow despite fluctuating income.
Many retail businesses are highly seasonal, but the expenses – tax instalments, rent on your store or outlet, franchise fees, insurance premiums – fall due on a regular schedule.
Cash flow difficulties are the number one reason small business in Australia go bust. It doesn’t matter how high your sales are if you don’t have the cash in the bank to cover your expenses – and to invest in the inventory you need to keep your store stocked.
A business loan could help boost your working capital and keep your business solvent when sales volumes are down. It could also give you the funds you need to take advantage of business opportunities such as:
- Bulk discounts or special offers on stock
- Close-outs or bankruptcies where you could acquire stock or display equipment at bargain prices
- The chance to secure new premises in a prime location
- The chance to expand by acquiring a competing retail business, supplier or customer
A business loan could also help you to build your brand and market your business locally and via social media, so you can keep customers coming through the door despite increasing competition from global online retailers.
What are the requirements for getting a business loan?
Getting a business loan can be easier than you think.
While you can still expect to be knocked back by the big banks unless you have a solid trading history, a top-rate credit rating and collateral to offer, there are plenty of alternative lenders out there willing to offer business loans to retail outlets.
Each lender will have their own criteria when it comes to things like credit rating, how long you’ve been in business, and how high your turnover is.
If you’re higher risk (e.g. if your credit score is low) you may still be able to get a business loan, although you can expect to pay a higher rate of interest to compensate for that risk.
The most important factor ALL lenders will look at is your capacity.
Lenders need to know that you will have enough cash – after all your expenses – to cover your loan repayments.
How to apply for a business loan
If you are applying to an alternative lender for a business loan, the process is usually quick and easy:
1Create a business case to check how much you can afford to borrow.
2Prepare your supporting documents – expect to be asked for:
3Choose your lender and loan product – be sure to shop around, because costs, terms and conditions vary. Be sure to find out about hidden fees and compare all the costs of each product, not just the interest or factor rate.
4Complete a simple online application form and upload your supporting documents. Most lenders will respond within days or even hours. Some will even give an on-the-spot decision.
Grow your retail businessSee if you qualify
What options are available to retail stores?
There are several types of small business loans you could consider, to support or grow your retail business.
Unsecured small business loan
A short-term option, unsecured business loans are usually for between 3 months and 2 years.
You can use the funds for any purpose, such as a new fit out. Many lenders will let you set a repayment schedule to suit your trading patterns.
There are several types of business car finance you can use to buy your work vehicles, including car loans, hire purchasing and leasing.
While your work vehicles are under finance you will not be able to sell or upgrade them.
Business line of credit
A business line of credit is similar to an overdraft facility, giving you access to cash up to an agreed limit, often with the right to draw, repay and redraw funds as you need them.
You only pay interest on what you borrow, but there are often set up and admin fees.
Business credit card
Business credit cards are great for covering day-to-day expenses and making purchases, but unless you clear the balance each month the cost can be extremely high.
Before entering in to any business loan agreement, be sure to seek professional advice. It’s also important to ensure you understand all of the costs (including all fees). You can get a head start by using our business loan calculator.