Maximising the value of financing for retail businesses

Retailers, like many other small business owners, often use borrowed capital to grow their business. Whether you’re purchasing inventory or expanding your store, a short term loan could be well suited to cover your business needs.

Here are some ways to make the most out of your financing options:

Understand your Business Credit Profile 

Are you familiar with your business credit score and profile? Having a strong business credit profile could increase your chances of approval for a business loan. Even if your credit profile is less-than-perfect, there are steps you can take to improve it. Any avid reader of OnDeck’s blog will by now know the importance of understanding your business credit score and profile. Becoming familiar with your credit position is a great first step when looking into your business financing options.

Have you identified your Loan Purpose?

Once you know where you stand from a credit perspective, you should ask yourself “Why am I looking for a loan? What do I need the funding for?” This is an important question as not all financing options are suited to every business need. Therefore, recognising your loan purpose can help you determine which option suits your business the best. 

Some loan purposes may include:

  Purchasing inventory

This is one of the most common uses for a short term business loan. While each business might turnover their inventory at a different pace, as a retailer, you’re likely to sell your inventory within a month or two. Now, think about the logistics if you were to take out a long term loan to cover the cost of purchasing this inventory. With a long term loan, you’ll be making  repayments over the course of several years. You would still be paying off the loan long after the inventory has been sold. So, for purchasing inventory, a long term loan might not be the most effective financing option. By matching the life of the inventory to the term of the loan, you can see that short term loan is likely a better option.

 Buying fixtures and equipment

Fixtures or equipment can include purchases such as coffee machines, a new pizza oven or even tables and chairs for your cafe or restaurant. If you’re a retail merchant, this could mean display cases or clothing racks. As these are often longer term investments for your store, it’s a good idea to consider both your long and short term financing options. 

 A marketing initiative

Launching a new marketing campaign is a great way to increase awareness of your business. The more people that know about your business, the more likely you are to see an increase in customers, sales and revenue. Depending on the expected expenses and return, and the nature of the campaign, a short term loan could be an appropriate way to fund this initiative. 

 Expansion project

As a retailer, you might contemplate expanding your premises as your business grows. Whether it’s a new location entirely, a partial renovation or expansion, a short term loan could provide you with the funds you need. 

 Cash flow

Many businesses, seasonal or not, experience waves in demand throughout the year. This is especially true for many retailers. A beach side cafe is likely to experience a spike in customers during summer. Alternatively, a shop that sells ski gear might be quieter during this period. To combat this, small business owners often use external capital to cover their cash flow needs during slower periods. However, if you do take out a loan to bridge cash flow, don’t forget that you still need to cover your periodic repayments over the full life of the loan. 

How much do you really need?

A wise borrower’s requested loan amount matches their loan purpose. When you borrow more than you really need, there are increased associated expenses. Knowing how much you need can put you in a stronger position when discussing your options with a lender. Some lenders may try and up sell you, so it’s beneficial to keep your pre-determined loan amount in mind.

Determine a contingency plan

Retail business owners often borrow money with the aim of increasing revenues. However, whether its a expansion project or marketing campaign, sometimes things don’t work out as planned. If you face unexpected costs that stand in your way, it’s important you have an alternative way to cover your periodic repayments to your lender. Having a back-up plan will also give you peace of mind, and can help you keep your business afloat.