Alternative Financing Options for Retail Business Owners

By Alisa M. Smith and Ashlee S. for Excel Capital Management. 

There comes a time when all business owners need access to working capital. For retail business owners, the cost of inventory, employee training, payroll, and slow periods can trump the cash flow coming in, and many find themselves weighed down by bills and overhead costs. Since the great recession of 2008, a traditional bank loan is no longer the go-to solution when it comes to acquiring capital. That old-school way of doing things sometimes ends in heartbreak due to waiting weeks just to receive an answer. That’s where the alternative financing industry comes into play!

Working capital is essential when it comes to growing a company of any kind, especially in the retail industry. Due to the cost of buying merchandise or services from a wholesaler or manufacturer, retail business owners should expect to reach out for capital at some point in their business’s lifetime. A huge draw for obtaining working capital is that retailers typically have to purchase a large amount of inventory in advance. Since retail stores usually don’t sell all of their inventory immediately, they can’t rely on the sale of those items as income and must keep higher amounts of working capital to cover expenses that may arise. Having working capital available becomes even more important during the holiday sale seasons. It’s vital that retailers are prepared for the increase in shoppers by putting up a considerable amount of capital  for profits that won’t be seen for months.

When it comes to applying for financing through a traditional bank to obtain working capital, many business owners find themselves in a disheartening situation. Big banks require business owners to fill out lengthy applications, provide numerous documents, and can take weeks to present an approval, or in most cases, a decline. Once business owners do get through the tedious application process, receiving an approval is quite difficult due to the strict rules and guidelines traditional banks impose. The three top reasons business owners will receive a decline are negative financials, poor or no credit, and no collateral. Traditional banks must see proof of the ability to pay back on a loan, as well as some sort of guarantee. If your business is currently experiencing a low or negative cash flow period and/or you have less than perfect credit and no collateral to put against the loan, you can almost always expect a decline. Despite the fact that all businesses run into some problems over time, in the eyes of traditional lenders, having one of these factors against you is worrisome, let alone all three.

Unlike big banks, alternative lenders typically only require you to submit a one-page application and 4 months of recent bank and credit card statements in order to get an offer and approval in a matter of days! The following are financing options available to retailers:

Merchant Cash Advance: Short-term financing transactions that are collected through a set percentage of your business’ credit card sales. These do not have a set repayment schedule and are based on the volume of your businesses credit card processing sales. They are usually only guaranteed by the future sales of your business.

ACH Advance: A form of a merchant cash advance that is repaid on a daily basis by direct ACH debits rather than a merchant account. These are still a purchase of receivables and the amount debited via ach are determined by the amount of credit card processing sales  that are batched out the previous day.

SBA Loan: The US Small Business Administration 504 Loan or Certified Development Company program is designed to provide financing for the purchase of fixed assets at below market rates.

Term Loans: A loan that is backed by a bank for an exact amount that has a specified repayment timetable and interest rate that are adjusted accordingly. Terms mature between 1 and 10 years.

Business Lines of Credit: A rotating loan that gives business owners access to a fixed amount of money, which they can use day-to-day according to their need for cash. Interest is only paid on the amount of the advance actually used.

Asset Based Loans: A business loan secured by collateral.

The retail industry is one of the most competitive around. Constantly competing with thousands of companies that sell products just like yours requires you to constantly grow and expand. Sometimes in order to do this, applying for some sort of financing to obtain the working capital your business needs is necessary. When the big banks say no, there are always alternative options out there… and they show no signs are going anywhere anytime soon. Take advantage!

Excel Capital Management provides a wide array of  funding options for small to mid-sized businesses throughout the U.S., Canada, and Australia. Learn more at excelcapmanagement.com.