Guide to Business Finance for Retailers
In Planning growth, Raising finance, Retail - 6 months ago - 5 min
Guide to Business Finance for Retailers
Here are some of the ways retailers can use business finance to thrive.
For retailers, creating and maintaining a healthy cashflow is one of the biggest challenges. Retail, more than most sectors, relies on unpredictable and ever-changing markets and economic landscapes. As a result retailers need to be adaptable to change and ready to make fundamental changes to their business practices when the landscape shifts.
Here are some of the ways retailers can use business finance to thrive…
Revolving credit for your supply chain
When the supply chain for retailers is so volatile, businesses need to have quick access to cash to allow them to keep their stock levels up. It’s common for businesses not to have the working capital they need available immediately to buy that new stock.
This is something a revolving credit facility can help with. It’s a bit like a standard business loan, except that you can withdraw funds from it as an when you need them rather than in one lump sum.
The beauty of a revolving credit facility is that you can repay those smaller amounts when you can afford to, plus the interest accrued on that amount. Then, the amount available to you through the facility is automatically renewed to the previous level. You have ‘revolving’ access to the credit as long as you continue to repay the amounts you withdraw – it’s like an overdraft without the bank account.
Merchant cash advance for retail businesses
More and more customers buy using their credit or debit cards. Because of this, there’s a funding option that’s designed specifically to help retailers who take a lot of revenue from card machines: it’s called a merchant cash advance.
Working with your card terminal provider, the lender uses your previous card machine revenues to establish how much you can realistically afford to borrow. Then repayments are automatically made to the lender as a proportion of each sale made through the card terminal. What makes a merchant cash advance so useful is that you’ll repay more when you have more money coming in, and when sales are slow you won’t have to pay as much – this will help you maintain your cashflow.
A lot of businesses use a merchant cash advance during seasonal sales peaks or slumps. For example, during Christmas a shop might expect higher sales than usual so could take out a merchant cash advance because they know that they’ll bring in good revenues over that period to pay for it.
A merchant cash advance is also perfect for businesses with few or no assets, because the card terminal is used to secure the lending instead of property or equipment.
Retailers often can’t afford to buy their equipment outright, and many turn to other funding options to get their equipment.
Equipment leasing is one option. With this you can rent equipment for a pre-agreed period of time. You then pay monthly to lease it instead of having that big single payment to deal with. You also don’t have to worry about paying for servicing and maintenance of the equipment – the leasing company usually covers those costs.
When your pre-agreed lease period ends, you might have a few options:
- to give the equipment back to the leasing company
- to extend the lease and continue paying monthly
- or to buy the equipment from the leasing company for the outstanding amount.
The options available to you will depend on the leasing company and the arrangement you have with them.
Loans for business growth
There are times when businesses need a bigger cash injection to fund a new project or pay for something like property to open a new branch. As we mentioned earlier, retailers often don’t own assets that they can use as security for a loan. When that’s the case, an unsecured business loan is a good option.
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There are lots of lenders who offer unsecured business loans, so with the right guidance and as long as you have the up-to-date records of your business’s revenue, profits and creditworthiness, there’s bound to be a business loan that’s right for your situation.
Because there’s no security used in case your repayments don’t go to plan, there’s an increased level of risk to lenders. This does mean that the interest you’d pay on an unsecured loan will probably be higher than some other types of funding. Lenders will also try to find other ways to secure their investment, such as a personal guarantee from you. This means that if your business defaults on the loan, you’ll be personally liable to repay the lender.
If you’re thinking about raising investment and want to understand your options, get some free guidance from one of our team today on 08081 722350 or drop us an email: G.Enquiries@uk.gt.com
Conrad Ford is founder and CEO of Funding Options, the UK’s leading online marketplace for business finance. Funding Options helps businesses find the right funding for their situation. Whether they want to grow, they’re fighting for survival, or simply need to pay a tax bill, @FundingOptions is helping the small walk tall.