What is a retail business loan?

A retail business loan is a type of small business funding that can cover day-to-day and seasonal expenses or even to help with growing your retail business. You might want to take out a retail loan to:

• Invest in new technology to increase efficiencies

• Build or enhance your online presence

• Create new marketing materials to address changing trends

• Purchase additional inventory for a busy season

If you have a specific pain point or project in mind, you can compare the different types of retail loans to determine which one might work best for you.

Retail business funding options

Small business line of credit

A small business line of credit is a flexible funding option that gives you the option to withdraw funds when you need them. Your line of credit will have a maximum credit limit and interest rate, somewhat like a credit card. When you want to take out a loan (called a draw), you can borrow against your credit limit until your balance hits the credit limit.

You'll only pay interest or funding fees on the funds you use. Some lenders may also charge additional costs, such as a fee for keeping your account open, inactivity fees (if you don't take a draw), and a draw fee for each loan you get. It's best to research the provider to understand all the fees associated. Several online lenders do not charge these types of fees.

A line of credit can help smooth cash flow as you can quickly get cash and then pay down the loan over time. With a revolving line of credit, you can also repeatedly borrow against your credit line as you pay down your balance.

Small business loans

A small business loan often refers to an installment loan for a small business. With these types of loans, you receive the entire loan amount upfront and then repay the loan over a predefined repayment period. Your payments will often stay the same throughout the period because many small business loans have a fixed interest rate.

Retail businesses might take out a small business loan to finance a large project, such as buying a new storefront, and repay the loan over many years. But there are different types of small business installment loans.

For instance, some lenders may offer industry-specific loans with rates and terms that better align with certain businesses' specific needs. There are also short-term business loans, which can be easier to qualify for but may charge higher rates and fees than long-term loans. Every lender is different and it's best to find the best-fit product for your business goals.

Inventory loans

Inventory loans are a special type of loan for businesses that need to buy and store inventory.

Some lenders offer inventory financing, a type of asset-backed financing where you use your inventory as collateral for a loan. The value and type of inventory you have may impact your loan's interest rate and loan amount. These may be available as either a line of credit or an installment loan.

Lenders may also offer loans for purchasing inventory. These could be structured the same as other types of financing with an interest rate and repayment term. Or you may qualify for a loan that you'll repay as you sell the inventory you buy.

SBA loans

The U.S. Small Business Administration (SBA) partners with lenders and guarantees a portion of the small business loan amounts, which can make it easier for small businesses to qualify for larger loans with low rates and fees.

There are different types of SBA loan programs, such as SBA microloans for small businesses looking to borrow $50,000 or less. The SBA 7(a) loan program is the most popular, and it offers up to $5 million in financing that you can use for various business expenses.

SBA loans can be a viable financing option if you don't need money quickly and meet the lender's criteria. But the application process and requirements are usually more rigorous than what you'll find with other types of loans.

If you don't have the luxury of 30- or 60-day payment terms, you're probably looking for a quicker way to bridge the gaps in your cash flow. Traditional lenders typically require extensive credit and financial documentation, and their approval processes can be lengthy.

Even if you are approved, it can take days to get the working capital you need—and your opportunity could be gone by then. A business line of credit with an online approval process can usually provide a quicker response and, if you qualify, faster access to funding.