Retail loans can sometimes seem a confusing topic to business owners. With so many options available and nuanced language muddying the water, it can be tricky to fully understand these types of loan. Are retail loans the type of funding available from main street lenders? Or business loans for retail companies? In this article, we explain the key similarities and differences so you can choose the best one for your needs.

The Difference Between Retail Lenders & Retail Loans

The difference between retail lenders and retail loans can be a source of confusion for many business owners. Retail lenders tend to provide funding to individual people in the form of credit cards, savings, and personal loans. They include banks, credit unions, and alternative lenders who work with the general public.

At the opposite end of the spectrum are wholesale lenders who underwrite loans for other lenders instead of individual consumers. For example, a wholesale credit company may underwrite credit cards provided by popular supermarkets or clothing stores. But, when provided to the end-consumers, these would then be considered a form of retail lending.

Retail loans are the actual funding provided to individual consumers. Mortgages, credit cards, and car loans would all be categorized as retail loans. What sometimes adds to the confusion is the fact that business lending can also be classified as retail loans. Property mortgages, equipment loans, and business credit cards would all be considered types of retail loan too.  

What About Loans for Retailers?

The term ‘retail loans’ can also refer to funding options that are designed for retail businesses. They are specifically tailored to meet the requirements of companies operating in the retail industry. Loans for retail businesses may also be in the form of mortgages, lines of credit, vehicle loans, or business credit cards. But there is also a specific form of funding known as ‘inventory loans’ which are especially relevant for retailers.

Inventory Loans for Retail Businesses

Based on the name, many people assume that inventory loans need to be used towards acquiring inventory. However, these types of loan can actually be used for a wide range of purposes, including new equipment, marketing, bill payments, or working capital. The name simply comes from the fact that they are secured against the company’s inventory. This makes them popular with retailers, wholesalers, and similar types of business that hold inventory or stock.

In the case of this type of loan, the inventory is used as security. This means that if the business is unable to make the repayments and defaults on the loan, the lender can use the inventory to cover the losses that they’ve incurred. Having inventory as security makes it less risky for the lender, which means they can offer more preferential terms to the borrower.

How Do Inventory Loans Differ from Other Types of Funding?

There is one key difference between inventory loans and other types of funding such as mortgages or car loans. For mortgages and car loans, the borrower wouldn’t usually be permitted to sell the property or vehicle without permission from the lender. It’s considered a security asset and is tied to the loan. However, in the case of inventory loans, the borrower is permitted to sell the inventory as well as restock. This results in the security asset having a variable value and is known as a floating lien.

In contrast to most other business-related funding, inventory loans do not tend to require the submission of business plans. However, it is essential that you have a system in place for tracking your inventory and may also need to share records with the lender. This enables them to calculate the amount of funding that you could be eligible for.

Retail Loan Considerations

If you’re considering retail loans as a funding option for your business, then there are several things to consider. It’s important to think about whether a loan is the right source of cash and if the benefits outweigh the drawbacks. Retail loans and inventory funding can provide capital for your business and generate additional revenue through stock expansion, marketing campaigns, or new personnel hires. But they also come with interest charges and some incur additional fees, so it’s crucial to calculate carefully. This way you can be confident that the loan is a worthwhile pursuit and will generate a positive return on any costs.

It’s also important to choose your funding partner carefully. Many institutions offer retail loans but they all have different terms, borrower requirements, and service levels. Here are a few key points to consider when looking at your options;

  •         Qualification requirements – what are the minimum requirements to qualify for their retail loans? Do they have specific criteria around personal credit history or number of years in business?
  •         Loan amount – how much money can they lend you and will this be enough to meet your needs?
  •         Funding speed – how long will it take for you to receive the funds if approved? This can vary from a couple of days to several months depending on the lender you choose.
  •         Costs – what are the interest rates and are there any additional fees? Be sure to read the small print carefully so that there aren’t any nasty surprises mid-way through the process.
  •         Repayment terms – how long are you able to repay it over and what kind of terms do they offer?
  •         Collateral – are you required to put up any collateral or security in the form of property or vehicles?
  •         Inventory requirements – how much inventory is required to secure their retail loans? Is there a specific level that you need to meet to be accepted initially? Is this flexible throughout the term?

By considering these factors in advance you’ll put yourself in the best possible position when researching lenders. Answering these questions up-front can save you time and hassle, as well as ensure that you get the most competitive deal available. It will also put you in a stronger position when negotiating with lenders since you’ll know exactly the type of funding that you’re looking for.

Inventory & Retail Loans – Overview

Inventory and retail loans can offer an ideal funding solution for businesses in the retail sector. They allow you to secure the amount borrowed against your stock instead of needing collateral like property. However, different lenders will have varying requirements to qualify for acceptance so it’s important to do your research in advance. You may find that a small business loan is a better solution for your operational needs, so weigh up every option before diving in.

Learn More About Our Finance Options

Small business loans from United Business Funding can give you the capital you need, for today and tomorrow. We’ll take care of all aspects of finance, so you can focus on running your business. From servicing customers to planning for the future, you’ll be able to concentrate on the elements of the business that matter to you most.

Our hassle-free application process is fast and simple, with unrivaled support the whole way. Learn what many small businesses across the country already know: UBF business loans and merchant cash advances are valuable tools of the trade.

CLICK HERE to complete an application online or call FREE 888-351-3863 to speak with one of our funding advisors today.