Retail Business Loans: Accessing Finance to Boost Retail Growth

In an industry that’s notoriously frantic and changeable, retail businesses need to be agile enough to meet new demands with proactive inventory management and promotional efforts to maximise revenue in key periods. But balancing cash flow and working capital can be tricky, which is why companies use retail business loans to maintain efficient operations and navigate seasonal fluctuations.

Whether you want to boost inventory, invest in technology or expand your footprint, understanding the financing options available is crucial. We discuss how business loans for retail stores work and what you need to know before applying.

What is a retail business loan?

A retail business loan is a type of financing designed specifically to help retailers manage their unique financial needs. They can be secured loans, using inventory or other assets as collateral, or unsecured business loans. The latter are faster to access (due to no assets being required as collateral) and shorter-term financing agreements, but often come with slightly higher interest rates due to increased lender risk.

Business loans for retail businesses can support various, wide-ranging (and changing) retailer needs. From day-to-day expenses, managing seasonal fluctuations, funding inventory purchases or investing in business expansion, a boost of working capital can keep your operations running smoothly even when the market changes.

For example, you might need additional funds to stock up ahead of the busy holiday season, invest in a new point-of-sale (POS) system or renovate your storefront to attract more customers. Many retailers delay these initiatives due to cash flow problems, but this can just mean losing ground to the competition. 

However, with extra capital from a retail business loan, you can move faster, modernise systems and invest in inventory and assets at the right times, while still meeting regular financial obligations and maintaining healthy cash flow. 

How does a retail business loan work?

While some business loans for retail stores function similarly to standard business loans, where you borrow a lump sum of money from a bank or business finance lender and repay it over a set period, plus interest, others offer tailored terms and alternative repayment models. For example, you can get revenue-based loans, which are based on current and future revenue, or lines of credit, where you only pay interest on what you draw down. 

With traditional term loans, retailers can arrange a pre-agreed repayment schedule with fixed or variable interest rates, whereas revenue-based funding like merchant cash advances has a fixed borrowing rate (rather than interest fees), with repayments made as a percentage of ongoing card sales. 

Let’s take an example. Say you’re a boutique owner and you want to expand your product line, and you apply for a short-term business loan for retail. Here’s how the scenario may play out:

1. You apply for a retail business loan and get approved for £50,000 with a 5-year repayment term at a fixed interest rate of 7%. 
2. You'll receive the funds upfront and start making monthly payments that include both the principal and interest incurred. 
3. A fixed repayment schedule allows you to manage your cash flow effectively while investing in your business growth.
4. You’ll be able to boost inventory levels with capital available to promote new products in key sales periods.

Who can apply for a retail business loan?

If you’re a retail company operating in the UK, there’s a good chance you’ll be able to apply for a retail business loan. There are lots of different loan options to choose from, and many finance providers are available to lend you capital to support your growth and cash flow management

Each lender has its own eligibility criteria, and may have operating and turnover thresholds and limits, so you’ll need to check loan terms and eligibility checklists on lender websites.

What are the required qualifications for a retail business loan?

A business loan for retail is typically available to companies that meet the following criteria:

• You’re registered in the UK
• You’ve been operating for at least 6 months
• Your business generates a monthly turnover over the minimum provider requirements (often around £5,000, but varies from lender to lender)

Newer businesses and those with poorer or limited credit histories may find it harder to get approved for a retail business loan. However, there are start-up loans available and digital lenders, like iwoca, who offer greater access to finance. We look beyond the credit score, focusing our approvals on factors like business plans, cash flow and profitability/revenue potential.

What are the different types of business loans for retail stores?

There are several types of retail business loans available to meet the demands of the sector, with varying conditions and repayment models to suit different needs and support cash flow management.

Here are the main forms of retail loans to consider for your business:

1. Term loans: These are lump-sum loans repaid over a fixed period, which can be either secured or unsecured (depending on your assets). Long-term loans are ideal for large-scale equipment purchases or expanding premises, whereas short-term loans can support working capital needs in key sales periods. They offer the necessary funds upfront, which you can repay over a set period, from growth in revenue or proceeds of your investments.
2. Lines of credit: A business line of credit is a flexible borrowing facility that allows you to draw funds as needed up to a certain limit, which is useful for managing cash flow and a cushion for unexpected expenses. This can prove handy when balancing seasonal fluctuations and inventory costs, drawing funds during peak seasons and repaying them when sales increase.
3. Merchant cash advances (MCA): An MCA is an advance on future credit card sales with repayment tied to your sales volume, as a percentage rather than a fixed amount.
4. Inventory finance: This is a form of financial borrowing specifically designed for purchasing inventory. As such, these loans for retail businesses are often secured by the inventory itself – either existing or the stock you wish to purchase.

Are there government loans for retail businesses?

You may be able to get a government-backed loan through the Growth Guarantee Scheme (GGS) or a start-up loan, offered through the British Business Bank, to support your retail business, depending on your growth stage. If using the GGS, the government will provide 70% guarantees to accredited lenders to lower their risk and encourage greater business finance access to UK SMEs.

What are the rates, amounts, and durations for a retail business loan?

The terms of retail business loans can vary widely depending on the type of loan, the provider or the economic conditions at the point of lending. However, here’s an overview of what you can typically expect:

• Loan amounts: From around £1,000 to £1 million, or more, depending on your business needs and lender policies.
• Rates: Interest rates for retail loans can be fixed or variable, with rates typically ranging from 3% to 20% APR, while fixed borrowing rates (or factor rates) for MCAs usually range from 1.1 to 1.5.
• Loan durations: Terms can range from a few months to several years. Short-term loans might be easier to qualify for, but often come with higher interest rates. If using an MCA for your retail business finance needs, there are usually no set repayment deadlines, as you’ll pay regular payments as a percentage of future sales until the capital borrowed is fully repaid. 

Seasonal retailers may opt for a short-term loan to stock up on inventory before the holiday rush, while a well-established store looking to open a new location might use a long-term loan to spread the cost over several years. Alternatively, if your priority is cash flow, you may choose revenue-based financing, as there’s less debt pressure, due to repayments aligning with performance. 

How to get a business loan for retail stores

The process and conditions for securing a business loan for retail differ, depending on the type of loan and lender. However, many use similar factors for approvals and determining lending terms. Let’s start with what most lenders look for and the information you’ll need to provide.

Funding approval factors

Here are some common things lenders look for and factors they’ll assess during the approval phase:

• Creditworthiness: Both personal and business credit scores can be assessed by lenders as they judge your affordability and risk level for managing the debt. 
• Business plan and loan purpose: A detailed business plan outlining how the loan will be used and how it can support growth will help your application.
• Recent financial history: Lenders may request various records, including recent bank statements, to understand your cash flow and financial health.
• Collateral: Some loans require collateral, for which you’ll need to provide asset details, though many retail business loans are unsecured.
• Track record and market conditions: Lenders also look at other risk factors, analysing the market and your position.

Documentation/information typically required

• Key business information, such as identification, entity structure and registration details.
• Financial data and records, including bank statements, accounts, cash flow forecasts, etc.
• Credit history, outstanding debt/lending facilities and tax liabilities.
• Funding purpose, amount sought and preferred terms, including a detailed business plan.
• Asset details for collateral (if applying for a secured retail business loan).
• Card processing statements (usually going back 3–6 months) and turnover (particularly for MCAs).

The retail business loan application process

Here are the main steps involved in applying for a retail business loan:

1. Assessing your needs: Determine how much funding you need and what you’ll use it for. Whether it's for inventory, technology upgrades or expanding your physical space, having a clear purpose will help you choose the right type of financing. For example, if you’re looking to purchase stock, inventory finance might be the best option, but if you’re looking to update your premises, a small business loan might provide more flexibility.
2. Checking your credit score: Lenders will often review your credit history, among other checks. A higher credit score often translates to better loan terms, but if you have a lower credit score, you may still be able to get financing, though by offering assets as security or a personal guarantee, or by using alternative lenders with higher risk appetites.
3. Preparing your documents: Ensure you have the necessary documentation or information to support your application. Lenders will judge your financial health and recent performance by reviewing certain financial statements or tax returns, while a compelling business plan will give them confidence. 
4. Choose a loan and lender and submit your application: Once you’ve chosen your preferred form of finance, check eligibility criteria, compare lenders’ loan features/rates and weigh up the total cost of borrowing with suitability factors. Then you can proceed with an application. Alternative finance providers, particularly digital lenders like iwoca, often offer a fully online process – iwoca provides funding decisions in as little as 24 hours – whereas many banks and traditional lenders have more lengthy and labour-intensive application and approval processes.
5. Reviewing offers: If approved, carefully review the loan offers, paying careful attention to the interest rates, repayment terms and any other fees and conditions associated with the loan, so there are no nasty surprises.

Choosing retail business loan providers

You can get retail loans from various sources, such as high street banks, dedicated revenue-based finance providers and alternative lenders, offering fast and flexible loans (often unsecured). Each provider has appealing features and benefits, plus their drawbacks, so weigh up key suitability factors when choosing an option.

Here’s a handy comparison table comparing different retail business loan providers across various components to support your decision-making:

As you can see, there are multiple factors to consider, from the pros and cons of different loan types and repayment models to typical rates and borrowing limits. 

Here is a suitability summary for retail business loan providers:

• High street banks: Using banks for retail business loans can offer larger amounts and longer repayment periods, with reasonable interest rates compared to other providers. However, applications can be lengthy, and you usually need to provide detailed documentation, often security, and you’ll be subject to stricter conditions and eligibility criteria. 
• Flexible loan providers: These are ideal for getting fast access to short- to medium-term finance. While interest fees might be slightly higher, you will enjoy more flexible terms and repayment structures, such as revolving credit or tailored monthly instalments. In many cases, such as with iwoca, you can repay the loans without penalties and only pay interest on what you use.
• MCA providers: As you’ll pay a fixed percentage of future card sales, your loan repayments automatically adjust with your turnover, which is ideal for retailers with fluctuating cash flow. You can usually access funds in a matter of days, and approvals are largely based on sales performance. However, most providers have minimum trading and turnover thresholds.

Get a flexible retail business loan quickly and easily with iwoca

If you’re seeking a fast and flexible business loan for your retail stores to support a wide range of operational needs, iwoca can help. Our Flexi-Loan is designed specifically around the needs of small businesses, including vital cash flow management. 

We know the importance of speed and ease of access to capital, so we’ve developed a hassle-free online application process that doesn't require collateral or lots of paperwork.

Here are just some of the benefits of using an iwoca Flexi-Loan:

• Fast and flexible business finance: Get access to funds within 24 hours with repayment terms tailored to your cash flow, with options to repay early, free of charge, and top up, subject to approval.
• Only pay interest on what you use: You can use our loan like a line of credit, drawing down funds as you need them. 
• Transparency: We provide clear terms upfront, and there are no hidden fees, so you know exactly what you’re getting.
• Supporting a wide range of funding needs: You can borrow between £1,000 and £1 million for a matter of days, right up to 60 months, for any business use.

Find out how to apply for a business loan for retail with iwoca and check out our loan calculator to see your likely repayments.