Retail business loans: which finance fits what you need

There is no special product called a retail business loan. It is an ordinary business loan, used by a retailer, and the useful question is not what it is called but which kind of borrowing suits what you need the money for. For most retailers that is a timing problem rather than a shortfall: stock, a refit, or a new line has to be paid for long before it earns anything back. Match the borrowing to the reason and most of the decision makes itself.

‍

What retailers borrow for

Four reasons cover most of it, and they share one thing: the money goes out before it comes back in.

Stock ahead of a busy season. Your supplier wants paying when the order goes in, and your customers pay you when they walk through the door three months later. The order has to be placed on the supplier's timetable, not on the state of your bank balance, which is why so much retail borrowing is really about getting the stock in at the right moment. Managing the gap between paying for stock and selling it goes through that cycle in detail.

A refit, or kit that has stopped doing its job. A tired shop front, a till system that cannot handle click and collect, lighting that costs more to run than it should. None of these is urgent until the week it is, and the cost of putting it off is quiet rather than obvious: fewer people coming in, slower service, a worse month than you should have had.

A second site, a new line, or a wholesale account. Growth takes cash out before it puts any in, and the bigger the opportunity the more it takes. What it costs to open and run a shop sets out the numbers for a new site.

The gap between paying suppliers and taking the money. Not a crisis, just the shape of retail. Rent and rates land on fixed dates, card takings land a day or two after the sale, and the quarter's bills do not care which week was quiet.

If none of those describes you, and the reason you are short is that the business has been losing money for a while, borrowing will not fix it. That is worth being honest about before you start comparing options.

‍

Which type of finance fits which need

The rule of thumb is to match the length of the borrowing to the length of the need. Something you will own for years should not be funded by something you repay in weeks, and a six-week stock gap should not become a five-year commitment.

A term loan gives you a lump sum and a fixed repayment schedule. It suits a one-off cost with a long life: a refit, a new site, a delivery van. You know what you are paying and when, which makes it easy to put in a forecast. It is less useful when you are not sure exactly how much you need, or when you might be able to clear it early.

A business loan with flexible repayment options is the same predictability with more room to move, which is what a seasonal business usually wants. The iwoca Flexi-Loan is ours. The practical benefit for a retailer is in the timing: once you are approved you have 30 days to draw the money down, so you can get the funding agreed in August and take the cash in October when your supplier actually wants paying. You do not have to take the full amount, and if your plans change and you draw none of it, there is no penalty. You choose a fixed term of between 12 months and five years, so you know the repayment schedule from the outset, and because there is no fee for repaying early you can clear it as soon as the till catches up. Overpaying while the peak is paying for itself earns you a payment holiday, which is the one to have in the quiet month on the other side of Christmas. You can borrow £1,000 to £1 million, and the rates and full terms are on the Flexi-Loan page.

Inventory finance, sometimes called stock finance, is lent specifically against stock, and usually secured on the stock itself. If you buy in large, predictable batches it can be a good fit, because the lender is looking at goods they understand rather than at your accounts. The trade-off is that the stock is tied up, so if a line does not sell you have a problem with the lender as well as a problem on the shelf.

A merchant cash advance is an advance on future card takings, repaid as a percentage of each day's sales. If you take most of your money on cards, the appeal is obvious: repayments shrink in a quiet week. What to look at closely is the total cost rather than the headline, because the charge is usually a fixed fee rather than interest, so repaying faster does not make it cheaper. It can work for a genuinely unpredictable income. It is an expensive way to fund something you could plan for.

{{retail-blog-cta="/seo-components"}}

‍

What a lender looks at when a retailer applies

Less than most people expect, and most of it we find ourselves.

When you start an application with us, we pull what we can before asking you for anything: your record at the credit reference agencies, including how your current account has behaved, your filings at Companies House, and your history with us if you have borrowed before. For a smaller request that can be enough on its own, and there may be nothing for you to upload at all.

A bigger request means a closer look. Typically that is three or six months of bank statements, and for larger amounts again your filed accounts. The part that is yours to control is how you hand it over: connecting your bank account, or your sales platform, is quicker than digging out statements and sending them across. If you sell online, a linked ecommerce account lets us read the sales directly rather than reconstructing them, which is usually faster and often fairer to a business with a spiky trading pattern. It will not change the answer, only how soon it arrives.

What we are judging underneath all of it is simple enough: what the business turns over, and what it can afford to repay. A decision is made within 24 hours, but it might be longer depending on the complexity of the request, because larger or more complicated applications go to our credit team rather than straight through the models. We lend to UK limited companies.

If you would rather see what a lender sees before you apply to anyone, iwoca Credit Compass is free. It shows your Equifax business credit score alongside four more scores, what is affecting them, and the areas worth working on. Worth knowing either way: we report your repayments to Experian and Equifax every month, so a loan you handle well builds the record you will be judged on next time.

‍

When borrowing is the wrong answer

Borrowing works for a gap you can see the end of. A stock order that sells through by February, a refit that pays for itself in footfall, an account that pays you two months after you invoice. You can name the thing that repays it.

It works much less well for a gap that keeps reappearing. If you borrowed last autumn to cover the same quiet month you are covering now, the borrowing is treating a symptom, and another loan makes the underlying problem more expensive rather than smaller.

We would not lend to a business unless we were confident it could meet its minimum repayments, and that is a reasonable test to apply to yourself: if you cannot see where the repayment comes from on a bad month as well as a good one, it is too much. Worth knowing before you apply anywhere: every new Flexi-Loan needs a personal guarantee from at least one director, though not every director has to sign. It is a commitment the directors stand behind personally.

‍

What to have ready before you apply

Three things, and only one of them takes any work.

Your company details and the names of the directors, which you will have. Recent bank data, which is quickest supplied by connecting the account rather than exporting statements. And a clear answer to what the money is for and what repays it, which is the one worth thinking about beforehand, because it is also the question that tells you whether to borrow at all.

Filed accounts come into it for larger amounts. If yours are out of date at Companies House, bringing them up to date helps with every lender, not just us.

‍

Retail business loan questions

What is a retail business loan?

A business loan taken out by a retailer. There is no separate product category and no lender offers a 'retail loan' that works differently from their other business loans, though some advertise sector pages for retail. What varies is the type of finance, not the sector.

‍

Is a shop loan secured on my stock?

Only if you take inventory or stock finance, which is lent against the goods. An ordinary unsecured business loan, including ours, is not secured on your stock. A Flexi-Loan does need a personal guarantee from at least one director, which is a different thing from taking security over your stock.

‍

Which finance is best for buying stock before Christmas?

Something you can repay quickly once the stock sells, so you are not paying for a seasonal order all year. The things to compare are whether you can draw the money when the supplier wants paying rather than when you are approved, and whether repaying early actually reduces the cost. With a fixed fee it usually does not; with interest charged on what you owe, it does.

‍

Can a new shop get a business loan?

It is harder, because a lender has less to look at. A younger business is usually offered a smaller amount that grows as the trading record does. If you are still at the planning stage, the costs involved are set out in what it costs to open and run a shop.