Whether you’re a small business owner who needs working capital or an entrepreneur who wants to start her own company, you will likely need a retail loan. Retail loans are different from other business loans because they aren’t secured by collateral; they simply rely on your credit score and personal guarantee to secure the funding. Before you decide whether to apply for retail financing, here are some things you should know about getting retail loans and what they can do for your business.
What exactly is a retail loan?
Retail loans are also called short-term financing. Typically, they are unsecured, meaning you have no collateral or property to provide security for the loan. In other words, they’re based solely on your personal finances and credit score. Lenders often charge higher interest rates and additional fees to cover the risk of defaulting on an unsecured loan.
As such, this type of financing is usually considered a last resort when all other avenues have been exhausted. Retail loans can be used to pay off expensive credit card debt or high-interest installment payments. If you decide to take out a retail loan, it’s important that you stay current with the monthly payments so that your debt doesn’t accumulate even more over time. Check out other types of loans in South Africa.
Retail loan products
Kabbage reports that a bank offers different products, including retail loans, to make doing business a bit more accessible.
- Credit cards
- Signature loans
- Mortgages
- Car loans
- Business lines of credit
- Microloans
- Equipment loans
- Inventory loans
- Small business loans
Why should I choose this type of financing?
Choosing retail financing can be a lifesaver for business owners, as this option is typically easy to access and offers quick funding. Facing financial uncertainty or other obstacles with starting up your business?
A retail loan might be the perfect solution. It provides entrepreneurs with quick access to funding, which will help them get their idea off the ground. All you need to know about getting a retail loan can be found below!
How much can I get?
It’s hard to say for sure how much you can borrow without understanding the specifics of your situation, such as credit score, total desired loan amount, length of term and annual percentage rate. Nevertheless, there are some general guidelines:
The higher your credit score is and the lower your debt-to-income ratio is, the more money you’re likely to be able to borrow. As with any other type of financing, interest rates will vary by lender.Retail loans typically range from R10,000 to R200,000. Lenders will often focus on the value of your inventory when determining what you can borrow.
If you can show that there is strong demand for your products and/or if you are able to offer new or unique products, this can be an advantage in securing financing.
Conversely, if there are other retail stores selling similar items nearby or if your inventory does not have high resale value, it may be difficult to get a loan. In addition, lenders will look at whether you have adequate personal assets to repay the loan because they do not want someone with no assets taking out a large amount of debt.
Is there anything else I should know before applying?
Applying for a retail loan can be quite intimidating. The process is long and difficult, but the benefits are worth it if you have the experience and understanding of what you are applying for.
A few key things you should know before applying:
- Get your company assessed by a retail analyst – this will give lenders an idea of how much money they would be willing to lend your company based on their knowledge and financial standings.
- Lenders also want to see that you can service the debt you are taking on from them. Some examples of evidence include bank statements, credit reports, and most importantly, profit and loss statements.
- When looking at profit and loss statements lenders want to see some way for your company to continue making more money than they are spending.
The application process
Like most other loans, a business loan will come with some red tape and requirements, but by gathering your information ahead of time, it’ll make the process much easier and smoother. For starters, lenders will ask for your
- Company name.
- Contact info, organizational structure (i.e., sole proprietorship or partnership).
- Financial status (i.e., profits and balance sheet) and collateral (if applicable).
We recommend getting all this together before requesting an application.
Conclusion
Owning your own business can be the ultimate dream, but it doesn’t come without risks. One of the most important things is planning ahead for these risks, and this includes educating yourself on all aspects of your business, even things that seem minor or mundane at first glance. Having a good understanding of loans can help you prepare for if and when you end up in debt.