Retail business loans

Published minimums, checked

Working out what a shop should borrow against

1. Separate stock from fit-out from cash flow. Each has a different lender, a different sensible term and a different price, and rolling all three into one facility is how a shop ends up paying advance rates for a shopfit that will outlive the loan.
2. Pull three months of merchant statements first. They are the document that decides most retail lending decisions and having them ready shortens every conversation.
3. Price a merchant advance last, not first. It is the fastest money in this record and the most expensive, and taking it early closes off cheaper options while it is being repaid.
4. Check the published bars. Two lenders here publish a five hundred credit score floor and one publishes six hundred and twenty-five; the difference decides where it is worth applying.

Why card takings change the conversation

A merchant cash advance is repaid as a percentage of daily card takings rather than as a fixed monthly instalment, so it flexes with a shop's trade instead of arriving on the first of the month regardless. For a seasonal retailer that is a genuine advantage and it comes at a genuine price: the total cost of an advance is expressed as a factor rather than an interest rate, and converted to an annualised figure it is usually the most expensive borrowing on this site. Two of the lenders in this record keep a live merchant cash advance page, and both publish a five hundred credit score minimum, which is the lowest published bar here.

Stock finance is a different product

Buying inventory ahead of a season is not the same borrowing as covering a quiet month, and it should not be funded the same way. Stock finance, purchase order finance and inventory lines are all secured on goods and are priced against how quickly those goods turn, which means a retailer with fast-moving, resaleable stock can borrow against it on terms that no unsecured lender would offer. The trade-off is that the lender takes security over the stock, and that security has to be released before you can sell it in some structures, so ask exactly how the mechanics work before you commit a season's buying to it.

The fit-out trap

Shopfitting is the classic case of a large one-off cost funded with a facility that outlives the reason for it. A five-year loan against a fit-out in a shop on a three-year lease is a loan that survives the shop. Where the fit-out includes real, removable equipment such as refrigeration, ovens or a serious point-of-sale system, finance those items against themselves on a term that matches their life. Fund the joinery, the flooring and the signage out of a facility you can clear inside the lease, and treat the lease length as the ceiling on any term you are offered.

Common questions

Can a shop borrow against its card takings?

Yes, and it is called a merchant cash advance. Repayment is a percentage of daily card revenue rather than a fixed instalment, which suits seasonal trade. It is the most expensive borrowing in this record once converted to an annual rate, so it is worth pricing against a line of credit before committing.

What do retail lenders want to see?

Three to six months of merchant statements and bank statements, in almost every case. Accounts matter less than they do in other sectors because the card record is a better and more current picture of trade. Have both ready before you approach anybody.

How much can a retail business borrow?

Against card takings, lenders commonly work to a multiple of monthly card revenue rather than a multiple of profit. Against stock or equipment, to a percentage of the asset's value. No lender in this record publishes its multiple, so treat any figure quoted to you as specific to your file and get it in writing.

By borrowing product

• merchant cash advance: what the lenders who offer it actually require
• equipment financing: what the lenders who offer it actually require
• invoice factoring: what the lenders who offer it actually require