Retail loans are loans obtained from retail lenders. In some cases, the phrase can also apply to loans taken out by retailers. There are some similarities and differences between these two definitions so here is an overview and at some of the concepts.
What are retail lenders?
Retail lenders work with people rather than institutions. Examples of retail lenders include credit card companies, banks, credit unions, and savings and loan institutions. The opposite of a retail lender is a wholesale lender. Rather than granting loans to individual consumers, wholesale lenders underwrite loans for other lenders.
What are retail loans?
Retail loans include a wide range of different loans. Personal loans including mortgages, car loans, and signature loans fall under the retail loan category. If a business owner takes out a business line of credit, an installment loan, a mortgage on a property, an equipment loan, a small business credit card, a microloan or practically any other type of loan for his business, those loans also fall under the umbrella of retail loans.
What are loans for retailers?
There are specific types of business loans that appeals to retailers in particular such as inventory loans. Inventory loans are popular among retailers, wholesalers, or anyone else who sells products. These loans can be used for anything including working capital, buying new equipment, launching a marketing campaign, paying bills or a range of other purposes.
When a loan is secured by inventory it means the borrower defaults on repaying the loan, the lender can claim the business’ inventory as collateral to cover losses. This is similar to how car lenders repossess a vehicle, or a mortgage lender can foreclosure on a home if the borrower defaults on the payment plan.
There is some difference between loans secured by inventory and loans secured by other types of assets. When a loan is secured by other property the borrower cannot sell the asset without permission. If a retailer takes out an inventory loan, he is allowed to sell and restock the inventory as usual. As a result, the value of the underlying asset fluctuates as the borrower works on repaying the loan. This is called a floating lien.
In order to obtain an inventory loan, small business owners need a solid inventory tracking system, and in most cases, they need to share their inventory records with the lender to help establish how much money they might qualify for. However, unlike many other types of business loans, inventory loans typically do not require detailed business plans, and lenders vary their credit requirements.
When should retailers borrow?
Before borrowing funds, small business owners should think carefully about the potential return on investment. They should ask themselves if the costs of the loan outweighs the return.
If the benefits are greater than the risks, the business owner should apply for the loan, but if it is not going to help the business move forward, the business owner should start searching for other solutions such as reducing expenses in one area and reinvesting those funds in another area.
There is going to be a time when you need to increase your working capital if you are a retailer. In those situations, you will need to talk to a retail lender. They will be able to help you get the right loan for your needs as a small business owner.