December 3, 2020
Running a retail or wholesale distribution business comes with unique challenges, particularly when it comes to managing cash flow. A solid understanding of available financing options can significantly impact your ability to maintain daily operations and grow your business. Whether you need short-term working capital or funds to expand, selecting the right financing strategy is key to staying competitive.
Traditional bank loans remain a common financing route for retail and wholesale businesses. Banks offer a range of loan products, including term loans, lines of credit, and equipment financing. However, the application process can be lengthy and requires substantial documentation, such as business financials, tax returns, and credit history.
Retail and wholesale distributors may face additional challenges, such as inventory turnover rates, seasonal sales fluctuations, and supplier relationships. Approval times for traditional loans can take weeks to months, which may not be ideal for businesses in need of immediate working capital. Still, for businesses that qualify, traditional loans offer competitive interest rates and longer repayment terms.
Small Business Administration (SBA) loans are another viable option for retail and wholesale businesses. The SBA backs loans provided by partner lenders, reducing the risk for banks and offering more favorable terms to business owners. SBA 7(a) loans, the most commonly used program, can be utilized for a variety of needs, including working capital, purchasing equipment, or acquiring commercial real estate. The maximum loan amount for SBA 7(a) loans is $5 million, with interest rates typically capped at a percentage above the prime rate.
SBA loans come with strict eligibility requirements, including the need to meet the SBA’s small business definition and present strong cash flow projections. The application process can take several months, which makes it less suitable for businesses that require quick access to funds. However, the lower interest rates and flexible terms make SBA loans a valuable option for long-term financing.
If you operate a wholesale distribution business or manage a retail storefront, equipment financing may be a suitable option. This type of financing allows you to spread the cost of essential equipment—like delivery trucks, shelving units, or point-of-sale (POS) systems—over time. The equipment serves as collateral, often making this a lower-risk option. Additionally, the repayment term is typically aligned with the lifespan of the equipment, allowing businesses to manage cash flow more efficiently.
A Merchant Cash Advance (MCA) is a short-term financing option suitable for retail businesses with steady credit card sales. In an MCA, the lender advances a lump sum based on future receivables, which you repay via a percentage of daily sales. For retailers with consistent daily sales or wholesalers with predictable B2B transactions, this can offer fast access to capital.
However, MCAs come with high Annual Percentage Rates (APRs), sometimes exceeding 50%. They are best used to cover short-term cash flow gaps, not for long-term financing. It’s essential to carefully review MCA terms, as they can be restrictive and create additional cash flow constraints if not managed properly.
In addition to traditional loans and MCAs, several alternative financing options are available for retail and wholesale distributors, including invoice factoring and supply chain financing.
This option allows wholesale distributors to sell unpaid invoices to a factoring company in exchange for immediate cash. For businesses that supply products to large retailers or B2B clients with extended payment terms, invoice factoring can help alleviate cash flow delays.
Also known as reverse factoring, this option allows wholesalers to leverage their customers’ strong credit ratings to receive early payment on invoices. A financial intermediary pays your suppliers on your behalf, extending your repayment timeline. This helps improve short-term cash flow without incurring additional debt.
Financing your retail or wholesale distribution business requires careful planning and consideration of available options. From traditional bank loans to innovative solutions like invoice factoring, each method has its advantages and challenges. Understanding these financing methods can help you make informed decisions to improve cash flow, support growth, and sustain your business’s long-term success.
At Infinity Commercial Capital, we specialize in providing financing solutions tailored to meet the unique needs. Contact us today to discuss how we can support your business and provide the financing you need to succeed. Let’s talk about how we can help you grow and thrive!
