Like other entrepreneurs, retail store owners also need credit on time to renovate the storefront, hire additional employees, stock up inventory, purchase advanced equipment, consolidate debts, and meet working capital needs. In India, both banks and non-banking financial companies (NBFCs) offer a variety of business loan products to retailers. Some of these loan products help entrepreneurs to start a new retail business or acquire an existing retail store, whereas others help them to expand their existing retail businesses. But the entrepreneurs must compare these business loan for retail store to avail credit on favourable terms.
7 Different Business Loan Products for Retail Store Owners
Retail store owners prefer term loans to other business loan products to maintain cash flow positive by paying fixed EMIs. But retailers often find it difficult to avail term loans at favourable terms from nationalized and commercial banks. They normally opt for term loans provided by NBFCs to avail credit on time. Many NBFCs even leverage financial technologies to disburse term loans in three working days. The terms of lending and eligibility criteria differ from one lending institution to another.
The overdraft facility provided by lending institutions enables retail store owners to withdraw funds from their bank account in excess of the current bank balance. But the retailers have to pay an annual fee to avail overdraft facility. Also, the lending institution charge higher rate of interest on the amount of funds used by the borrower. The bank overdraft facility helps retail store owners to fund working capital needs and improve cash flow position without requiring elaborate paperwork.
Point of Sale
Most retail store owners nowadays install point-of-sale (POS) systems to enable customers to make payment using their debit and credit cards. A number of NBFCs and fintech companies provide credit to retail store owners based on the monthly sale routed through their electronic data capture (EDC) terminals. The amount of POS-based loans varies according to the average monthly debit and credit card sales. Some lending institutions even allow retailers to repay the POS-based loans by choosing from multiple daily repayment options. Here is an interesting blog on how Point of sale finance is helping small retailers in India.
As non-corporate small businesses, retail stores can avail credit up to Rs 10 lakhs under the Pradhan Mantri MUDRA Yojana (PMMY). Retailers can avail credit up to Rs 50 thousand under the Shishu schemes, Rs 5 lakhs under the Kishore schemes, and Rs 10 lakhs under the Tarun scheme. They can further apply for the MUDRA loans through nationalized banks, commercial banks, cooperative banks, NBFCs, or the official portal.
The large retailers can avail credit quickly by invoice discounting i.e. discounting their unpaid invoices or goods received notes. A number of lending institutions provide cash advance to retailers by purchasing unpaid invoices or bills before their maturity date. The lenders normally provide about 80% of the invoice amount to the borrowers as advance. The retail store owners can opt for this financial service to fund working capital needs by converting current assets like invoices or goods received notes into cash.
Often retailers need to expand or redesign their storefronts to improve customer experience and drive sales. They also need to invest in new equipment to keep the stores competitive and relevant in the long run. There are a number of lending institutions that provide equipment financing products to bother manufacturers and retailers. The retail store owners can opt for the secured business loan product to purchase the equipment required for modernization.
Often retail store owners buy inventory in bulk to avail additional trade discount. Many retailers even purchase inventory during off-seasons to meet sudden surge in demand during busy seasons. They need credit to purchase inventory in bulk quantity or stock up inventory for busy seasons. Many lending institutions provide secured business loan to retailers against the value of their inventory. Retail store owners can use the inventory as collateral to avail credit from lending institutions without paying high interest rate.
On the whole, the entrepreneurs can start and expand their retail businesses through a variety of business loans. But they must remember that the business loans for retail businesses differ from each other in various aspects – business loan eligibility criteria, amount of credit, interest rate, tenure, and repayment option. Hence, they need to compare the business loan products for retail store to avail credit without complex credit requirements and lengthy loan disbursement time.