7 tips for choosing the right loan options to store your holiday shelves
Know the financing options available to you.
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November 3, 2016
5 minutes to read
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Retailers of all shapes and sizes know that the holidays are the most important shopping time of the year, but did you know that it can account for up to 30% of your annual sales? According to National Retail Federation, vacation sales in 2015 accounted for $ 626.14 billion in sales in the United States, of which $ 105 billion came from online channels alone. For the next season 2016, the holiday sales should increase by an additional $ 19 billion.
To help your business prepare for the all-important holiday sales season, having access to financing is essential to take advantage of increased customer demand. The extra funds can be of great help in purchasing additional inventory, hiring seasonal employees, investing in websites and business technologies, or boosting marketing and promotion efforts. Yet today, most small business owners in the United States are struggling to get the much-needed funds to invest in their businesses. When asked if they could get adequate funding in 2015, more than a quarter (27%) of small business owners said no.
This lack of access to finance has given birth to newer and more flexible financing solutions available to small businesses today. However, the range of options, quite frankly, makes it difficult to determine which option is best for your business – and it involves much more than comparing rates and fees. Below are seven options for your business to consider when seeking financing to help you prepare for the holiday season.
1. Traditional bank loans.
A term loan from a traditional bank remains an attractive option for one reason: a competitive APR. With a term loan, you borrow a lump sum and gradually pay it back over a predetermined period of time, usually one to 10 years.
- Pros: The good news is that many offer great interest rates and familiarity.
- Cons: Keep in mind that these loans usually have extensive applications, collateral requirements, slower decisions, and relatively low approval rates – especially for online businesses – compared to other types of ready.
- Best for: A well-established, well-documented business that needs to make a big investment in its business.
2. Business credit cards and lines of credit.
Business credit cards can be easier to obtain than most forms of financing.
- Benefits: Convenience and rewards. In addition, it is a good way to accumulate business credit.
- Cons: This financing option can often attract higher interest and fees.
- Best for: Recurring expenses and purchases that you can pay off quickly.
3. Alternative balance sheet lenders.
A balance sheet lender, like Kabbage, keeps loans on its books, rather than selling them to other institutions or investors. Most alternative balance sheet lenders rely on data from commercial accounts with banks and / or online services to approve or reject loans.
- Advantages: Quick decisions and access to funds.
- Cons: Interest and fees above average.
- Ideal for: quickly meeting short-term needs.
4. Payment gateway loan.
Payment Gateway Loan refers to a situation where a business that processes credit and debit card transactions offers financing programs for businesses that regularly use its services.
An example of a gateway loan product is PayPal working capital, which can ease the pressure of uneven cash flow by basing repayment on a fixed percentage of daily sales, subject to a minimum payment requirement. Small businesses can choose the loan amount (up to a maximum based, in part, on their PayPal account history), as well as the percentage of daily sales used to repay the loan. In addition, no credit check or personal guarantee is required.
- Benefits: Convenience, shorter payment terms, variable reimbursement options, and competitive costs.
- Cons: These types of loans are only available to members and clients, and may only offer smaller loans.
- Best for: Quick capital to pay for inventory or manage seasonal fluctuations in cash flow.
5. Market / peer-to-peer platforms.
Market and peer-to-peer lending platforms, like Funding Circle, do not lend money themselves. Instead, they match borrowers and lenders. Borrowers can often access funds quickly, making these online platforms an attractive lending alternative to traditional banks.
- Pros: Usually has lower rates and faster decisions than other lenders.
- Cons: Fees can be high and potentially offer unfavorable conditions for weaker applications.
- Ideal for: A start-up business with short-term capital investment needs.
Kickstarter and Indiegogo are examples of crowdfunding platforms that solicit donations for a fledgling business and offer some form of return on investment to donors.
- Benefits: Some of the funds are grants and some are loans. It can also help you understand and develop your potential customer base.
- Cons: You will have to invest heavily in marketing and run the risk of wasting resources that could be used for the business itself.
- Best for: Starting a new business or a new product with a remarkable story.
7. Cash advances from traders.
With a Merchant Cash Advance (MCA), you get a lump sum in exchange for the promise of a percentage of your debit and credit card sales each day until the advance is repaid.
- Benefits: Usually offer quick decisions with straightforward approval if you have a strong sales history.
- Cons: Can include higher costs and possibly unknown terms that can be a burden for a small business.
- Best for: Filling a short-term need when your business does not qualify for other options.
If your business needs a pre-holiday cash injection, be sure to do your homework to understand which financing option is right for you. Pay Pal offers more information on small business loans and other tips for getting ready for the holidays.