Whether you're starting a new retail business from scratch or looking to buy an existing shop, finding the right finance is crucial. There are business loans available to help you buy retail space, fit out your premises, solve short-term cash flow problems and meet a range of other business needs, including covering the expenses associated with running an online retail store.
But how do you know which retail business loan is the right fit for you? Let's take a closer look.
How can a business loan help me?
Australian retail businesses face a variety of challenges in the modern world. Retail business loans can provide flexible access to funding so that you can overcome those challenges. There are business loans available to help you:
Buy an existing business
Buy a vacant shop front
Cover the startup costs for a new retail business
Fit out your business premises
Purchase the latest point-of-sale technology
Cover web design and online store setup costs
Upgrade your business premises with new fixtures and fittings
Provide working capital to help with the day-to-day management of your business
Fund advertising and marketing campaigns to boost sales
Expand to a second location
Hire more staff during busy periods
Take advantage of an urgent business opportunity
Prospa Business Loan
Prospa Business Loan
Loans up to $300,000
Repay early without penalty
100% confidential application
Prospa Business Loan
Get access to a small business loan from $5,000 - $300,000.
Loan Security: No asset security required to access funds up to $100,000
Australia's retail sector includes a wide range of businesses selling an even more diverse range of products. The good news is that there are loans available to suit any number of retail businesses, both online and in the "real world", including:
Supermarkets and grocery stores
Toiletries and cosmetics stores
Sporting goods stores
Discount and variety stores
Types of business loans to consider
What type of loan does your retail business need to overcome important challenges? Check out the table below for a guide to the finance options available:
Generally 60 to 70% of the property's value, but up to 80% in some circumstances
Finance to help you purchase a commercial property
Wide range of loans available
Flexible repayment options to suit your business's cash flow
There's always risk when borrowing a large sum of money
Higher interest rates and fees than residential home loans
Security required for the loan
The best retail business loan for you from the above options will vary, depending on a range of factors such as:
Your finance needs. The loan you choose could vary depending on whether you want to buy a retail space, purchase equipment, manage cash flow fluctuations or satisfy a range of other financial requirements.
Your assets. If you have valuable assets you can offer up as collateral for a loan, this will allow you to access a wider range of finance options.
Your credit history. While there are finance options available for borrowers with bad credit, having a good credit history improves your chances of accessing funding.
Expenses to consider when opening a retail business
Starting a new business of any kind can be a huge undertaking, and that's no different in the retail sector. Many businesses fail because they simply do not have enough capital to meet all the expenses associated with getting a business up and running. That's why it's important that you're fully aware of all the costs you need to consider before you start comparing finance options.
Expenses to consider when opening a retail business include:
Purchasing or leasing retail space
Store fit-out and fixtures, including furniture, shelving, display cases etc.
Store equipment, such as computers, cash registers, point-of-sale payment systems and security cameras
Hiring and ongoing payment of staff
Initial marketing and advertising costs
Purchasing inventory so you have products to sell when your store opens
Internet/phone and power connection
Insurance cover, including public liability protection
Professional legal and accounting services
Of course, it's also worth pointing out that many new retail businesses today operate purely in the online world and don't manage any bricks-and-mortar shop fronts. Despite this fact, many of the expenses listed above still apply to online businesses, while you may also have an increased emphasis on other costs such as web design, SEO optimisation, and even finding suitable warehouse space to store your inventory.
The best way to wrap your head around the full cost of opening a new business is to put together a comprehensive business plan. This should outline your startup costs and operating expenses, as well as a realistic timeframe of how long it will take you to break even and start making a profit.
Expenses to consider when purchasing an existing business
If you're buying an existing business, the good news is that the previous owners have already done some of the hard work for you. The bad news is that they may not have been running the business as successfully as possible, and you may need to incur some extra expenses to ensure that your newly purchased retail store performs to its full potential.
Expenses to consider when purchasing an existing business include:
The cost of buying the retail business
The cost of purchasing or leasing retail space
Improvements and upgrades to old equipment
Upgrade of shop fit-out and fixtures
Purchasing new inventory
Marketing and advertising costs
Professional legal and accounting services
In the end, there may be a much greater range of expenses involved than you first anticipated, which is why it's essential to do your due diligence before purchasing an existing business. Consider why the current owner is selling and look at the business's sales, operating costs, profits, assets and liabilities before deciding whether or not you should buy.
How to compare business loans
Once you've decided on the type of business loan that's right for your retail business, the next step is to compare a range of loans to find the best finance option. Consider the following factors when weighing the pros and cons of loans:
Interest rate. This is an obvious place to start, so look at the interest rate that will apply to the funds you borrow. Is the rate fixed or variable? How does it compare to the rate on other finance options.
Fees. Fees and charges can have a huge impact on the total cost of a retail business loan. Compare establishment fees, ongoing fees and any penalties that apply to late or missed payments.
Loan terms. How long will you have to repay the funds you borrow? Is it a short-term loan of less than 12 months, or will you have several years to pay off your debt? Whatever the case may be, remember to calculate how the loan term will affect your regular repayment amount and the total cost of the loan.
Repayment schedule. Next, take a look at the repayment schedule attached to the loan. Will you be able to comfortably afford each regular repayment? Does the finance option provide flexibility with repayments, such as tailoring repayments to match your fluctuating cash flow?
Loan risks. It's also important to consider the risks attached to each loan. For example, will you need to offer any assets as security for the loan? If you're taking on a large debt, what will the consequences be for your business if you can't afford to make repayments?
How to maximise your chances of getting approved for a loan
Many lenders view retail businesses as higher-risk borrowers than other types of businesses, largely due to the fact that an economic downturn can have a significant financial impact on many retail operations. With this in mind, it's important you prepare the best possible loan application to increase your chances of approval.
Keep the following tips in mind when you apply for a retail business loan:
Develop a comprehensive business plan. Your business plan should outline the future trajectory of the business – that is, the service you will offer to customers and how you will make a profit. Be realistic with your forecasts and goals, and include as much relevant information as possible to help the lender develop a complete picture of your business.
Provide comprehensive financial information. If you're starting a new business, detailed forecasts of sales, ongoing expenses and cash flow will be essential. If you're buying an existing retail business, you'll need to supply information about the business's current financial performance, including tax returns, a statement of profit and loss and a balance sheet.
Put up security if possible. If you have an asset that you can offer as security for a loan, for example a property you own, this won't just strengthen your chances of approval but can also increase your borrowing power.
Rely on your track record. Finally, if you've got a prior history of successfully running a retail business, remember to include this in your application.
Frequently asked questions about retail business loans
You can find more details in our guide to how to develop a business plan.
Lending criteria vary depending on the business loan and lender you select. As well as being 18 years or older, you may also have to meet requirements such as:
Your business must be registered in Australia
Your business must exceed a specific minimum annual turnover
Your business must have been operating for a minimum period of time
Yes, it's still possible to qualify for a loan, but you'll face more of a battle to find a lender willing to offer you funds. The best way around this is to put together a comprehensive business plan and financial forecasts, and consider asking a mortgage broker to help you compare the available finance options.
No, you will instead need to lease the premises from the owner or operator of the shopping centre.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
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