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Best Retail Finance Options for Small Businesses

   Tuesday, 16 January 2018 14:03 PBC Blog

Best Retail Finance Options for Small Businesses

The amount a small business will need in terms of working capital depends on the nature of its business, the challenge at hand and other factors.  In most cases, small businesses often require short-term financing in order to meet up with various obligations such as payroll, equipment purchase, or even expansion. Short term finance otherwise known as retail finance is often what is required in these scenarios. There are various sources of small business finance and learning how each would impact the business could enable small business owners to make informed decisions. Some of these sources include trade credit cash credit, bank loans, and overdrafts, all of which fall under the umbrella of bank credit. Of course, there are also nontraditional sources of business finance for small businesses. Some of these include invoice factoring, online lending, and the very popular one—merchant cash advance, or cash advance for short. It is the purpose of this article to examine all of these sources of retail finance with a view to finding which one of them could be most valuable to a small businesses that are in dire need of cash, as well as those who would not ordinarily qualify for traditional business financing as a result of poor credit score, inability to provide collateral, and other factors.

Read More: Loans for Small Business Owners Through Merchant Cash Advance

Why do Small Businesses Often Require Short-Term Financing

Before taking a look at the various sources of small business funding, it is important that one understands in detail what purpose retail finance serves.  One major reason why small businesses require short-term business funding is that they need to meet up with day to day activities, enabling a business to be run smoothly. One other equally important reason is that it enables the business to hold stock of raw materials as well as finished products.  Furthermore, it is only a business that has ready access to credit facilities that can sell goods on credit to customers. This is because it is not often possible for a business to know the exact time a customer who has purchased goods on credit will repay. So it behooves a business to find a good source of retail finance in order to keep up with production during the time debts are being recovered from customers. Most small businesses would also require short loans of some sort if there is a need to increase the volume of production over a short period of time. One reason a business could need this expansion is if it wishes to take advantage of a particular opportunity which has necessitated a much higher demand for its products, especially when it cannot obtain the money required for this from within the business. Lastly, retail finance might be required in order for a business to have funds available during its working cycle. The working cycle of a business is that time between when the production of a particular product begins and when it is sold. Having said that let us take a look at some of the most common sources of short-term business financing.

Some of the Most Popular Sources of Small Business Funding

Bank Credit

The most popular source of retail finance and indeed any other sort of business finance is the commercial bank. Commercial banks have been known to grant short-term business loans in the form of bank credits. Bank credit is simply the umbrella term for loans, overdraft, cash accredit, as well as discounted bills which a business could obtain from a commercial bank. Bank credits might be such that a business obtains the fund fully in a single instance; it could also be such that a business draws on it when and as needed. The most popular form of bank credit is a loan which is advance that a bank issue to a business and which it is expected to pay back after some specific period. The business which obtains a bank loan is typically required to pay interest on the whole amount; and often times, the bank could make the first monthly deduction from the loan amount. There are lots of things a bank considers before issuing retail finance to a business. One of those things is collateral and the other is the financial strength of the business which helps the bank to determine whether or not the business would be able to meet up with monthly payments after carrying out its routine expenses.

Banks also give cash credits to small businesses under certain circumstances. A cash credit can be seen as an arrangement between a bank and business in which the business is allowed to withdraw cash up to a certain limit. This specified limit is technically known as the cash credit limit. In most cases the limit is granted for a period of a one year at the initial stage; however, it can be extended for an extra year making it 2 years in succession after a review process. Once a business has obtained this sort of retail finance for two straight years, it can only utilize it again after a period of 3 years. One unique feature of a cash credit is that interest is charged only on the actual amount that business draws and not on the limit. But just as it is with loans, collateral and other forms security are a core requirement for a cash credit. Lastly, bank credits could come in the form of overdrafts. A bank overdraft allows businesses which hold an account in the lending bank to withdraw amounts that are beyond their balance. For a business to be eligible for an overdraft it must be creditworthy as seen from the perspective of the bank. Although there is lesser interest charged on a bank overdraft compared with what is charged on a cash credit or loan, it only provides a small amount of money, typically less than $2000.

Invoice Factoring

Invoice factoring is another way through which a small business can obtain the much needed retail finance, howbeit in an indirect form. Unlike most other sources of business funding, invoice factoring does not provide external cash to a business; rather it makes internal cash to be retained within the business for much longer. In simple terms, invoice factoring involves a business selling its invoices to a factoring company in exchange for a lump sum of cash.  The factoring company is a result of this transaction is empowered to collect the debts owed the business by its customers. However, the amount the factoring firm gives to the business is not exactly equal to the debts; rather the amount is around 90 percent or so of the debts. The percentage of the debts that the business gets in the way of a loan is often determined by how much easy it would be for the factoring company to retrieve the debts. It can be seen that not all businesses qualify for this sort of retail finance; in addition, getting an invoice factoring can be sometimes challenging.

Online Lending

Online lending is another good source of small business funding. These days there are lots and lots of online lenders who are eager to provide quick business loans that are often unsecured to firms which fall short of the usual bank criteria: collateral, good credit score, strong cash flow; experience in business as per the number of years of operation.  Online lenders typically charge very high-interest rates as compared with traditional sources of retail Finance. Although online business seems to be gaining popularity among small business owners especially because of the speed with which loans can be obtained, businesses have reasons to be worried. First, it is actually preferable to borrow money from firms which have a physical location as this assures all parties that the transaction is genuine; moreover, problems will more easily sort out. And since online business lending is still at the juvenile stage, lenders can abruptly go out of business, causing so much distress for borrowers.

Merchant Cash Advances

If there is any single source of retail finance that tends to compensate for the limitations in the other sources, then it is merchant cash advance.   A merchant cash advance is an unsecured form of financing which removes the problem of collateral and personal guarantees, enabling businesses that hitherto could not access bank loans to have access to funds. The issue of credit score which is also a major hindrance to small businesses is also eliminated. This is because merchant cash advance providers do not require a business to have a good credit score before it can be issued with an advance. Instead, what is often required is for the business to have minimum monthly revenue of $5000.  The problem of delay which is often associated with bank loans does not occur in merchant cash advance. Merchant loans can be processed within one week and the cash delivered to the business. Because retail finance is mostly used to tackle immediate problems in a business, a merchant cash advance is likely the best bank alternative available to a small business.

Read More: Self Quiz: What Funding is Right for my Small Business?


All in all, even though a merchant cash advance is more expensive than a commercial bank loan, for example, closer examination often reveals that it more than justifies its cost. With merchant cash advance having an approval rate of almost 90 percent, small business owners surely know where to look if in urgent need of business finance.


We provide two highly accessible financing programs that can get your business the working capital it needs in days instead of months.

For a small business, obtaining a traditional loan today is a complex and difficult process. That’s where Premier Business Capital comes in. 

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