Donatella Versace once said, “It’s very important for a brand to have an identity through the years, but it’s very important as well to evolve because times change so fast.” Are you looking to build your brand and keep up to date with fashion trends? See what types of business loans for clothing stores could help your shop get ahead in a continually evolving industry.
Financing Your Clothing Store for Success
Unless you have an angel investor in your corner (or a winning lottery ticket), chances are you’ll need to apply for financing at one time or another while you’re in business, and there are many instances when you might seek funding. Here are a few.
Build an Online Store
You’ve been in business for years and your brick-and-mortar store has consistently been in the black. Projected revenues are only expected to increase. You’ve realized a mobile-friendly online store could really take your business to another level. Your existing customers could shop from the comfort of their home, or even when they’re out and about. You could also attract new customers who might not otherwise visit your storefront. You’re not tech savvy, so you’re considering hiring a professional to build your e-store and advertise your business online. The challenge now is figuring out how to fund this new venture.
Invest in an Inventory Management System
Have you been using Excel spreadsheets or pen and paper to track your inventory? Are you interested in transitioning from handwritten price tags to barcodes? If you’re looking for a more accurate way to monitor and reorder stock, consider purchasing an inventory management system with inventory management software, barcode scanners and label printers.
Advertise Your Clothing Store
Maybe your clothing store’s in a bit of a slump and you’re looking to drive business. Or perhaps business is booming but you want to market to a new demographic and expand your existing client base. You’re considering where best to market your boutique: magazines, billboards, the internet, social media, TV, radio. So many options, but they all cost money — money you either don’t have or can’t tie up.
You’re planning your showcase collection for the upcoming spring season. After attending several clothing trade shows, you’ve narrowed down the field to a few suppliers you want to work with. In order to buy from them, you need to meet a minimum order quantity. However, doing so would eat up all your cash reserves. So you’ve decided to research what type of clothing store loan will help fund your inventory purchase. Let’s take a look at several top options you might consider.
How Much Can My Business Qualify For?
Best Financing and Loan Options for Clothing Stores
When it comes to financing clothing store expenses, you have options. Get funding for working capital, inventory, emergencies and more. Consider the following types of financing and business loans for clothing stores.
The U.S. Small Business Administration (SBA) partners with lenders throughout the country to provide small business owners with competitive loan terms and flexible borrower requirements.
The SBA guarantees a certain percentage of each loan, from 50–85%, depending on the loan type. Because of this, SBA-backed loans pose less of a risk for lenders, reducing the challenge small business owners often face when applying for traditional bank funding.
Popular SBA loans include the 7(a), which offers funding limits up to $5 million and maximum repayment terms of 10 years for working capital, equipment and inventory and 25 years for commercial real estate.
If your borrowing needs don’t exceed $350,000 and you need quick access to funds, consider the SBA Express loan. Interest rates are slightly higher than 7(a) loans, but you could receive funding in as few as 30 days.
Another type of small business loan for clothing stores is the term loan. Term loan financing provides one-time funding that you can use for nearly any retail business endeavor. Term loans can vary from short- to medium- to long-term.
Short-term loans can have repayment terms as condensed as 3 months, typically with daily or weekly payments until the loan is paid off. In contrast, longer term loans may be repayable in 1-5 years or more, depending on the lender. You could find term loans with maximum funding limits up to $500,000.
Business Lines of Credit
Business lines of credit are a great option for your retail store if you’ll need access to funding more than once. Keeping your account in good standing is also a solid way of building your credit history.
Business lines of credit function in a similar way to a credit card: Once approved, a lender designates your credit limit. You’re able to borrow funds up to that amount at one time or over the course of time your account’s open.
As you pay down your debt, your credit line goes up incrementally. The highlight? You’re only charged interest when you incur debt. Some lenders may charge an annual fee for a business line of credit, though, so be sure to read the fine print.
Merchant Cash Advances
If you’ve been in business less than a year and your credit score is making it tough to get a conventional loan, consider an alternative – the merchant cash advance (MCA). Depending on the lender, you could get funding in as quick as a day. Advance amounts are based on your clothing store’s projected revenue and cash flow.
Depending on your MCA type, your payments and term may be fixed or vary based on your business sales. With this type of financing, you’ll make payments daily or weekly, and your advance fee is determined by what’s known as a factor rate (not an interest rate) and it’s expressed in decimal form, such as as 1.14. To determine your total payback amount, you would take the amount you were advanced and multiply it by your factor rate.
Where to Find Clothing Store Loans
Not only do you have a variety of loan options to consider when researching where to find clothing store loans, but also a number of lenders as well. Should you apply with a conventional bank, credit union or online lender?
Conventional banks and credit unions are known to offer competitive interest rates and repayment terms. In order to benefit from their terms, though, you’ll need to undergo an extensive application process, and provide multiple business documents, such as a business plan, tax forms, bank statements and profit-and-loss documents. You’ll likely also be required to meet stringent borrower requirements and may need to put up collateral to secure your loan.
Alternative lenders offer another option. They’re known to offer fast access to funds and streamlined applications. These upsides generally equate to shorter repayment terms and higher interest rates. Consider which factors are most important to you when researching lenders and business loans for your clothing store.