Understanding Common Small Business Loan Terms for Retail Business Owners

When it comes to choosing the right small business loan for your retail business, factors such as loan total, interest rate, and repayment amount are all important to consider. And while these loan factors should all go into your decision-making process, many business owners and retailers alike focus heavily on a loan’s repayment term to help them make sure they’re choosing the best financing option for their business.

Selecting a funding option with a loan term that will set your retail business up for success rather than financial stress is key in choosing a lending partner. Many retailers are continuing to face the after-effects of COVID-19, and a new business loan should help you reach your business goals in a changing market rather than hinder them.

When you’re ready to discuss business financing, a great place to start is by familiarizing yourself with common small business term loans for retail business owners.

What is a Loan Repayment Term?

A loan’s repayment term or business loan term details how long a borrower has to pay back their loan. Ultimately, a loan’s term determines both your capital position (i.e., how much cash you have/need) and how much your small business loan will cost once it’s completely paid back including interest if applicable.

Business loan terms vary greatly depending on the lender you access your loan through, and it’s important to understand all the details of a loan before signing on the dotted line.

8 Types of Small Business Term Loans

To help you make the best decision for your retail business, we’ve compiled a list of eight common business loans and their corresponding repayment terms. While this list is not exhaustive, the following business loan terms can help guide your research as you determine which business financing option best suits your unique needs.

1. Loans from Large, Traditional Banks

Larger, traditional banks typically offer loan terms ranging from 3-10 years, depending on the specific option you choose. In addition to a longer-term loan, these banks usually have more stringent requirements and may entail a cumbersome application process which can often lead to a lengthy approval process.

These requirements can leave some small business owners on the outside looking in. And those that have less than two years of established business credit, or who don’t have a good business and personal credit score, typically have a harder time getting approved for a traditional bank loan.

2. SBA Loans

Small Business Administration (SBA) loans, which are facilitated in conjunction with certain banks, have terms that are even longer than bank loans. For example, the loan term for an SBA 7(a) loan can have a maturity term up to 25 years.

While loans through the SBA allow for plenty of time to repay the loan, competition for these loans is fierce, and the approval process can often take anywhere from one month to six months. It’s not uncommon for some applicants to spend months with various loan officers, submitting a range of documents such as business plans, resumes, financial statements, and credit scores to move their application along.

Because of this lengthy application process, many retail business owners don’t bother applying for SBA loans. As a retailer, your time is extremely valuable, and sinking months into an application can often be better spent focusing on running your store or e-commerce business.

SBA Bridge Loan

Alternatively, if you’ve already applied for an SBA loan and are awaiting a response on your application, it may be worthwhile to look into an SBA Bridge Loan.

Mulligan Funding’s working capital loans can be utilized as SBA Bridge Loans to help with business owners’ short-term financing needs while they await approval on an SBA loan. This loan product has a 12-month term and serves as a reliable back-up plan for business owners who may not be able to afford to wait months for the SBA’s approval.

With a low cost of funds, this product also features competitive early pay off discounts and no prepayment penalties if borrowers wish to pay the loan off within the first 6 months.

3. Purchase Order Financing

Purchase order financing may be worthwhile for retail business owners looking for business funding to cover a gap in cash flow. In essence, purchase order financing involves selling a purchase order to a lender who fronts the cash needed to fulfill an order. Once the order is filled, the lender collects payment directly from the customer and remits the balance to the business owner after deducting the financing cost, fees, and any interest.

Unlike traditional bank loans and SBA loans, purchase order financing can be put in place relatively quickly. However, the term is usually short – typically 1-2 months. And as noted above, the lender takes out all of the principal plus interest from the payment received.

For this reason, some small retail business owners steer clear of purchase order financing. Though the funds are typically available quickly, the need for more capital so soon after finalizing a purchase order loan can be unappealing – especially for retailers who may be looking to expand their business with a new location or make other higher-commitment improvements.

4. Equipment Financing

Equipment loan financing provides business owners with the capital needed specifically to purchase necessary business equipment. This type of financing can be useful for retailers and other product-based businesses looking to improve their operations or increase their product line with updated equipment.

A medium-term loan option, equipment financing usually comes with a loan term of 3-7 years. Depending on the equipment needed and your unique retail business, an equipment loan may or may not be the best funding option to choose.

For example, if you purchase new equipment to increase production for your store and have a longer term, the equipment you purchase may not withstand the lifespan of your loan’s term. In other words, select your loan carefully to make sure the equipment you invest in will pay off long after you’ve repaid the loan. Otherwise, you may find yourself needing improved equipment yet again while still paying off your first loan.

5. Business Line of Credit

If you’re looking for an alternative to a business loan, a business line of credit may be worth researching. Business lines of credit are typically shorter-term options that largely depend on the details of your agreement.

Similar to a credit card, a business line of credit operates as additional cash flow for your business with a limited amount of funds you can use per month. At the end of each month, borrowers can make payments on the credit used or pay the balance off completely. Minimum payments will incur interest just like a credit card and you’ll only be charged for the credit you use.

Business lines of credit can be particularly useful for businesses who are looking to fund short-term business needs. For example, retailers may find a line of credit particularly useful to keep up with seasonal product demands or even to make smaller, one-off improvements to their store. Additionally, lines of credit can also be helpful to have on-hand for emergency situations or scenarios that may be costly, but are unpredictable such as damages to a store or merchandise or even economic changes.

6. Merchant Cash Advance

Business owners may also want to consider a merchant cash advance to supplement their business funding needs. An MCA operates differently than your typical business loan, and is an advance payment on your business’ future revenue.

While most MCA terms are on the shorter side, the specific terms of the agreement depend entirely on your business’ cash flow. With an MCA, a lender will provide you with capital upon your approval and once funded, a portion of your revenue will go directly back to the lender until the agreed-upon amount is repaid. Since sales volume tends to fluctuate, the amount of your repayments will fluctuate accordingly.

Retailers and similar businesses may find an MCA useful for their flexibility. An MCA can be used for a variety of purposes such as covering payroll costs, making repairs, and stocking up on inventory². So long as the funds are used for your business, you have the flexibility to spend the money how you’d like.

7. Invoice Financing

Invoice financing is an asset-based lending option for businesses who are looking for faster access to capital. Sometimes called accounts receivable financing, this funding option is typically used for short-term needs.

With invoice financing, a business owner can sell their overdue invoices to a lending partner who will purchase the outstanding invoices, typically for anywhere up to 85% of the total amount owed. Once the customer remits payment, the business owner receives a portion of the invoice amount back after paying fees and any other outlined costs in the agreement with the lender.

Through invoicing financing, a business owner can be freed up to pay for other business expenses that they may not have otherwise been able to afford due to outstanding payments from customers. For example, a retail business owner could use invoice financing to cover the costs of store improvements or hiring additional employees.

8. Working Capital Loans

For general cash flow needs, your retail business may benefit from a working capital loan. This type of financing allows for more flexibility so long as the funds are used for business purposes².

Working capital loans through Mulligan Funding have terms that range from as little as three months up to 24 months. Most of them fall somewhere in the middle, which is the “small business loan sweet spot” – the ideal duration that gives small business owners the time they need to pay back their loan, while minimizing their interest costs.

Plus, when compared to large, traditional banks, we have high approval rates, don’t require collateral, and applicants don’t need perfect credit to get approved. Our application process is streamlined, and our approval process is quick*! Typically, applicants can be approved within hours and receive funding as soon as the business day after approval.*

Learn More

Call Mulligan Funding at 855-326-3564 to discuss your financing options today!

The information shared is intended to be used for informational purposes only and you should independently research and verify.

Note: Prior to January 23, 2020, Mulligan Funding operated solely as a direct lender, originating all of its own loans and Merchant Cash Advance contracts. From that date onwards, the majority of funding offered by Mulligan Funding will be by Loans originated by FinWise Bank, a Utah-chartered Bank, pursuant to a Loan Program conducted jointly by Mulligan Funding and FinWise Bank.