Picking the best retail business loan for your specific needs means knowing where to look. We suggest you start with the top six business loans for retail:
SBA 7(a) loans. Best for general expenses.
SBA 504/CDC loans. Best for commercial real estate.
Business lines of credit. Best for sustained cash flow gaps.
Short-term loans. Best for time-sensitive expenses.
Equipment financing. Best for specific fixed assets.
Inventory financing. Best for stocking shelves.
Let’s take a closer look at the top retail business loans by category. Whether you own a flower shop or a bespoke mustache wax boutique, there’s bound to be a loan for your company that will help hedge against downturns, cash flow-stifling bills, and changes in your customer trends.
Retail business loans: Everything you need to know
Now that you’ve made it through a quick overview of the six best retail commercial loans for small businesses, let’s dive right into the details.
Here’s an in-depth description of the top six retail business loans and who should apply for each of them.
1. SBA 7(a) loans
There’s a reason everyone—us, your neighboring small business owner, the US government—raves about SBA loans quite a bit. And that’s because these government-backed business loans really are the crème de la crème.
SBA loans offer generous repayment terms and super-competitive interest rates. With SBA 7(a) loans specifically, the most popular among them, there are few limitations on what you can do with the money if you’re approved.
Why are they so good? SBA loans are guaranteed up to 85% by the US Small Business Administration (hence “SBA loan”). That means banks, which do the actual issuing of the loan, end up more willing to take on your loan since they’ll get repaid by Uncle Sam in case your business takes a turn for the worse. Their risk is lower in case you can’t pay back your loan.
Who should apply for an SBA 7(a) loan?
Anyone who fulfills the minimum requirements should seriously consider applying for this type of business loan for their retail business.
That said, because of their desirability and favorable terms, SBA loans are among the most difficult small business loans to secure. If you’re a US-based, for-profit business with a proven track record of investment into your business (both money and sweat equity), you have the mandatory requirements checked off. Next, you’ll need a strong credit and revenue background.
If that’s you, start exploring what’s involved in putting together an SBA loan application.
2. SBA 504/CDC loans
Your retail business is taking off, your customers love you, and your store’s mobbed on weekends. We can’t help you with the tough decision about whether or not your company’s ready to expand its footprint or open another store. But from a lending standpoint, at least, you have options.
The best retail business loan for real estate is also an SBA loan—but it’s the second most popular program, the SBA 504/CDC loan. This is a loan meant specifically for investing in fixed assets, real estate included. Just like SBA 7(a) loans, these loans are backed by the government, so their rates are low—as low as 4%—and you can borrow up to $5 million. The SBA recently added a 25-year term to some SBA 504/CDC loans making them even more coveted.
Who should apply for an SBA 504/CDC loan?
Of course, as we mentioned above, if you can qualify for any SBA loan (7(a) loans can be used for real estate too), you should definitely try to snag one. But, again, these are the most competitive loans out there, both in terms of desirability and rates, so there’s no such thing as a shoo-in. Take a look at SBA loan requirements here.
If a 504/CDC loan is off the table for you, you can also look to term loans for real estate purchases. Bank loans are difficult to get—especially if you’re a new business, don’t have a long-standing relationship with a bank, or don’t have perfect credit—so you should see which term loans you qualify for if that seems like the right approach for you.
3. Business lines of credit
Part of the unpredictability of retail cash flow means that, even if you get approved for a retail business loan, you might not need to end up using the full amount of your loan. Why pay interest on the money you don’t need to use?
If you need to patch intermittent cash flow issues, a business line of credit is the best retail business loan for you. This type of loan is something of a hybrid between a conventional loan and a business credit card; you apply through a lender for a certain amount, but then draw only what you need, only when you need it. And when you take out money through your line of credit, you’ll only pay interest on the amount you’re borrowing.
Who should apply for a business line of credit?
A line of credit is a great option for retail businesses that need to borrow money for occasional purchases or payments. Consider the line of credit as being similar to borrowing a bit of cash to hold you over, rather than an option for making big-time investments in your company for the future.
This is one of the simpler business loans to get approved for and, if you work through an online lender, you can often get a decision very quickly too. You generally won’t need to show outstanding revenue, time-in-business numbers, or a stellar credit score—just proof that you’ll be able to repay a lender.
4. Short-term loans
It’s tough to make payroll when you get flooded with invoices—or, worse yet, when you have to cover an emergency repair, like a literal flood. You have to make sure your staff gets their checks, but need to keep your doors open for business, too.
This is where short-term loans could really help you out. Granted, this type of retail business loan isn’t the cheapest out there, but it can help out small business owners in a crunch.
Online lenders can approve eligible short-term loan borrowers fast, and get them the financing they need. The repayment periods on these loans are often less than a year, which is one of the reasons they’re ideal for quick-fix situations—like making sure your valuable staff gets paid.
Who should apply for a short-term retail business loan?
Borrowers who need to get their hands on flexible business financing quickly, and aren’t looking for a long-term solution. Payments on these types of term loans are daily or weekly, which is tough for businesses with spotty cash flow. Plus, they’re more expensive than other loans.
The upside? Bad credit is generally accepted—many borrowers get approved around a 600 credit score—which is a plus for accessibility.
5. Equipment financing
You might have a computer from 1989 that manages your inventory, and an ageless dot-matrix printer that still (theoretically) prints orders well past its due retirement. You’ve meant to modernize, but kept deferring investment to more immediate needs.
A form of funding called equipment financing allows you to get what you need and keep your business humming. These retail business loans allow small businesses to purchase any kind of machinery they need for their company—whether that’s a new computer system, an industrial bread slicer, or a new delivery van. And these loans are self-secured, because the equipment you purchase with the loan itself serves as collateral.
Bear in mind that equipment loans come with their own pitfalls. For example, your loan is still in effect if your equipment breaks, which means that you’ll be paying for a broken laptop well after its shelf life. You’ll also have to make sure you’re depreciating the value of your equipment every year as well, as the actual cost will drop as your item ages.
Who should apply for an equipment retail business loan?
If you need to make a big purchase for a specific fixed asset, this can be a great solution. And all you generally need to start the process is an equipment quote. Even newer businesses, and owners with weaker credit scores, can be considered for these loans because of the nature of self-collateralization.
Many lenders can approve qualified borrowers quickly. Interest rates fluctuate between 8-30% (dependent on the purchase and the borrower’s credit), and the terms of the loan last about as long as the equipment does. There’s little paperwork involved in equipment financing loans, too.
6. Inventory financing
Maybe you’re a clothing boutique trying to stock a trend forecasted to spread like wildfire next season, or a coffee shop that needs to tap your usual source for green beans. Regardless, there are going to be times where you need to make big inventory purchases to keep your business churning, and you might not have the cash to support it.
Yet another form of self-secured business funding called inventory financing allows you to replenish stock without having to put up additional collateral. Like equipment financing, the inventory itself is what the bank uses to secure your loan (and will sell it if you don’t repay). This means that you don’t have to tie up your business’s other property or cash in order to get an inventory loan in the works, which can be helpful if you’re operating on a shoestring budget.
Small businesses are generally best served to look outside the network of big banks for inventory loans—you’ll likely have a hard time getting the money you need. Most of the big-time lenders work with wholesalers and larger retailers only, so your best bet is to pursue an inventory loan with an alternative financing company or online lender.
Who should apply for an inventory retail business loan?
Inventory loans usually take one of three forms—a business line of credit, a short-term loan, or a term loan—that a lender issues to a borrower for the specific purpose of buying inventory.
Inventory financing can be a good solution for product-based businesses who need to stock up before busy seasons, or if a huge rush hits and they’ll have a guaranteed sell-through. That “guaranteed” part is pretty important, because inventory financing is both expensive, and also generally requires a pretty high minimum principal as compared to other loans. A lender might need you to borrow more cash than you need in order to qualify—which wouldn’t make financial sense for your business unless you know you’ll be able to sell through the investment.
You also may have to go through a due diligence period where lenders will review your financials—so if you need to seize a quick opportunity, inventory financing might not be the right option for you.
Finding the best retail business loan, no matter what you need
There are plenty of options to choose from if you’re looking to borrow money for your retail business.
Every option—whether you’re looking at a business line of credit, SBA loan, equipment financing, or anything else—comes with its own perks, conditions, and potential setbacks. Before you come to the table, make sure you know precisely what you’re looking to borrow money for—and especially for retail business loans are concerned.
Knowing your needs, plus the differences between the various loan options available to you can end up saving you a fortune in the long run.
Are Small-Business Loans Installment or Revolving?
A small-business loan provides funds to purchase supplies, expand your business and more. This type of funding can be either installment or revolving. Reviewing the credit terms of your loan offer will help you determine whether you’re being offered an installment loan or revolving credit.
Both types of loans can be found in the Small Business Administration, or SBA, loan program and at banks, credit unions and online lenders. While each can provide much-needed funding for your business, there are some key differences to keep in mind.
Installment loans vs. revolving credit
Installment loans provide a lump sum of money
An installment loan is a credit agreement where the borrower receives a specific amount of money at one time and then repays the lender a set amount at regular intervals over a fixed period of time. Typically, each payment includes a portion for interest and another amount to pay down the principal balance.
Business term loan is another common name for this type of loan. After the loan is paid off, the borrower typically must apply for a new loan if additional funds are needed.
Revolving credit provides flexible funds
A revolving loan is a credit agreement where the borrower can withdraw money as needed up to a preset limit and then repays the lender a portion of the balance at regular intervals. Each payment is based on the current balance, interest charges and applicable fees, if any. You pay interest only on the funds that you use — not the maximum limit.
A business line of credit is a common type of revolving credit. Revolving credit gives the borrower flexibility in determining when to withdraw money and how much. As long as the credit balance remains within the preset limit and you continue to make timely payments, you can continue to draw from the line again and again.
Differences between installment loans and revolving credit
The terms of a loan can vary depending on the type of loan, lender and your business’s credentials. Your loan may be a unique combination of terms. However, the following are some common differences between installment and revolving loan programs.
Withdraw as needed.
Minimum amount based on balance and interest with option to pay more.
Based on loan amount.
Based on current balance, not maximum loan limit.
Ability to renew
Not renewable, typically.
When to use an installment loan
Set loan amount is needed
If you’re confident in the loan amount you need, then an installment loan may be the right fit, especially if you need the money in a lump sum. For example, if you’re using the funds to make a one-time purchase, you’ll likely want an installment loan.
Long-term financing needs
Some term loans can offer you more time for repayment when compared with revolving credit. When you stretch your payments out over a longer period of time, it can mean a lower monthly payment. However, that trade-off typically means you’ll pay more in interest costs over the life of the loan.
Larger funding needs
If you’re looking to purchase property, equipment or other large-ticket items, there are a number of installment loans that can be used for this purpose. Revolving credit limits are often less than term loan maximums.
Preference for predictable payments
With a set monthly payment amount, it can be easier to budget for an installment loan compared with a revolving loan, where the payment varies depending on how much of the credit line you use.
When to use a revolving loan
Short-term financing needs
Revolving credit can be good to handle short-term cash shortages or to cover unexpected expenses. Some businesses use lines of credit as an emergency fund of sorts since they’ll pay interest only on the funds they use.
Fluctuations in cash flow
Businesses that experience major fluctuations in their cash flows may benefit from revolving credit. For example, seasonal businesses that don’t have consistent revenue throughout the year can use lines of credit to cover operational costs during their slow season.
Preference for flexible loan amount and payments
If you don’t know exactly how much money you need, then revolving credit will give you the option to qualify for a maximum amount but only withdraw funds as you need them. This way, you’ll pay interest only on the current amount owed.
Compare small-business loans
To see and compare loan options, check out NerdWallet’s list of best small-business loans. Our recommendations are based on the lender’s market scope and track record and on the needs of business owners, as well as rates and other factors, so you can make the right financing decision.
Advantages and Disadvantages of a Business Bank Loan
According to the Federal Reserve’s 2021 Small Business Credit Survey, banks remain the most common source of credit for small businesses — compared with options such as online lenders, community development financial institutions or credit unions.
You can use a business bank loan for a variety of purposes: working capital, real estate acquisition, equipment purchase or business expansion. To qualify for one of these small-business loans, however, you’ll likely need excellent credit and several years in business.
Before applying for a business loan from a bank, consider the following advantages and disadvantages.
Advantages of business bank loans
Flexible use of funds
Banks offer a range of different business loan products, including term loans, business lines of credit, equipment financing and commercial real estate loans, among other options. Unless you opt for a product that has a specific use case, like a business auto loan, for example, you can generally use a bank loan in a variety of ways to grow and expand your business.
When you submit your loan application, the bank may ask you to identify a purpose for the financing to evaluate the risk of lending to your business. Once you’re approved, however, the bank is unlikely to interfere if you change your intentions, as long as you make your payments. This flexibility is perhaps one of the biggest advantages when comparing debt versus equity financing.
Large loan amounts and competitive repayment terms
Bank loans are often available in amounts up to $1 million or more. Many online lenders, on the other hand, only offer financing in smaller amounts. Popular online lenders OnDeck and BlueVine, for example, both have maximum loan limits of $250,000.
Business loans from banks also tend to have long terms, up to 25 years in some cases. These loans usually have monthly repayment schedules, as opposed to daily or weekly repayments.
In comparison, online business loans typically have shorter repayment terms, ranging from a few months to a few years. Many of these loans require daily or weekly repayments.
Low interest rates
Banks typically offer small-business loans with the lowest interest rates. According to the most recent data from the Federal Reserve, the average business loan interest rates at banks range from 3.19% to 6.78%.
Although some online lenders can offer competitive rates, you’ll find that their products are generally more expensive than bank loans, with rates that range from 7% to 99%.
The interest rates you receive on a bank loan, or any small-business loan, however, can vary based on a number of factors, such as loan type, amount borrowed and your business’s qualifications, as well as any collateral you provide to back the loan. In general, the stronger your qualifications and the more collateral you can offer, the better rates you’ll be able to receive.
Relationship with a bank lender
Many banks provide ongoing support for their lending customers, such as business credit score tracking or a dedicated relationship manager to work with your business. Most banks also offer other types of financial products, such as business checking accounts, business credit cards and merchant services, if you prefer to use one institution for your financial needs.
Although some alternative lenders offer additional support and services, the Federal Reserve’s 2021 Small Business Credit Survey reports that businesses that receive financing are more satisfied with their experience with small banks (74%) and large banks (60%) compared with online lenders (25%).
Disadvantages of business bank loans
Intensive application process and slow to fund
To apply for a small-business loan from a bank, you’ll need to provide detailed paperwork that may include, but is not limited to, business and personal tax returns, business financial statements, a loan purpose statement, business organization documentation, a personal financial statement form and collateral information. You may have to visit a bank branch and work with a lending representative to complete and submit an application — although some banks offer online applications for certain business loan products.
The entire process, from application to funding, can take anywhere from several days to a few weeks, or even longer, depending on the type of loan and the bank. Some banks will also require you to open a business checking account with them before you can receive funds.
In comparison, alternative lenders typically have streamlined, online application processes that require minimal documentation. Many of these lenders also offer fast business loans — in some cases, funding applications within 24 hours.
Strict eligibility requirements
To qualify for a business loan from a bank, you’ll generally need strong personal credit (often a FICO score of over 700), several years in business and a track record of solid business revenue. Bank of America, for example, requires a minimum annual revenue of $100,000 for unsecured term loans and a minimum annual revenue of $250,000 for secured term loans.
Depending on the bank and the loan type, you may need to provide collateral, such as real estate or equipment, to secure your financing. Most banks will also require you to sign a personal guarantee that holds you personally responsible for the debt in the event that your business can’t pay.
Online lenders, on the other hand, have more flexible qualifications and some will work with startups or businesses with bad credit. To qualify for a business line of credit with Fundbox, for example, you only need six months in business, a credit score of 600 or higher and at least $100,000 in annual revenue.
Although online lenders may still require a personal guarantee, they’re less likely than banks to require physical collateral.
Find and compare small-business loans
Still trying to determine the right way to finance your business? Check out NerdWallet’s list of the best small-business loans for business owners.
Our recommendations are based on the market scope and track record of lenders, the needs of business owners, and an analysis of rates and other factors, so you can make the right financing decision.
What Are Typical Small-Business Loan Terms?
Small-business loan terms determine how long a small-business owner has to pay back their borrowed money, plus interest. Typical loan terms, also referred to as repayment terms, can vary from a few months to 25 years — it depends on your lender and the type of business loan.
You and your lender will establish a repayment schedule that shows how much you’ll pay per week or month. While reviewing repayment terms, consider eligibility requirements and annual percentage rates, which take into account interest rates and other fees associated with the loan.
Typical loan terms overview
Up to 10 years.
Up to six years.
Startups and businesses with smaller funding needs.
Up to 25 years.
Small businesses with good credit and available collateral.
Business lines of credit
Up to five years.
Short-term, flexible financing.
A few months.
Cash advances based on unpaid invoices.
Up to 10 years.
Business loan repayment terms
Term loans: Up to 10 years
Small-business term loans provide a lump sum of cash upfront that borrowers pay back over time. Online lenders and traditional banks offer them, and maximum amounts range from $250,000 to $500,000. Term loans fall into either the short-term or long-term category — for example, a long-term loan may have a repayment term of 10 years while a short-term loan from an online lender might only give the borrower from three months to two years to pay it back.
Microloans: Up to six years
Nonprofit, community-driven lenders offer microloans to small-business owners in specific regions and underserved communities. While smaller loan amounts typically mean shorter repayment terms (and this is true for some microloans), SBA microloans have terms of up to six years.
SBA loans: Up to 10 years for working capital and fixed assets; up to 25 years for real estate
SBA loans range anywhere from thousands of dollars to $5 million and generally have low interest rates. The maximum 7(a) loan term for working capital is 10 years, although according to the SBA, seven years is common. Borrowers have up to 25 years to pay off loans used for real estate.
Business lines of credit: Up to five years
With a business line of credit, small businesses pay interest only on the money that they borrow, and funds can be available within days. Some business lines of credit require weekly repayments instead of monthly repayments.
Invoice financing: A few months
Invoice financing provides businesses with a cash advance while they wait on their unpaid invoices. Like a business line of credit, invoice financing is a quick way to access cash and is one of the shortest-term financing options available. Terms mostly depend on how long customers take to pay their invoices.
Equipment financing: Up to 10 years
Equipment financing is used to pay for large equipment purchases, and then that same equipment serves as collateral. Terms vary and usually depend on how long the equipment you’re financing is expected to last.
What is a loan maturity date?
A loan repayment term describes how much time you have to repay the loan, plus interest; you might also hear this referred to as loan maturity. This is not to be confused with the loan maturity date, which is the final day of your repayment term. On the loan maturity date, the entirety of the loan and any extra associated costs should be paid.
What is a prepayment penalty?
Some lenders charge borrowers a fee for paying off their loan ahead of schedule. Typically, this is to offset the lost interest the lender expected to receive over the full term of the loan. For example, SBA borrowers with a 15-year-plus loan term are penalized for prepaying 25% or more of the loan balance within the first three years of their loan term. Check your business loan agreement to see if your lender charges this type of fee.