Funding for Retail Business

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Overview of the Retail Industry

Research says, including e-commerce and retail establishments like grocery stores, bookstores etc., the total retail sales in the United States are anticipated to amount to 7.9 trillion U.S. dollars in 2026 from around 6.6 trillion U.S. dollars in 2021 (as per statista.com). 

The above statistics speak for the highly competitive domestic retail market in the United States. Walmart, considered the leading retailer in the US, sells a wide variety of products at prices, much lower than the other retailers. The global retail industry is segmented by products (food and beverages, personal and household care, apparel, footwear, accessories, furniture, toys, electronics, household appliances, and other products), distribution channels (supermarkets/hypermarkets, convenience stores, department stores, speciality stores, online portals, and other distribution channels), and geography (North America, Europe, Asia-pacific, Latin America, and middle-east and Africa).

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      Trends Affecting the Retail Industry

      Asia-Pacific retail market

      With the increasing disposable incomes of both the rural and urban households, the spending capacity of the Chinese population has increased substantially and the retail market has turned into one of the most powerful and constantly-growing consumer markets in the world. Today, India accepts up to 100% FDI(Foreign Direct Investment) in single-brand retail and not more than 51% FDI in multi-brand retail. Besides, the growing popularity of Asian countries like Thailand and Indonesia in the tourism sector is expected to increase the demand for imported products, especially in the hospitality sector.

      Cut-throat competition

      The industry is quite organized but highly competitive with companies expanding stores and considering the business potential in new areas, every day. Most conventional retail stores in developed economies, like Europe and North America, are rapidly getting transformed into big retail hypermarkets, supermarkets, and other retail chains, immensely contributing to the market growth. However, the developing economies of Asia-Pacific, the Middle East, and Latin America are also witnessed to drive the global retail market growth. Asian tourist-attracting countries like Singapore, Malaysia, and Thailand, are popular shopping destinations in the Asia-Pacific region. The visitors extensively contribute to the retail sectors in the respective markets.

      Technological Advancements backing the growth of the e-commerce industry.

      The increasing popularity and acceptance of smartphones, in both rural and urban areas all over the globe, is one of the primary growth initiators of the e-commerce industry. Also, IoT, augmented reality, and other disruptive technologies are reshaping the retail industry. Besides, the price differences between the online and brick-and-mortar stores often threaten the retail market growth.

      Increasing Popularity of sustainable retail practices

      Buyers of the younger generation, today, prefer to purchase products of the brands that take upon social and environmental responsibilities and implement sustainable retail practices like setting up more energy-efficient stores, diversifying the supply chain partners and initiating more local sourcing. Many brands, these days, are presenting rental and subscription models to drive constant revenues.

      WHY NEED FINANCE?

      1. To purchase the most advanced equipment or repair/maintain the existing ones.
      2. To stock up inventory.
      3. To hire skilled and experienced sales executives, and train them.
      4. To carry out impactful marketing campaigns, which often drain a lot of money, and attract maximum potential buyers. 
        To rent out or purchase a suitable business premise to set up the retail store. 
      5. To pay for urgent store renovations.
      Funding for Retail Business

      MCA for Retail Businesses

      Definition

      A retail Merchant Cash Advance(MCA) is the sale of a specific percentage of the retail business’s future revenues, in return for a lump sum amount. Technically, a cash advance is a way of getting funds by selling a portion of the future revenues at a discount. 

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      Types of Retail Cash Advances
      ACH Retail Cash Advances

      ACH Retail Cash Advances relies on the repayment that comes directly from the borrower’s business bank account.

      Retail MCA Split

      Retail MCA Split allows the funder to split each day’s credit card transactions to make the repayment process easier.

      Repayment Structure

      The funds are provided in return for a certain percentage of the borrowers’ future daily credit card/debit card sales and the payable amount keeps on getting deducted directly from the borrower’s bank account or merchant account, till the entire amount is repaid. An MCA is priced based on a factor rate, which is generally between 1.1 and 1.5, depending on the industry type, average monthly credit card sales, the amount required and the trade history of the retailer applied for MCA.

      Funding for Retail Business
      APPLICATION PROCESS

      As we mentioned before, the application process is simple.
      We will break it down for you step-by-step.

      Step 1
      Funding for Retail Business

      The borrower needs to provide the lenders with social security numbers as well as signatures to get the credit pull authorized.

      Step 2
      Funding for Retail Business

      IMCA lenders ask for sales volume by card type, return frequency, processing fees, chargeback history, monthly costs, batch frequency, average transaction size and processor imposed reserves. The borrower needs to submit all pages of each bank statement, besides the above-mentioned documents. Articles of Incorporation, K-1 of recent business tax return, business property lease, any photo ID, voided cheques, recent business tax return and financial statements are also needed to be submitted.

      Step 3
      Funding for Retail Business

      The underwriters then get in touch with the borrower’s vendors, business property landlord, if any, or the bank holding the mortgage on the business property, to understand if the business has the permission of continuing operating in the same location at least throughout the loan repayment time frame.

      Step 4
      Funding for Retail Business

      The lenders contact the borrowers over calls to review the business information, discuss the use of the advance and assess the borrowers’ willingness to follow through with the contract terms. Some MCA providers hire inspection firms to perform a site inspection by visiting the borrowers’ location to verify the address, examine inventory and take note of the number of credit card machines available on site.

      Step 5
      Funding for Retail Business

      Finally, the repayment method is decided on and approval is given. The funds get transferred to the borrower’s business account within 48 to 78 hours.

      Primary benefits of opting for MCA

      Funding for Retail Business

      A retail cash advance provider does not restrict the usage of the funds. Hence, the borrower can use the funds in multiple operations like marketing, advertising, inventory purchasing etc.

      Funding for Retail Business

      A retailer, especially one who is trading in the garments sector, often requires money on an urgent basis to pick up a particular collection, that suddenly got popular after a celebrity or an influencer promoted it online. A retail cash advance offers same-day approvals.

      Funding for Retail Business

      Retailers with low credit scores are also eligible for retail cash advances. Retail cash advance providers are more interested in the applicants’ monthly, weekly and daily income, rather than their credit scores.

      Business Line of Credit for Retail Businesses

      Definition

      Technically, it is a revolving credit that allows the borrower to withdraw only the required amount from the total approved amount. In the case of a Business LOC, the borrower must pay interest only on the withdrawn amount, but, the borrower must maintain the balance by repaying the amount that has been withdrawn. This type of financing is often used over 10 to 15 years.

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      Benefits
      • Business LOCs offer flexibility, in terms of amount withdrawal and payable interests. 
      • The best way to anticipate the future possibilities of a business idea is to open a pop-up store, instead of a full-fledged retail store. Business LOCs offer funds that can be used in renting space, obtaining permits and licences, renting out furniture, creating branded materials, hiring part-time or contractual staff etc. 
      • It can be used to expand the existing product lines. Using a Business LOC, a retailer can stock up on additional size and color options for a single product, create a new product line to complement the existing one or expand to a new vertical. 
      • The funds from Business LOC can be utilized to enhance the marketing efforts, integrate automation and also optimize the company website.

      More info on Merchant Cash Advances (MCA) & Retail Business

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