November 27, 2019

Business Financing Options Available for Brick and Mortars

Tags

  • Business Finances

  • Small Business Loans

For instance, people who love to shop want to see products in-person before making a purchase. Luckily, these kinds of shoppers keep brick and mortar retailers in business! As long as brick and mortar companies exist, they'll need business financing to keep their operations going. In this post, we'll list the top brick and mortar financing options that are available.

Reasons for Small Business Financing

One of the biggest reasons companies use small business financing is to stay afloat when cash flow shortages occur. By applying for additional working capital, business owners don't have to worry about where to find cash to fund the next operating cycle. Another reason to pursue financing is to keep up with competitors. For example, companies that have lagged in purchasing new equipment or haven't kept up with technological advances may end up scrambling to catch up. In addition, within payroll and human resources, funding may be needed for seasonal shortfalls of workers.

Inventory Management

Inventory is any item that your business owns that you intend to sell in the future. For companies, the quicker these future sales occur, the better. Inventory costs money to sit in warehouses, whether it’s the finished goods or raw materials. Having efficient inventory management will help keep inventory at optimal levels. A goal of inventory management is to have enough, but not too much of the products and the components needed to make new products. Coordinating tasks for buying materials, storing them, and then creating the finished goods is part of this inventory management. Modern inventory systems are designed to streamline these processes, which improves efficiency and lowers costs. While efficient inventory management systems can help, cash flow shortfalls can still occur during the normal operating cycle. When products are sold, customers are often given terms, which means the cash flow to replenish the stock may not be available. This is a common challenge for inventory managers.

Payroll and Human Resource Management

It would seem that payroll and human resources (HR) should be two separate functions in a company, but there's an overlap. Payroll handles the regular paychecks for employees, but HR is responsible for approving incentives for employees. In smaller companies, the HR department can often serve the role of the payroll department. Many companies rely on temporary workers due to seasonal surges in customer activity. Retailers and package delivery companies may need extra hands during the holidays. Farmers will need more people during the harvest season. An HR representative will likely be responsible for coordinating these seasonal adjustments even if the payroll department will take care of the actual payments to these temporary workers.  Whichever department handles the payment issues with temporary staff, this function costs money. As it is a short-term funding need, a working capital loan would be the appropriate type of funding in this instance.

Equipment Purchases

Equipment is essential to the operation of many businesses. Old equipment will either break or become obsolete, no longer serving the needs of the business. When it’s time for new equipment, business owners may decide to fund the purchase of this equipment with a loan. Depending on industry, equipment is expected to last for a few years. This provision will likely require a longer-term funding option, and equipment loans are often a good match for these purchases.

Technology Improvements

Technology changes constantly. Each new development promises to outdo any previous versions. Business owners must determine the benefits and compare against the risks before making investments into this new technology. Some business owners wait too long, though, believing that workers should make do with the technology that exists. However, once competitors latch onto a new technology that proves beneficial, they suddenly have the upper hand, as they’ll use that advantage to steal customers. While spending money on technology makes sense in the long run, it requires a good strategy. Buying the latest-and-greatest is not a winning strategy and will cause businesses to borrow too much money. Smaller companies often don't contain the expertise needed to guide a technology strategy. Hiring qualified people may be a good place to start.

Types of Technology Improvements

  • Robotics and Artificial Intelligence which helps automate business processes
  • Improved POS systems or new systems for startup companies
  • Digital strategy including websites, apps, and eCommerce
  • Machine learning for market basket analysis, predictive analytics, and fraud detection
  • Cloud technologies and collaboration software
  • Systems Integration that ties all subsystems together (accounting, supply chain, inventory management, AR/AP, order processing)
  • Business Analysis Dashboards (Tableau, Power BI)
  • Product identifiers such as RFID tags and WiFi chips

Going Mobile/New Locations

Hop aboard a train or bus commuting into a big city and, you’ll likely see most of the passengers focusing on their smartphones. Although these mobile warriors won’t always have a signal, they prepare their reading lists the night before. Business pages that get on these reading lists will have an advantage over competitors. Mobile access is a crucial component that businesses must take into consideration. At a minimum, websites must be responsive, which means mobile-friendly. Search engines like Google will penalize websites that aren't.  As mobile access has infiltrated our world, business owners can take advantage of this phenomenon. A mobile-based strategy will enable businesses to attract and keep customers. In fact, an article in Mobile Marketing magazine is calling this the “Brick-and-Mobile” revolution. That's a good way to look at it. Another way for small business owners to use financing is to open new physical locations. This is a big step and often requires the creation of a feasibility study. Depending on the type of business, this option is capital-intensive and would require longer-term funding options.

The Different Business Financing Options Available

As there are different business financing for brick and mortar options available, business owners may become confused. These are some common financing examples:

Equipment Loans 

An equipment loan helps businesses obtain funding to use for business equipment. Equipment wears out, or when businesses are starting out, new equipment is needed. When considering this loan type, you should determine whether to lease or buy the equipment. Your lender may help you with this choice. You can learn more about equipment loans from a post on the topic.

Small Business Loans

A small business loan may be the perfect option for seasonal businesses. This loan-type has a short-term duration and can be funded up to $500,000. Another advantage is that a decision is often quick, and funding can be available within 72 hours. 

Inventory Loans

For inventory management, loans are available specific to this business function. This loan is harder to obtain as lenders will look at several factors, including credit scores, personal finances such as bank statements and expenses. For more information on the qualifications for this loan, see our page, How to Apply for an Inventory Loan.

Traditional Commercial Lending

For businesses that have large capital requirements with long-term needs, a traditional business loan may be the right choice. This option can be difficult to qualify for, but for businesses that qualify, the interest rates are relatively low. Business owners seeking this option should expect to put up a personal guarantee and collateral. Also, a business plan may be requested by the lender. Once you submit your application, it can take several weeks to month to determine if you'll qualify for this funding source.

Which Business Financing Options is Right For Your Brick and Mortar?

While it’s difficult to choose the right brick and mortar financing option without knowing more about the individual business, there are some guidelines that can help. In most cases, it’s crucial to match the use of funds and the duration of the loan. For example, it doesn’t make sense to use working capital funding for the purchase of expensive equipment that'll depreciate over several years. On the other hand, a long-term loan may be overkill for cash flow shortfalls. If you want more information about choosing a small business loan, you can read the guide we created here: Small Business Loan Guide At Samlend Financial, we can help you assess your financing needs. You can take advantage of our free quote form now. [cta-freequote]