There are three types of business loans which are very popular with retailers. We venture to look at each of these, and what exactly it entails. All this is against a background where the type of business done by retailers tends to be very unique – such that they can’t really benefit from many of the traditional business financing approaches. For one, situations often come up in the retail business where money is needed urgently, and there is no time to go through the process of applying for ‘traditional’ forms of business financing.

Against that sort of background, the three types of business loans popular with retailers include:

1. Bank overdrafts: this is where a retailer may get into an agreement with a banker that, whenever need arises, they’d be allowed to overdraw their accounts (that is, to withdraw more money than that which is in their accounts – subject to pre-agreed limits). They’d then deposit money into their accounts to repay that overdrawn sum within a certain duration of time: normally within a year. Such arrangements are usually only available to retailers who have, over time, developed very good relationships with their bankers.

2. Merchant cash advance: this is where a retailer gets cash from one of the lenders who offer such credit facilities, with future credit card (and/or debit card) sales as security. Having taken the merchant cash advance, the retailer allows the provider (the firm which gave the advance) to access his or her credit card and/or debit card payments gateways directly. The firm then deducts a certain sum of money from payments flowing to the retailer who took the advance through the credit card and/or debit card payment gateway, till the advance (and interest on it) is repaid. Of course, in this duration, the merchant cash advance lender doesn’t take everything coming through the payment gateways: just a reasonable amount, to ensure timely repayment of the advance.

3. Trade merchandize credit lines: this is where, rather than borrowing cash, a retailer gets into an agreement with a wholesaler (or any other sort of supplier), to be getting merchandize for resale on credit. The retailer in question then repays the wholesaler (or whichever other supplier) when they manage to sell the stuff thus ‘lent.’ Thus, a retailer with a relatively limited capital funding is still able to maintain a well-stocked retail outlet, through these trading merchandize credit lines extended by suppliers.