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Jun 2015

What is the Best Type of Loan to Get for a Wholesaler?

June 20, 2015
Capify Australia

A wholesale business is similar to an expansive marketplace, packed with an endless stream of supplies and choices for buyers. Customers either purchase the goods for personal use or reselling. To run such a massive operation, large amounts of cash are involved, and not everyone has access to it, especially industry neophytes.

Wholesalers are some of the starters in a market’s chain of selling, as they sell or supply goods to retailers, commercial stores, industrial groups, other wholesalers, and sometimes personal consumers. At times spanning the products of different industries, business owners of wholesale groups are always required to purchase a variety of goods by bulk, and this is where the world of business loan comes in.

 

Why get a business loan?

For a wholesale business sold or distributed goods aren’t the only things that come in abundance; the increase of expenditures is directly proportional to the acquisition of products to sell. Wholesalers, particularly those that supply large multinational corporations, are expected to have hundreds or even thousands of goods available. Securing those will cost lots of money, furthered by the fact that wholesale businesses earn through bulk sales – given their small profit margins.

A business loan can help ease or even erase financial burden, since lending institutions are often liquid enough to dole out large sums to approved loan applicants. A company, for instance, needs $500,000 worth of shoes and apparel to supply two established retail brands. Orders are processed at a given time, so the wholesaler has the option of going for microfinancing for quick requisitions.

The point is financial institutions are all available to give you a much needed boost in finances. Remember, huge cash-outs are common in the wholesale industry, thus having sizable capital on hand is always a must.

 

What are your options?

Truth be told, business owners have a ton of options to consider when shopping for a loan, and potential lenders come in droves. Immediately agreeing to a financial deal without some research might lead you to miss out on some of the most ideal financing solutions on the market. Here are some of your potential choices:

  • Small Business Administration (SBA) – Some governments, in an effort to help business owners, collaborate with banks to hand out funds with low interest rates, even lower than those attached to traditional bank loans. Compared to a typical loan, the SBA has more restrictions, sometimes giving out a list of things where you should use your money. The application process is lengthy and tedious, which could be a burden if you’re dealing with multiple orders, but it rewards you with lengthy payment terms and low rates.
  • Unsecured Business Loan – The unsecured business loan comes as one of your two options if you need cash fast. Wholesalers sometimes work with a plethora of quick orders, and long delays could mean potential earnings lost. Applying for the loan is normally done online with few requirements and paperwork needed, and no collateral is involved. Paying for the loan is quite convenient, since it is settled through small daily deductions.
  • Merchant Cash Advance (MCA) – An immediate need for cash is instantly addressed by a merchant cash advance. In just a few days, a lender can give you the money needed to order bulks of goods from suppliers. Applying for the cash advance is easy, provided that your business has been operational for at least several months and has the potential to earn much in the next few months. Interest rates are high, but deductions are only made when the company generates credit card sales. Also, there is no collateral when availing of this option.
  • Bank Loan – Banks are some of the most liquid organisations one can encounter, so naturally handing out huge amounts won’t be a problem. Terms are fixed, including its low interest rates, which is why allocating cash is easy when dealing with a bank loan. The drawback here is you’ll have to deal with a stringent application process that takes a long time to finish as well as the presence of collateral.
  • Trade Credit – If you’re iffy dealing with banks and similar organisations, you can purchase goods from the supplier – be it another wholesaler or a manufacturer – and furnish a trade credit agreement. Instead of paying upon purchase, you can settle at a later time with a corresponding interest rate. The terms are, of course, subject to the approval of your supplier, so ideally the company must have good credit and exceptional financial standing.

 

Choosing a loan

At first, selecting a loan might be tricky, since each option has a distinct set of advantages and disadvantages. However, upon close inspection, you can select one or even a combination based on your needs.

Your business, for instance, must have a set of products available in the warehouse in two weeks. You won’t have the time to wait for a bank loan or a deal with the SBA, so your likely options are the MCA, unsecured business loan and the trade credit. On the other hand, if you anticipate a massive influx of orders for the quarter or longer periods, you can secure a bank loan or a loan furnished by the SBA.

It all boils down to knowing what your wholesale business needs and having a well-documented cash flow for you to secure an advantageous means of financing. It might entail a little work, but hey, the reward is a financial boost and a slew of satisfied customers. Now that’s a fair trade-off.

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