Blutty supermarket, The Shelves Convenience Store. Inventory Financing
Timothy Ronaldson
By: timothy-ronaldson
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5 Inventory Financing Options for Convenience Stores

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Every small business store needs products to sell to make money, and inventory financing is one of the most commonly-used ways to obtain it. Most business owners know of the adage that “it takes money to make money.”

This is especially true for convenience store owners, who must buy products from suppliers so that they can sell them to their customers. Whether it’s deli meat, packaged goods, hot and cold beverages, or over-the-counter medication, inventory takes money to purchase.

These owners also know that to make money consistently, they must be fully stocked with the products their customers desire. That means not only having access to these products but access to the capital necessary to purchase these products. In other words, they must have a lot of cash on hand.

Since this isn’t something that a lot of small business owners have, they often use convenience store loans to finance the cost of the inventory. 

There are a few different options available for mini market loans, and each comes with its pros, cons, and details on how they work. Let’s take a look at the various inventory financing options.

Shopping cart at refrigerator display in store interior. 3d render. concept: Inventory Financing

Your top inventory financing options

1. Merchant Cash Advance

A Merchant Cash Advance (MCA) is one of the most common and popular options for inventory financing for grocery stores and other convenience stores. This type of funding isn’t a traditional type of loan. Instead, it’s a cash advance the business can get based upon the credit card sales that the business does over a certain period.

The issuer of the MCA will use the business’ credit card receipts to determine the risk they’ll be taking on in providing the cash advance. This is different from traditional business loans, which often look at the credit score, among other things.

Many convenience store owners who don’t have a long credit history or a good credit feel like MCAs are their only financing option. 

Depending on the lender, you might be able to access an MCA with an ITIN instead of an SSN, although it’s not particularly common. 

The trade-off, though, is that MCAs often come with much higher interest rates than other types of inventory financing. The interest rates are based on factor rates, which sometimes go as high as 40% to 150%. This makes an MCA an extremely expensive option. The interest rates alone can increase the cost of your inventory quite substantially.

Each lender may also charge different fees and apply different restrictions to their loans. They are really in the driver’s seat here, as convenience store owners who use this option often feel they don’t have other options and end up paying a lot.

2. Traditional inventory loans

Another popular option is to use a traditional business loan to fund the purchase of your inventory. This type of inventory financing is available at various private financial institutions. This is one of the big positives to this type of financing — you should have a lot of options for companies that you want to work with.

Small business loans are offered for a variety of different loan terms, loan sizes, interest rates, and repayment terms. Inventory loans through a traditional bank could go all the way up to $500,000, for example, but may start as little as $50,000.

Typical business loans range from two to five years in repayment length; some even can have a term of 10 years. They also come with a variety of interest rates that are dependent on the applicant’s credit score, credit history, and that of the business, but you can expect to find something in the 10%-30% rate. The lower your credit score, the higher the interest rate the financial institution will charge.

Some financial institutions will accept ITINs for small business loans, but most will not

Stack of dollars. Paper bills or money. Icon in a flat style with shadow. Vector, illustration EPS10. concept: Inventory Financing

3. Lines of credit

Lines of credit work very much as credit cards do. A financial institution will open an account with a set amount of money (or line of credit) that the business can tap into whenever they need to.

They do not get the full lump sum of the line of credit deposited into their bank account, like with a traditional business loan. Business owners who take a line of credit also don’t have to spend the entire amount of the line of credit all at once. They can use the available credit they have when they need it, and they’ll only be required to pay the amount of the credit line that they actually use.

Just like credit cards, lines of credit are based primarily on the applicant’s credit score and credit history. The better the credit score and history, the lower the interest rate charged on the amount of credit used will be. Typically, though, interest rates on a line of credit are higher. They can be anywhere from 7% to 25%, depending on the applicant’s credit score and the financial institution.

A line of credit is considered revolving credit and not a term loan. This means that a minimum monthly payment is owed each month that there is a balance. However, there is no set amount of time that the credit line must be paid back. The longer it takes to pay off, the more interest will be charged, though.

Financial institutions will most-often-than-not require an SSN for a line of credit.

4. SBA loans

The Small Business Administration (SBA) offers several loan options for small business owners, and some can be used for inventory financing. The agency’s most popular loan is called the SBA 7(a) loan program. Through this program, business owners can qualify for up to $5 million that can be used to acquire a business, equipment, and even inventory.

The SBA caps interest rates for this loan program at prime plus a maximum markup of 4.75%. This means that private lenders that offer SBA loans can offer interest rates between 7.5% and 10% today. They also come with fees of up to 3.5% of the total amount borrowed. Repayment terms can be flexible for up to 10 years. 

For all SBA loan programs, you will need to qualify based on your business type and size, as well as the credit score. You will need an SSN to apply.

Business loan application form on desk in bank. concept: Inventory Financing

Your best option: a Camino Financial loan

Camino Financial provides the best option for inventory financing. We offer convenience store loans for businesses that have been operating for at least nine months and have a minimum of $30,000 gross sales per year. 

Our rates are fixed, and range between 12-40%, with payback periods between 24 and 60 months. You can also be approved for loans between $5,000 and $400,000, with no early payment penalty.

Another great aspect is that you don’t have to have a credit history to apply for a Camino Financial loan. You even can use an ITIN to apply.

After you’ve made nine timely payments, you can also graduate with Camino Financial to better loan terms, more time repay, and a bigger loan.

Camino Financial vs other inventory financing options

Here’s the breakdown of how all these loan types compare.

💰 Loan amount Interest rates Fees Time to pay Accept ITIN? No credit history accepted?
Camino Financial Up to $400,000 12-24.75% 5% Up to 60 months Yes Yes
Merchant Cash Advance $2,500 to $250,000 40%-150% TBD by lender Up to 12 months normally TBD by lender Yes
Traditional inventory loans Up to $500,000 10-30% TBD by lender Up to 10 years No No
Lines of credit Up to $100,000 7-25% N/A N/A No No
SBA loan Up to $5M 7.5-10% Up to 3.5% Up to 10 years No No

Hands of salesperson and client passing credit card for payment in convenience store. concept: Inventory Financing

Now you know what your best option is

There are many options for store owners to obtain inventory financing to help them buy the products they need to make money. From lines of credit to traditional business loans, to SBA-backed loans, the options are endless.

Camino Financial offers perhaps the best option, though, because we have excellent loan terms, an easy application process, and no requirement to have a credit history or SSN. 

Every day, we work hard to live up to our motto of “No Business Left Behind.” We do this through the loan products we offer, plus the educational and inspirational information as well.

Request a quote for a business loan today, and get the inventory financing you need to keep your business moving forward.

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