Best Hardware Store Financing for Your Business
The 6 Best Business Loan Options for the Hardware Store Industry
Long-Term Business Loans
- Low-interest rate starting from 7%
- Term loans from 2 to 7 years to repay
- Accommodates a larger loan amount
- Monthly payments
Learn More About Long-Term Business Loans
Short Term Small Business Loan for Hardware Stores
- Excellent to poor credit score considered
- Loan amount as little as $10,000 up to $500,000
- Term loans for 6 to 18 months to repay
- Lower monthly or annual revenue requirements than those of traditional loans
- Fast and simple application process with the same day to next day financing
- Limited documentation required
Learn More About Short-Term Loans
Business Line of Credit
A business line of credit is a small business financing option that offers a flexible feature that a short-term loan does not. It works like a credit card in that it is a revolving credit line and allows you to draw money out and then repay at any time with you only paying principal and interest on your outstanding balance. Lines of credit have a credit limit that you cannot exceed and is set at the time of consummation. This product is not considered a term loan.
Highlights of a Line of Credit:
- Ability to draw money at any time from lines of credit
- Allows borrowers to spend the money, repay it, and spend it again
- Principal and interest rates starting at 5% for lines of credit
- Lower costs and fees than most other financing products
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Business Lines of Credit
Small Business Administration [SBA] Loans for Hardware Stores
The U. S. Small Business Administration (SBA) is a federal government agency headquartered in Washington DC that provides resources, programs, guidelines, and small business loan guarantees to approved SBA Lenders to issue loans to small businesses. The Small Business Administrations’ (SBA) mission is to help American enterprises to start, build, and grow their businesses successfully. The SBA is not a lender.
The Small Business Administration provides a guarantee that gives the approved SBA lender the ability to take on the risk of lending and decisions under SBA term’s that they would not ordinarily do so on their own and has all rights reserved for any recourse need. SBA loan application processes can be lengthy, but with the help of an experienced SBA-approved lender to help your business through the application process, the SBA application package can be a smooth and efficient experience.
SBA Product Overview
| Loan Amount Limits: | Up to 5 million |
| Interest Rates: | Starting at 3.50%, treasury index plus 1% to 2.5% |
| Loan Terms: | 3 to 25 years |
| Fees: | Origination fees 0% to 3% |
| Payments: | Fixed monthly |
| Credit: | Good to excellent credit score required |
| Application Process: | SBA loan application, business assets, and numerous financial statements |
U. S. Small Business Administration Loan Programs
SBA Standard 7(a) – SBA loan 7(a) is the SBA’s primary program is designed to provide financial assistance to businesses with a good track record.
SBA 504 – The SBA 504 Loan is a small business term loan and a powerful economic development loan program that provides business another avenue for funding while promoting business economic development and equity. SBA 504 is typically for significant capital needs like real estate transactions.
The use of proceeds from the SBA 504 Loan must be used for fixed assets such as construction, owner-occupied commercial property, or mixed-use real estate. Typical uses of the SBA 504 loans include; repair facilities, land improvements (and certain soft costs), growth, and expansion, or can also be used to refinance existing debt on your small business.
SBA Disaster Small Business Loan Program – SBA Economic Injury Disaster Loans (EIDL)-This type of SBA loan not only assists small businesses after natural disasters like tornadoes, wildfires, or floods. Additionally, when Coronavirus (COVID-19) was declared a nationwide health emergency, congress provided small businesses access to relief options like this SBA loan for emergency funding.
SBA Paycheck Protection Program (PPP) – The Small Business Administration (SBA) has established the SBA Paycheck Protection Program loan in response to COVID-19. This program is one of SBA’s relief options that provides loans to small businesses affected by the Coronavirus (COVID-19) crisis and needs financial help.
Learn More About
SBA Loans
Merchant Cash Advance for Hardware Stores
Merchant cash advance (also now as Future Receivables Purchase and Sale Agreements) provide an upfront lump sum of money to the business in exchange for a fixed percentage of the businesses’ future sales. Repayment is typically made daily or weekly. Both ACH payments auto deducted from a business’s bank account, or the percentage are taken out of future credit card sales until the payback obligation is met.
Terms are expressed as a future sale, so you are given a fixed amount and then responsible for paying back a more significant amount through a fixed percentage of future sales. The difference between the amount given and the amount paid back to complete the agreement is your fixed cost. The estimated time to repay is typically 6 to 18 months, but there are no term limits as the repayment is based on future sales, and this product is not considered a term loan.
Benefits of Merchant Cash Advances:
- Flexible repayment terms attached to future sales
- Excellent to poor credit score considered
- Provides funds to owners with Sub Prime Credit
- Limited documentation required
Learn More About
Merchant Cash Advances
Business Credit Cards for Hardware Stores
Business credit cards are revolving credit with a credit limit with a minimum monthly payment requirement typically lower than that of a small loan. You are issued a plastic card with an account number that can be used online and in-person for any purchases. You only pay interest based on the current principal. This product is not considered a term loan.
Benefits
- Can be used 24 hours a day, seven days a week
- No limitations on the use of funds
- Flexible monthly payments payments
- Principal & Interest rates
Benefits of Hardware Store Financing
Cash Flow/Working Capital Loan
Operating small businesses like a hardware store is a complicated venture with many moving parts to it. Various issues can impact cash flow to companies in the industry, such as seasonality, holidays, location, changes in trends, and competition.
Failure to meet payroll for employees is not an option, so it’s essential to access working capital to control the business’s ups and downs and stabilize cash flow. Having a financing option to satisfy working capital needs is a must.
Business Facility Expansion/Renovations
Your hardware store may need upgrades or repairs to the real estate/facility, something to spruce up the interior decor, or renovations to the store’s exterior appearance to attract and maintain customers with a competitive edge. Perhaps you’re adding a new location. With so many financing options available, growing your hardware store can come in many forms. Hardware store financing options can be used to purchase additional inventory, lease more space, expand marketing efforts, buy new equipment, or even open up another operation.
Advertising: Attract Customers to Your Hardware Store
What owner doesn’t want more customers? Internet marketing and social medial is not a trend but has become a must for a hardware store owner looking to grow and has added additional costs to the store operation. That’s why financing for marketing campaigns and social media is so popular.
Having a presence on the internet with various sources such as Google, Yelp, and Trip Advisor and maintaining a social media presence with Facebook and Instagram is very important for success. Your website and work on search engine optimization help keep your small business on the top of google search. Additionally, more traditional sources like mailers and flyers are also advertising mainstays and costs money to execute.
Point of Sale Systems, Software, and Technology Upgrades
The point of sale system’s out there are continuously improving and providing efficiencies to store operations. Hardware stores are always looking for new ways to keep customers coming in and enhance the customer experience or alter services with easier processes and systems for staff to make a significant impact. Funding can be used to update systems and create more efficient processes within your operation. You must make sure eventual investments in this area are a foregone conclusion and know that financing most likely will be needed.
How to Break Down Business Loan Offers/Terms
What are the terms and costs of Small Business Loans?
Interest Rate of Factor Cost
There are two most common types of small business loan rates out there when shopping for a loan. Some business loans charge an interest rate like consumer lending, but others charge a “factor rate” or “factor cost,” which is a flat cost and not principal and interest.
Interest rates are charged based on the daily principle, whereas factor rates are flat costs.
This means you pay the same total cost whether you pay off early or not unless they offer an early pay discount or penalty. But interest rate or factor cost does not tell the whole story. Most lenders charge additional fees, so you have to count those in overall cost when comparing.
Terms of Small Business Loan
The length of the repayment term for loan products varies greatly and can be from 6 months to 7 years, depending on the product and qualifications. Although one loan may seem cheaper than another, you must factor in the length of time of repayment.
You may want to consider a more affordable payment with longer-term versus short-term loans if you are willing to pay more in rate and/or cost for that benefit. If the option is a principal and interest rate loan, then check for the APR (Annual Percentage Rate), which factors not only rate and cost but also the length of repayment and payment frequency.
Installments and Method of Repayment
Disbursements can be monthly, biweekly, weekly, and even daily (weekdays), depending on the business funding product. It is very common for collection to be in the form of an auto deduction from your bank account via an ACH. Although payment frequency can be a factor if you have very low average daily balances in your business bank account, the interest rates, costs, and term should be a more significant consideration than that of payment frequency.
Origination Fees
This is a charge for services at the time of consummation of the loan. The fee is often a percentage of the loan amount, typically ranging from 0% to 5%.
Frequently Asked Questions
How do I start a hardware store business? How much does it cost to open a hardware store?
The answers to these questions all depend on the type and size of the hardware store you’re considering opening. Different financing options will have unique application requirements — so there’s not really a one size fits all solution to this question.
However, there are some typical avenues that many business owners take to open up a hardware store. Ensure you have a sound business plan, projected financial statements, ownership and affiliation documents, business certificates or licensure, income tax returns, and a resume available.
Is owning a hardware store a good business? How profitable are these kinds of stores?
Did you know that hardware stores don’t have to be profitable to get funding? It helps if they do, but it is not required. Hardware stores can be an excellent opportunity. They are somewhat recession-proof in the good times and the bad.
Can I finance Inventory for my hardware store?
It is a widespread option for hardware store owners to finance inventory when trying to increase revenue. This request for inventory financing is prevalent during different times throughout the year, such as seasonal shifts and holidays.
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