What is apparel financing?
Apparel financing can help retail businesses keep plenty of inventory in stock as well as finance other expenses. While some loans are exclusively for inventory funding, other loans can help finance several expenses. If you need a business loan for an apparel brand, you should determine exactly what you need the funds for and how much you need to borrow. Once you have your vision and know your borrowing needs, you can explore apparel inventory financing. Keep reading to learn more about financing options for apparel/clothing brands.
How does apparel financing work?
If you don’t have the funding you require, apparel store financing may be your best option. A clothing store is a fun business venture, especially if you are passionate about fashion. But just like any other business, you will need the right funding to help your company move forward. There are various types of apparel store loans that all work a bit differently but have the same concept. You borrow money to fund the growth of your business and you repay the loan in installments.
Can you get inventory financing for an apparel / textile business?
Clothing & fashion stores are great candidates for inventory funding. After all, their store depends upon having plenty of inventory and sizes to make every sale possible. Whether you own a brick and mortar clothing store or online clothing store, you can find affordable inventory funding at Kickfurther.
What type of businesses use apparel financing?
Several types of businesses are using apparel financing or funding. Perhaps you own a dance studio that carries apparel. You could use apparel financing to finance your inventory. Perhaps you own a small clothing boutique, you could use apparel financing to fund inventory. Perhaps you solely retail clothing online. You could use apparel financing. Apparel financing can really be used for any business that sells products. Most lenders or lending platforms will ask what you plan to use the funds for. At this time, you can specify what type of inventory you need to fund.
What types of loans are available for apparel brands?
There are a number of different loans available for apparel brands, depending on your exact need for funding.
If you are able to qualify for a bank loan, this should be your first choice for a business loan for a clothing store as bank loans (either term loans or lines of credit) will offer the most competitive interest rates with longer terms.
Interest rates for bank loans start near 5% with terms up to 10 years and minimal fees. Securing the strongest of these loans often requires excellent credit, strong annual revenue, and positive business history.
The second best option for clothing store loans is an SBA loan. These are loans guaranteed by the government through the Small Business Administration, for anywhere between 50% and 85% depending on the program. This guarantee means that giving this type of loan is much less risky for lenders and so you are more likely to be accepted for the loan, should you qualify.
With particularly favorable rates and terms, SBA loans are some of the most desirable among small business owners, which also makes them the most competitive. You’ll also need to meet strict requirements set by the SBA and potentially the lender.
A term loan provides you with a lump sum which you then pay back in installments, with interest. Term loans come as short-, medium-, or long-term loans, with terms ranging from 3 months to 7 years. Short-term loans typically require weekly or daily repayments, whereas long-term loans will require monthly repayments.
Term loan amounts typically reach around $500,000 but you may be able to secure a larger amount, depending on the lender.
Business Lines of Credit
A business line of credit is a good option if you need to cover more irregular or unscheduled expenses, or if you need to use funding more than once. You will be given a credit limit by a lender, which you can then withdraw from as and when you need to, only paying interest on the amount you actually use. Once you have paid back into your line of credit, you can use that money over and over again until the line is closed.
Using a business line of credit not only provides you with the funding you need, but it also allows you to build up a positive credit history.
Retail loans are specifically designed to provide entrepreneurs with the capital they need to purchase retail property. This type of financing is provided by banks and private investors and will be difficult to obtain unless you have an strong credit score, often of at least 680. Interest rates are determined by this score, so retail loans are best for well-established businesses looking to expand their operation.
Banks and investors will need to see average monthly sales reports and a strong business plan during the application process, and if you are a new business you will need to put down a deposit or put up collateral to secure a retail loan.
Merchant Cash Advances (MCA)
Also known as a business cash advance, this funding method offers a good option for an already established business that makes regular credit card sales. Advance amounts range from $2,000 to $100,000 but the amount you actually secure will depend on monthly credit card sales. Repayments are withdrawn from your account automatically, often daily, and are a percentage of that day’s sales. The lender will stop making daily debits once the funding costs are completely repaid. The amount available and the costs associated are, similar to most lending types, based on business sales levels
Instead of an interest rate, many MCA lenders will assign your business a factor rate, which is a number (often) between 1.1 and 1.5, depending on details of your business and its industry. Similar to the way an interest rate may be set based on your creditworthiness, so is a factor rate, but they affect your costs differently. To understand your MCA costs, multiply the amount funded by your factor rate to get the total amount to be repaid. Unlike an interest rate, which accrues monthly over the course of the loan, an MCA loan does not accrue interest – what you pay at the end is the amount funded multiplied by your factor rate (though, of course, additional fees can be applied for late payments or other breaches).
Since credit scores are often not a deciding factor (though the lender may pull your score in the application process), you may still be eligible for a business cash advance with poor credit.
Inventory financing is a form of asset-based funding, using the inventory itself as collateral to secure the loan. You will be provided with capital, either as a term loan or line of credit, which you can use to buy the inventory you need to stock your clothing store. You then make your repayments, with interest, until you have paid back the total amount.
Since the inventory is used as collateral, if something happens that prevents you from repaying the loan, the inventory financing company will take possession of the purchased inventory and liquidate it to recoup their lended money.
Kickfurther offers a form of inventory funding with a few alterations that make it an even more attractive option for clothing brands. We fund your entire cost of landed goods and you don’t make any payments on the inventory until you receive and begin selling through the products. Costs begin as low as 1% per month and brands can fund $20,000 – $1 million in inventory. Find out more here.
Where to Find Apparel Financing
Apparel financing can be found at banks, credit unions, and via online platforms.
Banks and credit unions typically offer the best interest rates and loan terms, but the qualifying requirements and application process are stricter than alternative lenders. You will need to provide documents including a solid business plan, bank statements, tax forms, and profit-and-loss statements, as well as collateral documentation when applicable.
With an alternative lender, you can often access funding more quickly – sometimes as fast as one business day, after an (often) digital application process. This isn’t to say you those platforms won’t inquire about a number of creditworthiness points based on their own lending formulas, but these processes are often streamlined, self-service and significantly faster. Despite frequently offering higher amounts to younger companies than traditional lenders, these providers frequently feature higher interest rates and shorter terms.
If you are able to qualify for a bank loan or loan offered by a credit union, that should always be your first choice. If you don’t meet the requirements of either of those types of lenders, or you need more money than you’re able to secure there, alternative lenders are a great option used by many growing businesses to reach the next level of success.
Different ways to use clothing / apparel financing
If you take out an inventory loan, you may only be able to use the funds to purchase inventory. However, if you use a general clothing store loan you may be able to use funds for a variety of operating expenses such as. . .
Most common expenses apparel store business owners face
If you are looking to get apparel store financing, you will need to have a good idea of the expenses that need to be covered. These include the following:
Property Expenses: Not all clothing stores are brick and mortar, but if yours is, your clothing store loan will need to cover your rent expenses. 1000 square feet of retail space can cost around $57,333 a month if you are renting in a major city.
Utilities: Utility expenses must also be considered. Electricity can cost as much as $1.47 per square foot while gas is about 29 cents. Water and sewer and phone and internet will add to these costs.
Entity Formation Costs: One of the first things you will need to do is decide on what type of legal entity you will be forming for your clothing store. You can choose from a sole proprietorship, and various types of corporations, and limited liability arrangements. Costs for entity formation vary from state to state.
Licensing and Permitting: Licensing and permitting involves getting an EIN number, a resale certificate, a seller’s permit, a certificate of occupancy and other local licenses. These costs can also vary based on location.
Legal Fees: It’s advisable to get the help of accountants, lawyers and other business professionals to ensure your paperwork is filed correctly. A lawyer can charge anywhere from $150 to $325 an hour while an accountant is usually around $40 an hour.
Insurance: You may need various types of insurance for your business. Property and liability insurance are musts. If you have a staff, you will also need workers’ compensation insurance. You may also consider getting health insurance for yourself and your employees.
Hiring Staff: While you may be able to run your business on your own, it’s likely you may find this difficult to do as your company grows. The amount you spend on staff will depend on how many people you hire and what positions you hire for. A retail associate is typically paid $11.25 an hour although some states have raised their minimum wage in 2021. Store managers usually make between $26 and $35 an hour.
Inventory Costs: Inventory will likely be one of your biggest and most important expenses. When figuring out costs, you will need to consider the items you are going to purchase as well as how much of each item you will need to stock your store.
Marketing Costs: It’s essential to market your brand to get the name out. This may require sending out mailings, launching social media and software campaigns and doing other types of in-person and internet advertising. You will need to consider fees for listings, materials and marketing software. You may also think about hiring a marketing manager.
Branding: As a clothing store company, it’s vital to pay attention to your brand image. This includes a great logo, a well-designed web site, a nice-looking interior design for brick and mortar locations, attractive signage and more.
In Store Equipment: A brick and mortar location will also require equipment such as a POS system, inventory counting software, security systems, shelving, racks, hangers and more.
Website Expenses: In this day and age, some clothing stores work through websites exclusively while others have websites in addition to an actual store. In either case, you will need an eCommerce platform and you will need to hire people to design and maintain the site.
What is the cost of financing for apparel makers?
Inventory funding and apparel store loans can increase costs. In most cases, lenders want a decent return for their loan. For some businesses, the additional cost may cause them to operate in the red. If a clothing store loan is going to diminish profits to the point you are no longer profitable, you may want to rethink the loan. It’s important to find affordable clothing store loans. If you are looking for affordable inventory funding you should check out SBA loans and Kickfurther.
How can I get funding for my apparel / textile business?
Before you are ready to apply for an apparel loan or funding, you will want to do plenty of research. If you only need funding for inventory, you can apply at Kickfurther. To qualify for funding on Kickfurther you will need to sell physical products or non-perishable products. You will also need revenue between $150k to $15MM over the last 12 months.
If you need a business loan for operating expenses, you will want to explore available options, review qualification requirements, and see what lenders can offer. Regardless of the type of loan or the lender, most lenders will get started with an application process to see if you qualify for a loan.
What credit score do I need to qualify for apparel financing?
Credit score requirements can vary depending on the type of business loan you are applying for. Most lenders will want the business owner to have a healthy credit score, a solid business plan, and profits to support their ability to borrow and repay the loan. You should have a credit score of 640 or better to secure inventory financing.
Can I get financing for my clothing store with no money down?
There are ways to get a clothing store loan with no money down. Most traditional loan types will require a down payment. Even SBA loans require down payments. If you sell physical products or non-perishable consumables and have revenue between $150k to $15mm over the last 12 months, you may qualify for inventory funding on Kickfurther.
How to choose the best business financing for apparel brands
Choosing the best business loan for your clothing store depends on a few different factors.
You should consider the type of clothing store loan that is best for the needs of your business, whether that be a loan to buy a retail property, a loan to purchase inventory, a loan to cover daily expenses or a loan to cover gaps in cash flow. Identifying the exact need for financing will help you to narrow down which type/s of business loan will be best.
You should also determine whether you are willing to use any of your assets or inventory as collateral. If you are comfortable doing this, you are likely to find that you have more business loan options available to you, even if you have a less than excellent credit score.
It is also a good idea to focus on your credit score when choosing a business loan. If you work to build a good to excellent credit score, you will find that there are more options available and, not only that, but you will be more likely to secure the lowest interest rates with the best terms.
Can apparel brands get business loans with bad credit?
As mentioned above, having a good credit history means that you will have access to more loan types and lenders, but that does not mean that you will be unable to get a business loan for a clothing store if you have bad credit.
There are a handful of online, alternative lenders who will approve you for a loan with a credit score of 580 or less, typically in the form of a short-term loan or business line of credit. You are likely to find, however, that you will be offered higher rates and less desirable terms than if you were to have good credit. If another member of your ownership or leadership team is able to sign the loan, you may find more favorable terms.
Some business owners reporting less than ideal credit list merchant cash advance (MCA) as a great option. MCAs largely base their lending on your sales volume. You receive a set amount in exchange for a percentage of future sales. The MCA withdraws regular payments from your account, based on the agreed-upon percentage, until your borrowed amount is repaid. Rates can be high, but it may be a good option if you can’t find a traditional form of funding or have sales volume that is more bankable than your personal credit.
For clothing and apparel brands with sales over $150,000 and personal credit over 600, inventory funding from Kickfurther can be a terrific option to increase inventory, free up cash on hand to reinvest across your business, and access volume-ordering discounts to improve your margin.
How does business financing benefit apparel/clothing brands?
There are a number of ways in which business loans can benefit clothing and apparel brands, including:
- avoiding “stockouts” of top items that drive revenue
- allowing for the purchase of larger inventory orders than cash on hand allows
- providing the funds to expand into new distribution channels
- providing capital needed to keep and hire new staff
- covering costs of marketing and advertising
- providing the funds needed to invest in appropriate technologies, such as an Inventory Management System
What do you need to apply for apparel brand financing?
Requirements for the above options vary based on the type of funding you choose and the lender. However, there are a number of things you can expect to need in order to apply for any type of funding for your clothing brand:
- a solid business plan (for traditional loans)
- at least 2 years in business – some online lenders will take less than this
- a personal credit score of at least 600
- a positive business history
- profit-and-loss statements or proof of revenue
- purpose of your loan
Previously funded apparel brand co-ops
What is the best way to finance inventory needs for my apparel brand?
If you are considering financing for your clothing store, you should determine exactly how the funds will be used and how they will help grow your business. If you can justify the loan, the next step should be to learn about different types of loans available. Once you determine the type of loan that is best for your business, you will want to shop for offers. If you just need to fund inventory, you should consider an alternative like Kickfurther.
How to obtain inventory financing for an apparel business
On Kickfurther you can discover inventory funding that is up to 30% cheaper than other options. So how does it work? Kickfurther connects brands to a community of eager buyers who help fund the inventory on consignment and give brands the flexibility to pay back as they receive cash from their sales. Using a traditional lender often causes cash flow pinches due to strict repayment schedules. On Kickfurther you can take advantage of customized repayment schedules.
Interested in getting funded on Kickfurther?
Create a free business account, complete the online application, and review a potential deal with one of our account representatives. Once approved, our community of backers fund most deals within a day, often within minutes to hours.