Material Retail Dumps

Welcome to the Material Retail Dumps podcast. If you've listened to us before, thanks so much for coming back. If it's your first time listening, welcome Material

Retail Dumps is a

Short form podcast with brief but valuable content for independent retailers. As business

Owners, we don't have time for a

30 minute lesson with a ton of banter, so we get straight to the meat of the topic and aim to give you actionable information that will help you optimize your retail operation and make more money every day.

Welcome to Material Retail Dumps, episode 43. You may not need outside funding, but if you're a business owner who's just getting started, or you're a business owner who's looking to expand and grow really quickly, or even not so quickly just looking to open a second store or something like that, there's a good chance that you're gonna need funding. And what funding means most of the time is some sort of loan. So you get a bank or a person to give you a loan. So there are a lot of things that go into choosing the right funding option, um, but we'll just talk about a few of them. And then in later episodes we'll get into details on, uh, some specific types of funding that we really love. Two most popular funding options for small businesses and independent retailers are lines of credits and merchant cash advances.

You know, there's pros and cons to both, but we lean heavily towards lines of credits. Um, usually when you take out a line of credit, you go to traditional bank, you show them your sales information, um, you show 'em your profit and loss, you show them your maybe assets and they'll go ahead and say, all right, we'll give you x amount of money that you can take whenever you want. You don't have to just take the money at that minute, you can wait till you need it, and then you start paying interest as you take the money. Many times those line of credits will come with personal guarantees of some sort. Uh, so you are on the hook for that money. There is another form of funding called Merchant Cash Events. Um, this has gotten extremely popular over the last few years, and if I'm gonna be honest,

I really hate this option. Um, tends to be a very sleazy way to get money. You'll find a lot of people trying to sell merchant cash advances to merchants. Um, you'll get texts, you'll get emails. If you sign up for any sort of list or anything in the funding world, you're gonna get hit up all the time. Um, and these messages are

Really,

Really aggressive saying that they can fund you next day, same day and things like that. Generally these merchant cash advances come with huge interest rates or huge fees as they call them. You're talking about like 40% interest over six months and the payback starts almost immediately. So a lot of times the a p r on that could be well over a hundred percent. Uh, the benefit to these are they're quick, they're easy, they don't really check much. Maybe they check your bank account. Um, but generally speaking, if you need to start taking merchant cash advance, it's not great. Uh, the way these work is basically, uh, they will set a payback, um, period and payback rate and payback frequency. So let's say you take out a hundred grand, you might have to pay back 140 over six months and you pay back 10% of your sales every day and every day they automatically will deduct a certain amount from your bank account.

The companies who are doing these merchant cash advances do not care about you as a business. They just want to get their fees really quickly. And most of the time, once you start taking merchant cash advances, um, you don't get out, right? So you definitely wanna be careful if you do take one redefine print, redefine print again, and then redefine print again. Um, just really, really have seen some nasty stuff and heard a lot of nasty stories. And there is another type of loan that's maybe tied to your p o s system. There are a lot of companies that do this like Shopify and Square and Lightspeed and Clover. And a lot of these bigger companies, they'll, they do merchant cash advance and they'll have, you know, lower rates. The rates are still really high. Um, you're talking like 20 to 40% a p r when you really factor it in.

Um, they won't really tell you the true rate 'cause they'll say it's a 15% fee, uh, over a year payback, but really you start paying it back right away. So the true a p r on that is much, much higher. Uh, the benefit to these is that they're quick, they're easy, and they generally don't ask for much, right? All they're gonna ask for is like for you to fill out terms and conditions. They already have all your data. They know exactly how much business you're doing on a regular basis 'cause they're the ones that are processing your payments. Um, and you just click a few buttons and next thing you know, you have some cash in your bank account. It's really like not great, but it's really not bad. Like if you really want to grow, if you have this amazing idea for a marketing campaign that you know will increase sales or you wanna open a second store and you know that you just gonna be too tight if you open a second store right now with had outside funding, um, these things could work at a really short term basis, but it's definitely not good.

Rely on these types of loans to, to run your business. In the next episode, we're gonna have a very special guest, uh, who's gonna explain to us an amazing SS b a loan program called a Bulk Loan. Um, this is definitely something you wanna pay attention to. Uh, cannot wait for the next episode. Thanks so much.