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Finding more effective funding solutions for the retail sector - £50,000 to buy stock and display equipment

Published on 8th August 2019

We were recently approached by a shop owner with a number of convenience stores based in Leicester.

The retail sector, in general, is under pressure, with the internet and large chains forcing down prices. But the small convenience shop sector may be thriving, with innovations such as package collection and dry cleaning joining the old favourites such as tobacco, confectionery and newspapers. 

It has been estimated that around 6% of all UK retail business comes through convenience stores, and they are one of the few retail sectors that seem to be actively growing. 

However, although convenience - the presence of a local shop with a huge range of items - is an important factor in business success, it is not enough simply to run a business and expect people to call in. The expectations of customers need to be met. A thriving business must be able to offer a growing range of fresh produce attractively displayed - and the highest standards of presentation and cleanliness are essential to meet the requirements of customers and local trading standards inspections.

The challenge

We were recently approached by a business owner who ran four convenience stores in and around Leicester, and who had recently acquired the lease on a fifth shop. He was confident that it could help him increase his profits and offer economies of scale when buying in stock - but he knew there would be some challenges to overcome. 

The new premises met his usual requirements, providing a good location and ample retail space - but the layout was currently inefficient. This meant that there were problems with theft, as some areas could not be seen from the counter, and that customers could not always find what they needed. 

He planned a redesign of his sales area which would incorporate new displays and freezers, as well as new flooring which would be easier to keep clean. 

He was confident that the changes would help attract more customers and help them spend more, but his resources had been stretched to acquire the new premises. He believed that he needed to arrange £50,000 funding to make the changes he wanted and to bring in additional stock.

However, there was a problem. His business was profitable, but he had already had substantial borrowing and, as he expected, his bank could not advance him any more. He, therefore, approached lenders who claimed to have specialist solutions for the retail sector. However, it soon became apparent that they were unable to secure the funds required when they looked at the company’s accounts.

The problem was one of affordability. Margins for convenience stores are very tight and even a high turnover may reflect a low level of actual profits. Lines such as newspaper and lottery sales may be effective business builders by encouraging footfall, but they actually return very little in terms of profit.

Lenders looking at the accounts saw that the business might be unable to afford additional repayment commitments from its existing cash flow.  The fact that the new store had been trading for several months at a loss made lending even more unattractive to lenders, despite the fact that the new owner had established the profitability of his other shops. 

We saw that the reluctance of traditional lenders was understandable - but we knew there was an alternative which might be able to provide the funds required. 

Merchant Cash Advances - ideal for retailers

When cash flow is restricted, the need to commit to fixed monthly repayments might present problems with a traditional loan. However, a Merchant Cash Advance, or MCA - also known as Business Cash Advance - might be able to provide a solution. 

It can provide funds for suitable businesses without requiring them to make regular repayments - or indeed to make repayments of any kind - and can be ideal for any business that takes card payments which, these days, most retailers do. 

However, it works rather differently from a loan. Instead of asking you to provide security, the lender will work with your card payment processing company and can provide a cash advance up to the average monthly card takings of your business. 

The lender then takes a set percentage of every future card transaction the retailer takes until the cash advance (plus their fee) is paid off. There is no time limit on repayment, and if the advance takes longer to pay off than anticipated, it is the provider who bears the cost. 

It means that your customers repay your cash advance for you. With more and more people using their cards or phones to pay, it can mean your advance is paid off quickly. 

How Rangewell helped

With four busy stores, our client could demonstrate healthy card takings each month, which made it simple for the provider to offer the £50,000 he required for his refit and refurbishment plans.

We helped ensure that our client worked with the most cost-effective source of funds. There are a growing number of lenders which can offer MCAs but the fees they charge and the percentages they take will differ substantially. 

We found the MCA provider who could offer the most attractive fee structures for our retailer client and helped him make the necessary arrangements - which brought him the funds in a matter of days. 

At Rangewell we understand that getting the agreement that is most appropriate for your business can be essential in order to keep your costs down. We can help you arrange all types of business funding - including MCA arrangements. 

Call us if you face a retail funding challenge - we can help you find the answers you are looking for. 

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Richard Mitchell

Richard Mitchell

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