Four Ways to Finance a Boutique.

Four Ways To Finance A Boutique

by

Before opening a boutique, you need to make sure that you have sufficient inventory for your customers. If you are a brick-and-mortar boutique, you will need rent money, utilities, insurances, and equipment. For online boutiques, you will need packaging supplies, storage location, and a great website. All of this takes money. 

There are four ways to finance a boutique; these are a bank or credit union loan, small business administration loan or grant, an asset-based loan, or from investors. Depending upon your needs, you can solicit funds from multiple sources. 

Financing needs will vary from boutique to boutique as will the timing. It is imperative that you factor in your costs of financing to your pricing models. Continue reading for four options to explore when you need some financial support for your boutique. 

Banks and Credit Unions

Four Ways to Finance a Boutique.

Considered under the category of traditional lending sources, you have banks and credit unions to explore. Both offer many of the same services including different types of loans and financing options. Banks are for-profit institutions; credit unions are not for-profit organizations. Because of this distinction, banks often have higher interest rates than credit unions on loans and are more inflexible on what they require before they approve a loan. 

You do need to be a member of a credit union to access its services. There are several different avenues to pursue for membership. Many workplaces, trade groups, bonded by a geographic region, or places of worship offer membership. Often families of members can also join. 

Whether you borrow from a bank or credit union, the types of loans available are very similar. Both will have loans that are suited for small businesses. If you already have a business checking and savings account, begin at that financial institution to seek loan information. You do want to check with a couple of different banks or credit unions for rate information. 

Here are a few questions to ask. Make sure you take notes and are clear which bank offers which rates. 

  • What is the interest rate being charged for the money?
  • What will the monthly payments be?
  • Is there a prepayment penalty?
  • Is there any reduction in interest if the payments are automatically taken from your checking account?
  • Is there any difference on the total interest paid for loans with monthly or bimonthly payments?
  • When is the first payment due?
  • Do they offer business lines of credit? 
  • Is this a term loan? 
  • Are equipment or inventory loans available?

Before you sign and agree to the loan, understand the impact of this payment on your business. 

Seven Ways Mobile Apps Get Funding

Small Business Administration

The Small Business Administration or SBA is a cabinet-level agency that is part of the United States federal government. Its mission is to provide resources for small businesses. One area of support they provide is assisting small businesses is obtaining financing. The agency does not lend money directly to small businesses, entrepreneurs, or startups, but performs the role as guarantor of the loan. The application process can be time consuming; however, the rates are often more favorable for the lender. 

There are three common categories of SBA loans. These are the SBA 7(a), SBA 504, and SBA microloans. There are limits on how much money can be loaned for each of these. Additionally, restrictions on how the money can be used vary as well. For any of the loans, you must meet the eligibility requirements. 

Of those three, the 7 (a) loan is the one which most often meets the needs of small businesses. This is similar to a long-term loan that you would obtain from a bank. When businesses need to purchase real estate, finance working capital or inventory, purchase equipment such as fixtures and furniture, or sometimes refinancing an existing debt. Depending upon your boutique’s needs, this loan might be a way to finance your shop. There are also other areas that may qualify you for consideration. 

Another loan offered by the SBA is called a 504 loan. Some of the same conditions for eligibility as with the 7 (a) loan include the business must be set up for profit. Money from these loans can be used to purchase land or buildings for your boutique. If you are seeking to enhance the location of your current boutique, a 504 loan might be applicable. This money cannot be used for inventory or working capital that would fall under the 7 (a) loan. Nor can the 504 loans be used to refinance any existing debt you and your boutique have. 

Lastly, the SBA offers a microloan. Loans in this category are available up to $50,000. This is a good option for you to explore if you need money to purchase inventory for your boutique. If you are approved, the money can also be used for working capital, fixtures for your boutique, supplies, or other equipment. Money from microloans can not be used to pay any current debt you may have. Another restriction on this money is that you cannot buy property. 

How To Write A Business Plan For A Care Home

Asset-Based Loan

If your boutique has assets, an asset-based loan, ABL, may be an option for you. Not all assets will qualify as collateral for your loan, but many of your holdings or properties can be used as loan guarantees. The value of your assets will determine the amount of money loaned to you. Often retail businesses will use this influx of cash to purchase new inventory. 

Areas of your boutique business to explore for their asset valuation are –

  • The value of the land and building if you own your boutique. 
  • The cost associated with your inventory.
  • Warehousing that you own and use for your boutique.
  • Equipment, such as racking, displays, and shelving, and furniture in your boutique that you own.
  • Your point-of-sale equipment (POS) and other computer equipment of yours.

You can combine a number of your assets or if you have one substantial property of value. When you acquire funding from your assets, it is most often released to you as a line of credit. A line of credit is the amount of money the lender is willing to loan you based on your asset valuation. You use the amount of money you need, not to exceed the maximum amount set by the lender. 

Interest is only calculated on the money that you have borrowed. After you have paid back the money you borrowed, the full amount of the line of credit is available again for you. Depending on the length of the asset-based loan agreement, you can continually borrow money, pay it back, and borrow it again. Retail businesses with the need to repeatedly purchase new inventory often find this flexibility meets their business model. 

Remember, you do need to repay the loan, or you risk losing your assets. 

Investors

Another possible way to finance your boutique is by soliciting investors. Just as you need to do for banks and the SBA, you will need to inform potential investors of how much money you need, why you need it, and what they can expect in return for their money. 

  • Family, friends, and yourself

The group that will know you best and hopefully be willing to invest in you and your dream are all around you. It does also include you. If you have money that you can invest in your business, you can pay yourself back over time just as you will with family and friends. This grouping works best, to keep future holidays happy, if you do not need large sums of money and intend to repay it in the short term. 

  • Angel Investors or Venture Capitalists

Those who call themselves angel investors are often successful entrepreneurs. They understand the value of someone believing in their dream and supporting that goal with money. Instead of loan repayments, often angel investors are seeking part ownership of your boutique. Venture capitalists will often provide their expertise with or without funding. As with angel investors, often venture capitalists will require a stake in your business. Sometimes this will be combined with charging interest on any money loaned. 

As with any loan or assistance, fully read the contract or agreement before signing. 

How To Best Finance A Cleaning Business

Frequently Asked Questions

  • What is Open with Faire?

Open with Faire is a lending program offered by Faire. This extension of Faire’s platform provides new retailers the ability to purchase inventory, so they can open their boutique. If approved, retailers have sixty days to repay the money given for inventory, or they can work out a payment plan. 

How Much Insurance Do You Need For Your Accounting and Payroll Business?
  • What is debt financing?

Debt financing includes different types of loans. Essentially, your boutique borrows money from a lender. This lender charges interest on the money that you borrowed. Key categories of debt financing options include term loans, lines of credit, credit cards, and cash advances. 

  • What is equity financing?

Equity financing does not include borrowing money and repaying the capital with interest. Instead, you, the boutique owner, give a share of your store to an investor. In return, the investor provides money for the business. They receive a percentage of your profits instead of repayment of the capital. 

To learn more on how to plan your own boutique business click here!

Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.