Business strategy

How to use a line of credit to grow your retail or e-commerce business

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Retail has experienced some dramatic upheavals in recent years. Brick-and-mortar retailers were shut down for months during 2020. e-commerce sites like Amazon and eBay picked up the slack. Walmart shifted their focus from in-store to online sales. These industry leaders had the resources to survive in a challenging environment.

Unfortunately, most smaller retailers and startups don’t have that luxury. A business line of credit is one way to help even the playing field.      

Is a business line of credit better than a loan?

A traditional loan is borrowing a set amount of money that is paid back in fixed monthly installment payments. The amount needs to cover business costs and expenses for the loan period because getting approved for a second loan is difficult until the first one is paid off. If the second loan is approved, the interest rate and fees (loan cost) will likely be higher.  

Retailers and e-commerce businesses need something different. A business line of credit lets you borrow up to a certain amount, with the option to repay it quickly and borrow again if you need it. Think of it as a renewable resource. You can use a business line of credit to cover the cost of goods sold while you’re waiting for revenue to come in. 

Retail costs are never fixed, so a fixed funding source is like putting a square peg in a round hole. It simply doesn’t fit. Traditional loans are good for businesses that can accurately predict costs. In retail, costs are affected by inflation, supply, and demand. Funding sources need to be on-demand and flexible. That makes a business line of credit the ideal choice for growing your retail or e-commerce business. 

How to grow your retail or e-commerce business with a line of credit

In the Middle Ages, when merchants needed to stock their ships for a long voyage, they received a letter of credit from their financial backers. That letter was used to buy the goods they would later sell at ports far from home. Repayment to the supplier came on the return trip, with the option to borrow again if needed. Your retail or e-commerce business is a modern-day merchant vessel. Here are some ways you can use your business line of credit to grow your business. 

Cover the cost of inventory

A business line of credit makes it possible to buy only the amount of inventory you need or expand your inventory to increase sales. Trying to do that with fixed resources could cause your business to miss critical consumer buying cycles. The holiday season is a good example of this. You can use a line of credit to increase inventory before the holiday shoppers come out.  

Hire more employees

Retail and e-commerce sales volume tends to be seasonal, depending on the product or service you’re selling. Increased demand creates the need for more employees, but the funds to pay them may not be available until that demand is met. A business line of credit is one way to cover employee salaries until demand turns into sales and revenue.   

Upgrade your POS system

Most people think of a point of sale (POS) system as an online shopping cart feature, but the term can also be used to describe the cash register and card swipe device at a physical retail location. Those sometimes need to be upgraded to increase efficiency. A business line of credit makes sense to help you cover this expense because a new POS system should cut costs over time, thereby increasing revenue.  

Scale your marketing campaigns

If it works, do more of it. This is an area where “conservative” spending can cause your business to miss out on extra profits. Consumers go through mood swings. If they’re responding in good numbers to an existing marketing campaign, expand that campaign with your business line of credit. This is sometimes called “riding the wave.” It’s how Big Retail was built.  

Invest in better analytics

The previous suggestion is only possible if your company has the analytics to measure the response to your marketing campaigns. Margins are small in retail and e-commerce, so data analysis is critical if you want to succeed. Invest in the analytics tools and technology you need to properly track customer behaviors and product sales. That data will pay dividends for you in the long run.  

Renovate your brick-and-mortar location

Have you been to an Apple Store or Amazon Fresh recently? They upgraded their brick-and-mortar locations instead of folding them like so many businesses did after the 2020 pandemic. Consumers are looking for a modern and less invasive shopping experience. Learn from those who’ve been successful with that mindset and spend the money necessary to upgrade your store. 

Diversify your business

Many retailers and e-commerce sites have done this out of necessity in the past two years. It can be a gamble to launch a new product or service line. That risk can be mitigated by using a lean startup methodology and the flexibility of a business line of credit. The best part about line of credit funding is that you can spend only what you need. Try something new. It just might work.

Disclaimer

This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.

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Disclaimer

This content is for educational purposes only and should not be construed as professional advice of any type, such as financial, legal, tax, or accounting advice. This content does not necessarily state or reflect the views of Bluevine or its partners. Please consult with an expert if you need specific advice for your business. For information about Bluevine products and services, please visit the Bluevine FAQ page.