As a distributor, you work hard to sell your manufacturing client’s products. And as a wholesaler, you have to stay on top of purchases and what your retailer clients want. Maintaining stock, getting shipments out on time and effectively marketing require good employees and cash on hand. When expanding operations and replenishing stock calls for a little extra funding, we can help you nail down the right financing for your needs.
What loan options are available for wholesale and distribution companies?
Here are four possible financing options to consider:
Equipment financing. Much like a car loan is secured by the car you’re purchasing, equipment financing is secured by the equipment you’re purchasing. Need a new line or new vehicle for local deliveries? You could potentially get a low interest rate by going through a lender that specializes in equipment financing.
Invoice factoring. Sometimes retailers can’t fulfill invoices right away, leaving you with moved merchandise and a promise of payment. With invoice factoring, you sell open invoices to a third party at a slight discount, and when your client pays the full amount, it simply goes to the lender rather than to you. Because of how these loans are paid off, they may not be the best option if your retailer is on a credit plan with you.
General purpose business loans. With online lenders, you can get access to a fixed-term business loan within 24-72 hours. These loans could be a good option to quickly pay for new advertising, get a forklift fixed or make a large purchase from your distributor. You can also access amounts as low as $1,000 and as high as $500,000, giving you plenty of options.
Business credit card. Should your needs demand a more flexible form of financing, a business credit card could be a better fit. Similar to personal credit cards, some offer promotional periods and rewards. You can buy office supplies or gas and regularly pay off balances before the billing cycle ends to earn rewards without paying interest.
Representative example: Steven needs a new forklift
Steven owns his own small carpentry business and frequently ships out items from his warehouse. His forklift has broken and he needs to purchase a new one, but doesn’t have all of the funds on hand right now since it has been a bit of a slow season and he just had to replace one of his delivery trucks. The cost of a used forklift is $25,000.00 and Steven will need a loan for approximately $20,000.00. He plans to apply for a secured equipment loan and use the forklift as collateral.
Steven heads online to compare lenders and is able to get approved for an equipment loan with a competitive APR since he has been in business for over five years and has a strong personal credit score of 810. Although he’s only required to put down a deposit of at least 10.00% for the forklift ($2,500.00), he outright pays $5,000.00 to keep his loan costs lower.
Cost of used forklift
$25,000.00
Loan type
Equipment loan
Loan amount
$20,000.00
Interest rate (APR)
8.00%
Loan term
2 years
Additional fees
Origination fee of 1.00% ($200.00)
Monthly payment
$904.55
Total loan cost
$21,909.10
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
How do I pick the best financing option for my business?
Your expenses, credit and other factors shape the types of offers you’d find most suitable. Get a good idea of what to look for by reviewing two main features: Offer details and costs.
Offer details
Eligibility. You can cut down on the number of loans you’re comparing by making sure you meet basic qualification standards. Lenders come in all shapes and sizes, and it’s probable that your revenue, personal credit history and years in business will determine whether you qualify right off the bat.
Loan amount. A lender that doesn’t offer the amount you need is likely not your best choice. Be it too much and you pay more than necessary for the loan, or too little and you end up looking for secondary options, it’s probably best to find a lender that can more closely meet the exact amount you need.
Loan term. Terms become increasingly important when you’re looking to pay back a large loan with a small cash flow, while a long term could make for paying thousands more in unnecessary interest charges.
Costs
Interest rate. One of the biggest numbers to watch is the interest rate, especially in relation to your loan term. Also check for the APR, where available, to see the total cost of your loan, which includes both the interest and any fees.
Fees and charges. Ask about fee structures before you apply. Lenders may impose extra charges that aren’t immediately obvious, such as documentation, prepayment, underwriting and origination fees.
How to successfully apply for financing
Though you’ll find different requirements based on the lender you work with, you’ll typically need to provide the following documentation:
Personal ID and business license. You’ll often need to provide a government-issued ID that proves you are who you say you are and that you own the business being financed.
Proof of assets. Provide information on your assets, including any specialized equipment. You might be able to land a lower rate by offering up your assets as collateral for a loan. Take into account any real estate, current balances and specialized equipment you own when seeking a loan. All of these can affect the loan amount, term and rates you qualify for.
Proof of income and revenue. Your ability to payback a loan is, in large part, demonstrated by revenue. The previous year’s taxes, bank statements and processed invoices are generally used for this purpose.
A detailed budget. Not all lenders require a robust business plan – many will consider a detailed budget sufficient for evaluating your business’s financial health as it grows.
References can help too. A good relationship with a client may mean a good reference, and a good reference from a client could mean additional proof of an income source.
6 tips to be successful as a wholesale distributor
Find your niche. Look for a need and fill it. You’re not going to be the only one selling smartphones — tons of businesses are already doing that and doing it well. You may do better finding a moderate market, rather than an oversaturated one.
Build solid relationships with your retailers and manufacturers. Your business relies on your reputation with retailers. Build trust and understanding with them, while elevating the manufacturers you work with.
Be knowledgeable, not a know-it-all. While it’s important to know your inventory, it’s also important to make sure your retailers don’t feel ignored when discussing it. As with most interactions, it’s generally better to say you don’t know something — that you need time to research it and get back to them — than to talk around it.
Stay abreast of trends. Markets shift often. Hone in on what your customers are leaning toward, and move your inventory accordingly.
Automate where possible. There’s a certain satisfaction to manual processing, but it’s ultimately limiting. Automating processes helps free up time for you to focus on other tasks and plans.
Customer service first, second and third. Whether it’s your employees, retailers or manufacturers, put your best foot forward. Part of doing business is treating the people around you well to keep and grow your customer base.
Bottom line
Successfully get going on your next big project or just get off the ground with the right financing, planning and motivation. By fully understanding the needs of your business, you can improve your chances of finding the right lending solution.
Wait times vary by lender. Some deposit funds within one business day, while others can take a week or more. Ask lenders about expected turnaround time so that you’re not waiting on the funds.
Aside from looking at rates, terms and turnaround times when comparing lenders, look at firsthand customer reviews. Sites like Trustpilot and the Better Business Bureau (BBB) can also help you get a feel for a lender – and how it treats its customers.
Rhys Subitch is a personal finance editor at Bankrate and former loans editor at Finder, specializing in consumer and business lending. Rhys has nearly a decade of experience researching, editing, and writing for startups, Fortune 500 companies, universities and websites. They hold a BA in sociology and a certificate of editing from the University of Washington. See full bio
Rhys's expertise
Rhys has written 8 Finder guides across topics including:
Emma Balmforth is a producer at Finder. She is passionate about helping people make financial decisions that will benefit them now and in the future. She has written for a variety of publications including World Nomads, Trek Effect and Uncharted. Emma has a degree in Business and Psychology from the University of Waterloo. She enjoys backpacking, reading and taking long hikes and road trips with her adventurous dog. See full bio
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