Property-secured finance for retail businesses

Retail cash flow is seasonal by nature

Most retailers make a large share of their year in a few peak periods: the lead-up to Christmas, end-of-financial-year sales, back to school, or the summer season for coastal and tourist towns. Stock for those peaks must be bought months earlier. In the quiet months, rent, wages and overheads continue while sales slow.

That pattern means retailers need the most cash at the time they have the least. Supplier terms help, but rarely cover the full gap.

How retailers use property-secured finance

• Seasonal stock. Buying deeper ranges for peak trading and capturing supplier discounts. See stock and supplier purchases.
• Fit-outs and refreshes. Updating a tired store or meeting a landlord’s refurbishment requirement at lease renewal.
• New locations. Fit-out, opening stock and working capital for a second or third store.
• Buying the freehold. Owning the shop, often the best long-term protection against rent increases. See commercial property loans.
• Clearing arrears. GST, PAYG withholding and supplier balances that built up during a slow period.
• Online expansion. Warehouse space, systems and stock for an online channel.

Choosing the security

Retailers commonly secure loans over their home or an investment property. Those who own their shop can use it as security, though retail property is assessed on location, lease profile and the strength of the local strip or centre. Where the business owns the shop through a related trust, the trust can provide security for the business’s loan.

Plan your seasonal funding with a specialist before the peak-season order is due.

An illustrative retail loan

Illustrative only. A homewares retailer with two stores in coastal towns does most of its trade between November and February. The owners want to place a larger Christmas order to capture a supplier’s volume discount. A caveat loan over their investment unit funds the order and freight in September, with interest prepaid for six months. Strong summer trade repays the loan in February, and the discount more than covered the funding cost.

Leases and landlords

For retailers who rent, the lease is often the biggest risk: rent reviews, make-good obligations and the remaining term all affect the business’s value. Before funding a fit-out, make sure the lease term allows enough time to earn back the investment. If the landlord offers to sell, consider whether owning the shop makes more sense than another lease.

Common mistakes

• buying peak stock with money set aside for GST
• funding a fit-out with a short remaining lease
• opening a second store before the first is consistently profitable
• relying on unsecured loans repaid from daily card takings

Exit strategies

Peak season sales, a refinance once the business has a strong year, the sale of a property, or the proceeds of selling the business. Set the term to the seasonal cycle with a buffer for a softer-than-expected season.

Questions retailers ask

Can a loan cover both stock and a fit-out? Yes, if the security supports the combined amount.

What if my sales are mostly online? The same principles apply; the security is property, and the exit is trading cash flow or a refinance.

Watching stock turns

The best retail funding decisions are guided by stock turns: how quickly each category sells. Fund deeper ranges in categories that turn fast and carry less of those that linger. Lenders are reassured by a retailer who knows these numbers, and the loan is repaid sooner.

Centre leases versus strip shops

Retailers in shopping centres often face higher occupancy costs, mandatory refurbishments at renewal and less control over trading hours, while strip shop retailers may have more flexibility and the chance to buy their premises. Each affects funding needs differently. Centre retailers often need fit-out funding at each renewal; strip retailers may have the opportunity to convert rent into ownership. Factor your lease type into long-term planning as well as the immediate loan.

The quiet months

Rent, wages and utilities continue through the slow season. Some retailers fund the quiet months as part of the same loan that buys peak stock, so the business never has to choose between paying staff and placing next season’s order. Mapping cash week by week across a full year shows exactly how deep the trough goes and how much buffer the loan should include. A simple spreadsheet of last year’s weekly takings against fixed costs is usually enough to size it.

Stock the shelves, protect the margin

Good retail decisions should not be limited by when cash happens to arrive. Tell us about the store, the season, the property you can offer and how you will repay, and a specialist will tell you how a secured loan can help. There is no credit check when you first enquire, your enquiry stays with one team, and last year’s monthly sales help us set a term that matches your season. Talk about retail funding.