An imperative part of the economy, warehouses account for a big portion of the supply chain. These large spaces are used either for holding or transloading for both domestic and international trade. By managing large-scale inventory and providing quality control services, warehouses have become increasingly important, and prevalent, in today’s society. Whether you operate a warehouse that leases space for dropshipping companies or are looking to store your own business supplies, a loan may be in order. To ensure that you get the best possible rates and terms, it is important to have a thorough understanding of how warehouse business loans work.
Check out our guide on starting a business in Canada.
When Would a Business Loan Help a Business in the Warehouse Industry?
There are many different situations in which a business loan can assist the performance of your warehouse. The industry is diverse and there are an alarming amount of opportunities for a warehouse company to benefit from an influx of cash. These include:
Pay Suppliers
If you are using the warehouse to store the products your business wholesales, then you will have suppliers who need to be paid. By being able to pay for a larger order, you can often get a better rate on the supplies. Provided your warehouse can store them properly, and you have the necessary purchase orders, this discounted rate can drastically increase profit margins.
Rent
If you don’t own the property for the warehouse, then you are paying rent. While the amount is usually worth the investment, a loan can ensure that you don’t have to choose between making an order from suppliers and paying your lease. Since you can use business loan monies to pay your rent, it can free up funds for other purposes.
Learn how to expand your business online.
Hire Employees
Another worthy investment is human resources. You can use the funds to grow your staff by paying wages and for associated costs like benefits. If growing your workforce is going to increase your profitability by increasing your output, it is a good way to use your warehouse business loans.
Check out how to set up payroll for your small business.
Repairs
Warehouses require equipment to operate; and, if that equipment breaks, you can find yourself losing money not just through repair costs, but through the added price of labour to do the work manually. A business loan can be used to upgrade or repair equipment, leasehold improvements, or make improvements to improve your energy efficiency.
Who Provides Business Loans For a Warehouse Business
Once you’ve identified the way a business loan can be of use, the next step is to get approved. The first step is learning which type of lender will be best for your situation. There are many possible routes to take in order to access a business loan. These include:
- Banks: Conventional lenders like major financial institutions are the go-to option for those with good credit and established business history. These lenders tend to have the most competitive interest rates and the most desirable terms. However, if you don’t have a proven business history or have poor credit, it can be difficult to get approved.
- Alternative Lenders: A great approach for those focused on efficiency is to pursue a loan through an alternative lender. While these companies tend to have higher rates of interest, the lending standards are far more flexible. The process of approval is efficient and it can be done online. To find the most competitive rates, consult a loan comparison site.
- Government Funding: Another approach to getting a loan is through government programs like the Canada Small Business Financing Program (CSBFP). Through this loan program, businesses can access up to $1 million for their business. Of this amount, you can apply as much as $350,000 toward the purchase and repair of equipment.
Learn more on how you can finance your business through Government financing programs.
Best Business Loan Providers For Warehouse Businesses
| Amount | APR | Term (months) | ||
 | 1k-300k | Fee-Based: Starting at 9% | 12- 60 | Learn more |
 | 5k-300k | 8% – 29% | 6-18 | Learn more |
 | 1k-500k | +5.9% | 3-60 | Learn more |
 | Up to 300k | 8%-22% | 6-12 | Learn more |
 | 5k-500k | - | 6-18 | Learn more |
 | 100K + | 6.05% + | 60 | Learn more |
 | 5K-100k | 15%+ | 12-18 | Learn more |
What do Lenders Look at When Approving You For a Business Loan For a Warehouse Business
There are quite a few criteria lenders investigate when deciding whether to approve a loan for warehouses. These include:
- Personal Credit Score: Your personal credit score is used to assess your track record as a borrower. This contributes to assessing the risk you pose to the lender.
- Business Credit Score: The credit score for your business is used to see what liens are held against the company and its assets. It helps to determine the level of debt and thus how risky the company is as an investment.
- Collateral: When you apply for a loan, you will need some form of collateral. It can be the warehouse itself, provided you have the correct amount of equity. Otherwise, collateral can be equipment or inventory. Naturally, the more collateral you place, the more likely you are to be approved.
- How old your business is: The newer your business, the riskier it appears to lenders. Since the only way to predict future success is by historical sales, if you don’t have those, it can work against you when getting a loan.
- Business plan: Lenders will want to know how you plan to use the money. In order to be a reliable investment, you need to showcase that the lender will get a return. You can do this by showing purchase orders or highlighting the plans for the warehouse business.
- Financial documents: In order to get a loan, you will need to provide proof of your finances. You can do this by supplying:
- Bank statements: Both your personal and professional bank statements may be requested. If you have multiple bank accounts, for payroll, inventory, etc, you must provide all relevant documents. The longer the period of time you can offer statements, the better your odds.
- Tax returns: To show that all of your taxes are paid in full, your lender will want tax statements for your business. It shows that there are no liens on your file and that everything your company does is above board.
Tips on What to Consider When Buying a Warehouse
When you’re looking to invest in a warehouse, there are a few key things to keep in mind. By calculating these expenses, you can determine the actual cost you will be facing. Among these factors are:
- Security: Both for insurance and practical reasons, you will need to secure the warehouse. Since these spaces are so large, the security costs can be fairly high. Depending on the nature of the products you will be storing, you will need additional precautions so be sure to calculate this expense carefully.
- Office space: In order to run the logistics of the warehouse, you will need to carve out an area to deal with administrative work. Depending on the scale of your operations, you will need a larger area. If you are buying a warehouse that is already built, be sure to account for the amount of space you will need for staff, bathrooms, and filing areas.
- Land area and parking: Once you’ve settled on a warehouse space, you are locked in to the amount of cubic footage you’ve either purchased or leased. Using your purchase orders and historical sales, determine how much space you will need. It is wise to err on the side of caution without going overboard and getting more than you will ever require.
- Loading dock: Shipping and receiving require a dedicated space called a loading dock. This is where the trucks arrive and depart. It requires a high clearance for large vehicles used to ship items in bulk. Be sure that the warehouse can support all of these demands, particularly if your loading dock is inside of the building.
Business Financing For Any Industry
Own a business in another industry? Click here
Alternatives to Business Loans For Warehouse Business
If you aren’t looking for a loan to finance the warehouse itself, there are a few other routes you can take to get the funding that you need. This type of alternative loan usually deals with fluid capital that is used for routine expenses such as inventory and marketing. Options include:
Line of Credit
For businesses like warehouses, having a line of credit can be really helpful. With this type of lending, you get access to a set amount of funds, paying interest only on what you take. Once that amount is replenished, your credit line limit returns to its full balance.
Asset-Based Financing
This type of loan uses your equipment of inventory to finance the loan amount. It is a secured loan where the asset becomes the collateral. Depending on how well-established your company is, this can work out well. However, in order to utilize this service, you do need assets to leverage such as real property, equipment, or inventory.
Cash Advance
While not technically a loan, a cash advance is a lending service where you leverage future earnings against the loan amount. The lending company gives you the money upfront and once the sales occur, the borrower repays the lender in a portion of the daily sales. Usually, this is done via the business’ credit card processing system, making it a low-maintenance option.
Final Thoughts
There are many situations in which a warehouse business loan can drastically improve a company’s standing. So long as the terms are amenable, and you have a real and practical plan for the funds, it can be an excellent way to grow your business. Warehouses are a major part of the economy with a large market share. By conducting thorough research and planning ahead, you can use the money to ensure that your warehouse is successful moving forward.
