Retail Credit Facility

What Is a Retail Credit Facility?

A retail credit facility is a financing method which can provide capital for various purposes. Retail credit facilities are portfolios structured with different types of debt that can be used by a company for business needs or customer lending.

The Basics of a Retail Credit Facility

A credit facility is a type of loan made in a business or corporate finance context; it allows the borrower to take out money over an extended period of time, rather than constantly reapplying for funds. Credit facilities are utilized broadly across the financial market as a
way to provide funding for different purposes. They are often obtained in conjunction with the final round of a corporation's overall equity financing program, which includes the credit facility as well as an equity investment.

In relation to retail ventures, credit facilities can be used as multi-purpose vehicles for corporate financing, customer lending, or credit account packaging. Retail credit facilities may be structured with various types of debt, including term loans and revolving credit accounts.

key takeaways

  • A retail credit facility is a method of financing—essentially, a type of loan or line of credit—used by retailers and real estate companies.
  • Retail credit facilities can be business-to-business, as in a company obtaining financing from a bank.
  • Retail credit facilities can also be business-to-consumer, in which the retailer extends credit to customers for purchases—usually big-ticket items.

Types of Retail Credit Facilities

Retail credit facilities involve both business-to-business and business-to-consumer transactions.

Business Funding

Retail businesses or retail real estate programs may obtain funding in the form of a retail credit facility for their own needs. In this case, the company partners with a lender, often a large bank, to obtain a portfolio of credit that can be used for financing business ventures and operations. This type of debt facility typically includes term loans and revolving credit. Retail businesses often gain access to principal in term loans which may be issued with varying interest rates. Revolving credit is also often part of the facility and an option for the business to use in addition to the term loans in a flexible lending account. These funds may be used to refinance debts or make capital investments in strategic business projects.

Customer Lending

Retail lending to customers is typically a complex process that is done through a third-party relationship with a credit provider. Some retail businesses may have established retail credit facilities which they can lend from, in order to provide an installment financing option, typically at the point of sale.

Vehicle retailers such as car or motorbike dealers may also use credit facilities for lending. For example, a $10,000 motorcycle might be a lot for a consumer to pay upfront. Retail credit facilities will loan the $10,000 to the consumer, who will then pay it back with interest in monthly installments over several years.

Retail credit cards are another popular type of consumer lending/financing service a retailer often provides customers. Issuing retail cards has a broad range of advantages. Retailers can issue closed-loop cards which are focused on use only with the retailer. They can also issue open loop cards which allow a cardholder to use the card anywhere the brand processor is accepted. Both types of cards offer numerous rewards that can help to attract customers, build their patronage and loyalty, and also be used for marketing retail store promotions.

Special Considerations for Retail Credit Facilities

In some situations, the term retail credit facility may refer to a structured investment product that's packaged with a portfolio of retail credit cards. Some lenders may choose to package and sell a retail credit card facility in the secondary market, which can reduce a lender’s balance sheet risk and provide additional capital for new lending.