If you need immediate cash to cover your working capital requirements and cash flow needs, one way to meet these needs is through inventory financing.
Inventory financing is a short-term, asset-based loan that is collateralized by the inventory you purchase. The collateral is used to obtain a revolving line of credit, which can then be used to buy additional inventory, provide cash flow during seasonal business variations, or for other purposes.
This type of financing is especially useful for businesses that need to carry high levels of inventory – such as wholesalers and retailers – especially during busy seasonal periods.
What are the Benefits of Inventory Financing?
Inventory financing provides many benefits to wholesale and retail businesses, including:
To Keep Shelves Stocked
Inventory funding lenders offer working capital to help keep shelves stocked with product demanded by customers. Small and medium-sized retailers and wholesalers with limited money may find it difficult to maintain adequate inventory. Through inventory financing, these businesses can use the revolving credit line provided by inventory financing to do so.
During Periods of Cash Shortfalls
Inventory financing can add to your funding when your cash flow is lagging, for example, during seasonal lows.
When Bank Funding is Unavailable
You can turn to inventory financing if your business is turned down for bank financing. For example, due to poor credit history or you are a young company with limited credit history.
How does Inventory Financing Work?
Inventory often sits on a retailer or wholesaler’s shelves awaiting demand. During such periods, the business’s cash is tied up and not available for other purposes. But for many small and medium-sized companies, there is a constant need for cash flow, and they can’t afford to tie up their cash in inventory. They need to keep their capital reserves and business lines of credit available for other uses.
Inventory funding allows you to finance inventory shortly after it has been purchased. You get the funding by submitting a drawdown request to your lender, which deposits the funds in your bank account. Once the funds are in your bank account, you can use them for any business expense. Transactions regularly settle as inventory is turned into a product and sold off to customers.
Inventory financing company funds the inventory up to 80% of its appraised value. When the inventory is sold, the lender remits the balance, less a fee for their services.
High-Service Inventory Finance
It is important to work with a financing company that understands your business and your specific industry. It is also essential the financing company has outstanding customer service. Working capital is one of the most crucial aspects of running a business. Partnering with a financing company that understands the importance of quality and thoroughness cannot be overstated.