Startup Inventory Financing is possible. Inventory Financing is a type of asset-based lending which allows businesses to turn finished or raw material inventory into working capital. Understand the steps, rates, and pricing of Inventory financing today.
Here are the things you need to consider in an Inventory Finance Company:
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Who are Your Customers?
If your company is importing goods from China and reselling them to Walmart, that is an easier transaction to get funded via inventory financing. The creditworthiness of your customers and how they historically pay and treat their vendors’ matters a great deal to factors.
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How Complex is your Production?
If your company is buying and selling a consumer good to a big box retailer, this is a relatively simple transaction and straightforward for many commercial finance companies to fund. What if you manufacture it yourself and it has multiple production steps? Luckily there are factors, like WIP Funding, that are experts in Work in Process Production Financing.
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What is the Size of Your Company’s 1st Few Orders?
Every Inventory Finance Company has its sweet spot. Some factors prefer clients who give us approximately $50,000-$10,000,000 per month in inventory financing opportunities. If your 1st order is too small, that limits your inventory finance company choices, and you may need equity/angel monies versus transactional financing.
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What are Your Gross Margins?
Factors usually like to see 20-30% gross margins with their customers. Much less than that and the margin of error for product returns and dilution makes it tough for you to stay in business. Typically, raw materials are only the domain of the largest lenders doing $10,000,000+ per month. Margins are just too thin on oil, timber, minerals, etc.
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What are Your Company’s Selling Terms?
When we see a guaranteed sale and net 90-day terms on purchase orders from big retailers back to startup vendors, that tells us your customer is buying your product at zero risks to them. We can only fund if we think you will receive payment of at least 90% of the invoiced amount. Also, are there any hidden fees charged back to you? Slotting fees, end-cap fees, co-op fees, marketing fees, advertising participation fees; all these ruin your gross margin and must be fully known and disclosed.
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Is there a Secondary Market for Your Product?
In inventory financing, you will hear the phrase “loan to own.” What does that mean? Typically we will fund you at a percentage slightly less than the forced liquidation value of your inventory. We also offer consulting services in the valuation and liquidation of slow-moving inventory.
WIP Funding stands ready to help you even as a Startup for your Inventory Financing needs.