Inventory financing allows businesses to use their inventory as security in getting a revolving line of credit. Inventory financing is useful for businesses that pay their suppliers in short periods. The line of credit can be for the purchase of additional inventory. It can also help a company get through seasonal fluctuations in cash flow.
In other words, Inventory Finance is a credit facility backed by the inventory of a business. Your company gets the funding by submitting a draw request to the lender, who deposits the funds in your bank account. Once you have the funds, you can use them for any business expense. Transactions regularly settle as inventory is turned into a product and sold off to customers.
The Benefits of Inventory Financing
- Availability of additional liquid cash
Meeting day to day necessary expenses can become a challenge at times. Often there is a gap between the collections and cash requirements. Inventory Financing allows the business to leverage their stock/inventory. It unlocks the value tied up in the stocks of finished goods. It improves the company’s cash flow. Your share of assets can help you get quick and shorter period of loans.
- Inventory Financing allows the business not to touch other resources of finance
In turn, the company can use other resources for a more important purpose. It will enable the company to have more time and support to focus on core business.
- Since you know that you can use your inventory for finances, you would not hesitate to place bulk orders.
This gives you an opportunity to negotiate significant discounts from your supplier. Further, placing bulk orders will also allow you to enjoy lower shipping and transportation costs.
- It can boost your sales and helps your business grow.
You are more confident and inclined to purchase large quantities which enables you to have sufficient stock at all times. The business is equipped to supply unexpected high demands.
- The process of getting inventory finance is straightforward as compared to other conventional financings.
It is a type of financing that will not reflect a company’s credit report. It means the amount borrowed will not affect the company’s debt-to-income ratio. There is little paperwork required, and it costs less.
As mentioned, ‘Financing Inventory’ usually takes place over the short term. Also, it means customers will pay the loan in a time frame of a year. If inventory factoring works well for the business owner, it can form a revolving line of credit. However, Business owners should always consider the risks as well. Thus, it is essential to evaluate the benefits of inventory factoring against the threats to determine its feasibility.
Inventory financing can be particularly helpful for new ventures and startups. Since to have constant working capital can be tough; available inventory for sale can give your company a boost.