Inventory financing allows businesses to use inventory as security to obtain a revolving line of credit. Inventory financing is useful for businesses that pay their suppliers in a shorter period of time. It helps businesses to sell their inventory to the customers. This line of credit can be used to purchase additional inventory. In addition, it will help a business 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 receives 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 settle regularly as inventory is turned into a product and sold to the customers.
Benefits of Inventory Financing:
Availability of Additional Liquid Cash:
Any growing company would agree on to make more money, business owners need to spend more money. Meeting day to day basic 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. Additional liquid cash improves the company’s cash flow. Your own stock of goods can help you get quick and shorter period of loans.
Availability of More Resources To Focus On Core Business:
Inventory financing allows the business to not touch other resources of finance. In turn, other resources can be left for more important use. It allows the business to have more time and resources to focus on core business.
Leverage to Place Big Orders:
As a business owner, you can use your inventory for finances. Inventory Financing will help business owners to place bulk orders. The benefit of having cash flow will create an opportunity to negotiate large discounts from the supplier. Placing bulk orders also allows you to enjoy lower shipping and transportation costs.
Working capital will boosts sales and will help in expanding the business. 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.
Easy Process With Quick Money:
The process of getting inventory finance is easier as compared to other conventional financings. It is a type of financing that does not get mentioned in the company’s credit report. The borrowed amount will not affect the company’s debt-to-income ratio. There is little paperwork required and it costs less.
In addition, ‘Inventory Financing’ usually takes place over the short term. Thus, the loans are expected to be paid in full within a year. If inventory financing works well for the business owner, it can often be issued as a revolving line of credit. However, business owners should always consider the risks. It is important to evaluate the benefits of inventory financing against the risks to determine its feasibility.
Inventory financing can be particularly helpful for new ventures and startups. They can materialize on having access to easy working capital and operating cash.