Banks and their credit teams review inventory financing on a case-by-case basis, taking into account factors such as resale value, perishability, theft and loss prevention, as well as commercial, economic and industrial inventory cycles, logistical and shipping restrictions. As mentioned earlier, applying for an inventory financing loan can be a faster process with less paperwork than some traditional term loans. In fact, some lenders allow you to submit your loan application online. However, it`s still not the easiest type of business financing, and you need to get your financial records in order, as the loan officer needs it to assess your eligibility and creditworthiness. This reality may explain why many companies struggled to obtain inventory financing after the 2008 credit crisis. When an economy is in recession and unemployment rises, consumer goods that are not commodities remain unsold. We mentioned that the lack of credit history when applying for inventory financing is not a problem because the goods purchased serve as collateral. However, if you are a business without existing inventory, it can be difficult to convince the lender why you qualify for an inventory financing loan. Inventory financing is a revolving line of credit or short-term loan that is acquired by a company so that it can then buy products for sale.
The products serve as collateral for the loan. Inventories appear on a company`s balance sheet as a short-term or short-term asset. Inventory reflects items that are waiting to be sold or used to make items for sale. For a manufacturer, inventory includes raw materials, work-in-progress, and finished products. For a retailer or distributor, inventory includes inventory waiting to be sold to end users. The inventory costs shown in the balance sheet include all costs incurred in acquiring or manufacturing the goods and preparing them for sale. This includes material or merchandise costs, delivery, shipping and direct work. Inventory financing is a popular option for small and medium-sized retailers and wholesalers. These companies typically don`t have the financial history and assets available to secure the institutional-sized financing options used by Walmart or Target. These are generally not publicly traded companies and cannot raise funds by issuing a bond or a new series of shares. Fortunately, there are lines of credit or short-term loans that are primarily for a company`s inventory needs. Read on to learn more about inventory financing and how it works.
We`ll also talk about the pros and cons of inventory finance loans, application requirements, and some popular financing alternatives for small businesses. Each company has different inventory requirements. For example, you may need to purchase a new product line, while another small business may need inventory financing to cover raw material costs after receiving a bulk order from a customer. In most cases, the need to finance stocks is a good thing. This means your business is doing well enough to prepare for increased demand or have sufficient inventory. In addition, stocks of any kind tend to lose value over time. The business owner seeking inventory financing may not be able to obtain the total initial cost of inventory. Interested in how to get money for inventory so far? First, you need to determine your eligibility. To qualify for an inventory loan so that you can get money for your inventory, your business must meet the following requirements: Once the lender has determined that you have proven your creditworthiness and you are eligible for inventory financing, someone from the lending company will contact you and explain the “due diligence period.” Due diligence is the investigation of your company that takes place before the signing of the contract that requires you to finance your portfolio.
While you can tick all the right boxes that say you qualify for an inventory financing loan, it`s still not the right match for all business owners. Lenders are special in terms of inventory control and product movement. You expect to provide them with timely reports on the shipment and return of products, notices to customers or sales, and anything that proves you can monitor and protect the goods. .