Having an adequate inventory of stock is important for every product-based business. It’s also extremely vital to keep your shelves stocked with products because, without it, you won’t be able to make a sale, not to mention miss out on a lot of opportunities. However, even the most successful companies experience cash flow issues which can make obtaining inventory more difficult.
Inventory financing for small business is one option to consider if your working capital is tied up on your inventory, making it difficult for you to obtain additional goods to sell.
How Inventory Loans Work
When banks or lending companies grant small businesses an inventory loan, they’re either given two options: short-term loan or a revolving line of credit. The financing they receive from this is then used to buy products they, in turn, will sell. To secure the loan, lending companies will tie up the loan with the inventory that the business acquires.
Since inventory is primarily based on products, businesses that will benefit the most from inventory financing are product-based industries. Retailers such as department stores that sell jewelry, clothes, beauty products, and housewares, are examples of those who need to stock up on inventory so they won’t run out and lose sales opportunities.
Other product-based industries include wholesalers and seasonal businesses.
What Businesses Can Benefit from Invoice Financing?
Inventory financing can indeed be very helpful for companies. However, it doesn’t mean that it’s the right financing option for all businesses. With that said, here are the industries that would most likely benefit from inventory financing:
It’s no secret that inventory is a very important part of the business aside from steady cash flow. Without products on the shelf, you won’t be able to make a profit and you’ll lose a lot of customers in the process. It’d also worth noting that consumers do not want to come back to a store that doesn’t sell what they need.
Inventory financing provides a lot of benefits to retail businesses. For example, it keeps the shelves stocked with items. Inventory financing also allows retail business owners to get the cash they need to stock up on inventory so they do not run out of items to sell.
It can also be given as a revolving line of credit where entrepreneurs can withdraw and repay loans whenever they need them.
2. Wholesale Businesses
Wholesale businesses are basically large retail operations. The only difference is they stock up on bulk that consists of a large variety of products which they then sell at a lower price than retail businesses.
Since they handle the movement of a large number of products, they need enough merchandise to store at their warehouse in order to meet the demands of their customers. While cash flow may not be a major problem for some wholesale businesses, there are times where even your best customer fails to meet your payment deadline.
An accumulation of unpaid invoices can create a huge gap in your working capital which prevents you from taking advantage of growth opportunities as they arrive. It’s in situations like these that inventory financing can come in handy.
3. Manufacturing Companies
Manufacturing companies usually encounter a huge gap in their working capital because suppliers and production costs need to be paid before the goods become available to the public. Expenses needed in manufacturing such as raw materials, labor, and rent can quickly add up.
Many of their customers usually pay on a credit basis which is the reason why revenues can trickle in slowly. This leaves little time for manufacturing companies to come up with the financing needed to supply the demand.
By applying for manufacturing business loans such as inventory financing, the manufacturers are given the financing they need which allows them to continue their normal day-to-day operations.
This additional cash can fill in the gaps between unpaid goods and production costs. Manufacturing business owners are also given different loan options that can help in replenishing inventory, buying equipment, and covering payroll.
4. Seasonal Businesses
Seasonal businesses experience a dip in their sales a couple of times each year. But when it’s the peak season, they also experience a steep rise in their sales as demand for their products increases.
This is why they need to stock up on inventory during the offseason. Aside from ensuring they won’t run short of stock during the busy season, more importantly, it also ensures they won’t lose clients.
With inventory loans, seasonal businesses don’t have problems ordering the items that they need. A quick influx of cash gives them the opportunity to stock up ahead of their busy season, which many times includes lower or discounted pricing for the items they purchase.
Do You Need Inventory Financing for Small Business?
If your business is mainly product-based, then the financial option discussed in this report will definitely work for your business.
Inventory financing for small business is primarily designed to help small scale companies get access to large quantities of inventory. If you need more information regarding an inventory loan, talk to one of the experts today.
They can offer in-depth insights about the financing options that are currently available to help you and your business grow and expand.