Inventory loans can help you to purchase stock for your business without tying up your capital into the distant future. It’s a popular form of business funding with both online and bricks and mortar retailers because it allows them to buy in more products that they can then sell on for a profit. Instead of being limited by the cash they have in the bank, retailers can purchase greater quantities or take advantage of price reductions. In this article, we look at inventory loans in more depth so that you can decide if they’re right for your business.
What Are Inventory Loans?
Inventory loans are a form of borrowing that uses product stock as collateral. Instead of using property or other possessions to guarantee the loan, you use your inventory as a form of security. If you have any issues repaying the loan, then the lender will repossess the products you bought with the funds. They then sell them off to get their money back and repay the outstanding debt.
Inventory financing tends to be for shorter periods than traditional small business loans. This is because most retailers sell their stock within months of purchasing it, so they don’t need a long-term loan. It doesn’t make financial sense for them to be tied into a multi-year business loan when they just need the working capital for a short time period. This is why most inventory-based loans tend to have terms of between 3-24 months.
Who Are They Suitable For?
There are several types of business that can make use of an inventory loan. Online retailers, off-line wholesalers, and anyone who trades in product stock may find this type of business funding useful. It’s particularly helpful for companies that need to pay suppliers for their stock quickly before they have sold it on to the end customer. This can soon cause cash flow issues for some businesses so it’s helpful to have inventory loans as a finance tool.
This type of business financing can also help you to maximize revenue from seasonal peaks. If you know that you can sell more during busy periods, it makes sense to use a loan for purchasing extra inventory. This will help you to leverage bigger profits instead of being held back by your cash flow. Businesses that sell more during the holiday season or summer months may find that inventory loans are particularly useful.
What Type of Loan Term Should I Go For?
There is no one-size-fits-all loan term for small businesses – you need to find one that meets your specific needs. It will usually depend on how quickly you expect to sell the inventory and release the capital that’s tied up in it. If this is a matter of months, then find a loan with a similar term length (perhaps adding on a little extra time to allow for unforeseen delays in sales).
However, if you know it may take longer to move all the goods, then seek out a loan that’s more suited to your timings. The last thing you want is to struggle with repayments because you chose a short-term loan that wasn’t suitable. It’s also important to factor in the interest rate and monthly payment amounts so that you know exactly how much you’ll repay in total and how that will affect your day-to-day cash flow.
As a small business owner, you may have also considered other funding options such as a merchant cash advance or business credit card. They are both viable short-term borrowing solutions, however, they don’t use your inventory as collateral. However, this may mean that your personal finances are at risk should something go wrong. You could also use a business line of credit for purchasing inventory but will likely need excellent credit scores to access this type of funding. An inventory loan or line of credit does tend to be more flexible than credit cards or long-term loans.
Is an Inventory Loan Right for Your Business?
If product stock is the lifeblood of your business, then an inventory loan may help you get to the next level. There are costs to consider and you’ll need to do careful calculations, but the upside can be increased volume sales and greater profitability. Online lenders like us make the application process straight-forward and easy so that you can focus on keeping shelves stocked and generating customer demand.
How We Can Help
Strategic Capital provides business finance to a wide range of organizations across the USA. Whether it’s to pay for your everyday costs, emergency repairs to equipment, or investing in expansion, we offer small business financing solutions without the hassle of traditional banks. Best of all, you’ll benefit from competitive terms and a simple application process, so you’ll soon have more money to reinvest into your business.
Transparency, innovation, and expertise are the driving factors behind everything we do. With a talented team of advisors, a plethora of funding partners, and the best technology available – we go above and beyond to help our clients receive their capital rapidly with the industry’s most competitive repayment options and interest rates. We want to break speed records, not bank accounts.Upon submitting your application, it’s reviewed by a dedicated Capital Advisor. We generate the best rates and terms at lightning speed through our funding matrix and robust lender network. Yep… it’s that simple. Learn more about our business finance and lending services here.
– Bradley Keys