A financial crisis can come unannounced anytime and facing such a situation is difficult when you do not have enough assets to apply for a regular loan from the bank. If you are a business owner facing a short-term financial crisis, you can use your inventory or accounts receivables as collateral to secure a loan to meet your credit requirements. An asset-based financial solution wherein the business uses its inventory as collateral to receive financial aid is known as Inventory Financing. The funds received from this financing scheme can be used to increase the cash flow within a company or to expand its operations.
This type of financing scheme is used mostly by borrowers who have a considerable amount of money tied up to their business inventory. Due to this reason, method of financing is more popular amongst manufacturers and dealers. Using this scheme, a business can receive liquid cash to fund its expenses that are not related to the inventory. Since this asset-based, short-term loan can be used to receive quick funds, it is beneficial for businesses to use Inventory Financing instead of selling their inventories during a temporary financial crisis. The amount received from this scheme can be used to pay off a debt quickly in case of any emergency.
It is a short-term, asset-backed financial solution that can be availed by the business to take care of the company expenses that are not related to the inventory. This scheme is usually considered to be unsecured by financial services companies and is offered to small and medium-sized retailers or wholesalers with an extensive inventory. In order to avail this benefit, a borrower has to provide the business inventory as collateral to receive funds and meet the expenses of a temporary financial crisis.
Since the inventory of a company is used to avail a loan under this financial scheme, the borrower can work with the inventory as per his or her convenience as long as the terms of the loan are met. In case a merchant fails to repay the loan on time, the lender has the full right to seize the inventory or any other inventory of similar value. Since inventories plays a central role in Inventory Financing, the specialty financing company will want to ensure that the concerned business inventory has a good resale value before offering the loan. Therefore, this type of financing scheme is not suitable for companies that are new in the business or don’t have tangible products in their inventory.
Inventory is one of the most important assets of a business. Therefore, it is important to learn about the key attributes of Inventory Financing before deciding to avail this financing solution.
Types of Inventory Financing
Depending on the nature of the business and its products, there are 2 types of financial schemes using an inventory that a business can apply for:
This type of financing solution is applicable when a business is facing immediate cash requirements and wants to use the resale value of its inventory to receive funds. Inventory loan is a one-time loan offered to borrowers.
The Inventory Line of Credit is more popular among businesses since it can be used to take care of any unforeseen expenses that arise after the borrower has already received the funds from the loan. In this financial plan, the lender offers extra money to the borrower at an ongoing basis whenever there is a requirement.
How to Avail Inventory Financing?
Since a business inventory is a huge asset and can be utilised to avail a loan when the business has credit needs, lenders are very particular about how it is maintained. A lender has every right to learn about the condition of the inventory they are currently looking to invest in. Therefore, they often make surprise visits to the business prior to the loan approval and check how the business handles its inventory. Additionally, the lenders also check for the shelf life of the inventory before providing the loan.
See the list below to find out the steps that can taken to get your loan approved:
Eligibility Criteria for Inventory Financing
In order to secure a loan through this scheme, the following criteria should be met:
Documents Required for Inventory Financing
See the list of documents you will be required to submit in case you are planning to opt for this short-term financing scheme.
Inventory Financing is a short-term, asset-based loan that can be availed using a business inventory as collateral. A business can receive liquid cash to meet the company expenses that are not related to the inventory. If a merchant receives money using this financial solution, he or she can use the inventory as long as the repayments are made on time. In case the business fails to make timely repayments, the lender has complete right to seize the concerned inventory or any other inventory of similar value.
Since Invoice Financing offers access to quick funds, this scheme is preferred by many retailers, manufacturers, and dealers to take care of their emergency credit requirements. This financial solution helps small to medium-sized businesses improve their cash flow, increase sales and operations, or prepare for the busy season. With Inventory Financing, the businesses that have an extensive inventory but cannot apply for regular loans at a bank can receive funds at a discounted rate.