Inventory Financing is an asset-based loan based on the value of some or all of your inventory. Lenders lend a percentage of the value of the inventory, and the inventory itself serves as collateral for the loan.
In some cases, business owners use inventory finance to purchase new inventory, but it can also be used for many other types of business expenses.
Inventory finance can help solve two major problems.
Inventory lending is most commonly used by businesses that consistently have very large quantities of inventory—such as retailers, restaurants, and wholesalers.
For example, automotive dealers have to purchase large amounts of very expensive inventory, so much of their capital is often tied up. Even a profitable auto dealer can have very little cash available to expand their business or hire more salespeople and technicians.
Inventory financing can help to provide that additional capital.
There are two main types of inventory financing: an inventory loan and an inventory line of credit.
While both types of inventory financing are secured by leveraging your inventory as collateral, these two loan types mean different things for the future of your business financing.
An inventory financing loan is simply a loan based on the value of your inventory. Just like a regular small business loan, an inventory loan is for a set amount that is paid back in monthly payments over a fixed repayment term or in a lump sum following the sale of inventory.
You will be responsible for paying back the full loan amount and once the loan is paid off, you will have to take out another small business inventory loan if you need more financing.
While the funds from a loan can only be used once, an inventory line of credit can provide you with extra money on an ongoing, as-needed basis.
Many business owners want to have an affordable line of business credit to cover unexpected expenses that may arise.
You can sign an Inventory Financing Agreement that allows for a long-term business financing partnership with your lender.
Inventory Financing is used to prepare for these seasonal fluctuations and to be able to stock up on large orders during the busiest season.
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