post by:
Donna Cohen
Customer demand has to be met if you want your business to keep growing. With trends constantly fluctuating, it can be difficult to manage your current stock and future inventory. Cashflow is dependent on this, however, so it must be done cleverly. It is important to do the work and research not only what your customer wants, but how you can get the product in their hands. Money is the solution. But how can you get the money without suffering from losses or even going bankrupt? The following solution is available to you. There are a few different options when it comes to inventory financing, so pick the one that works for you and your growing eCommerce business.
What Is Inventory Financing?
Inventory financing is a type of loan that helps businesses with building their inventory. If you are having a hard time meeting customer demand and need cash to supply your goods, this would be the route to take. Using your inventory as collateral is not always an easy decision, especially if your cashflow is low because of poor money management. So, keep this in mind when considering the option. It is meant to be a short-term solution, but if you take the necessary precautions it can be a beneficial path. Once the decision is made, it can help grow your business without risking your other assets. Sound like something you’re interested in? Let’s delve deeper.
Pros
- You gamble your inventory instead of your other business assets.
- It’s easier to qualify for inventory financing than other loans that ask for more collateral or interest.
- You’re able to get ahead of trends and prepare product launches in advance.
- Easily access your borrowed money via a credit line if this is your chosen loan type.
- This works for any size of business, no matter what the sales volume.
- You pay the loan back with predicted earnings.
Cons
- It’s strictly meant for inventory purposes, so you can’t use it for other business needs.
- You may have to pay higher interest if you don’t manage to sell your goods by the expected date.
- Depending on the lender or bank, you may have a high loan minimum. This can affect your strategy and require you to either change it or decide against the loan all together.
- Inventory financing has higher interest rates compared to other types of loans.
- There are shorter payment terms. You may have a sizable monthly cost since it’s repaid over a shorter amount of time.
What Types Of Inventory Financing Are There?
The types of loans available to you specifically depend on your current credit history and business worth. Every bank and lender has their own set of guidelines that need to be met before supplying you with the money you need. If you haven’t been in business long enough, some may reject you. If you don’t have great credit history, they may turn you down. But there are several who will approve you. It’s all about doing the research and finding the lender that fits your needs. The following are three types of inventory financing to consider when approaching banks and lenders.
Inventory Loan
This type of loan is based on your inventory’s overall worth. Depending on your credit history, you will receive a high interest or low interest financing. They are a short-term loan that is simple and well worth consideration if you are a business with high inventory turnover rates.
Inventory Line of Credit
The inventory line of credit is the most convenient type of loan. You can easily access your money when you need it rather than getting approved for spending first. This choice provides you with revolving credits, so as you pay off the loan, cashflow becomes available.
Vendor Inventory Financing
This type of financing cuts out the “middleman” or third party lender. You work directly with the vendor. You can obtain this financing one of two ways: debt financing or equity financing. Debit financing is where they loan you the money and you pay it back later with interest. Equity financing involves the vendor becoming a shareholder in your company. You get the goods, they get the stocks.
How Can It Benefit You?
Inventory financing can benefit you if you are in need of extra cashflow. If you are running behind on product launches due to consumer demand this may be the time to look into financing. Seasonal businesses, especially, will benefit from inventory financing. If you have high market predictability, it’s simple enough to plan your launches with additional funding. Just starting up? These types of loans are great for you, too. It just takes finding the right bank or lender that will work with you. But when you do, having the extra help stocking your inventory will get you ahead, so you can keep up with the businesses who’ve been around longer.
How Do You Apply?
Research the banks and lenders. Review their guidelines and make a list of the ones you qualify for. Once that list is narrowed down, you’ll need all the appropriate documents. Personal tax returns, bank statements, inventory lists, company balance sheets, profit and loss statements, estimated sales forecasts, and inventory management systems are the basic things needed for business loan applications. It sounds like a lot, but it’s well worth your time to have these prepared before going in to meet with the lender. Once it’s all said and done though, you’ll be rolling in the cashflow.
Is There Alternative Funding For Inventory?
Inventory financing isn’t working for you? There are several alternatives that will allow you to not only supply your business with inventory, but help you with other costs, too. Day-to-day expenses need to be considered, as well, such as rent and payroll. Ranging from short-term to long-term solutions, there is always a lender out there that is willing to help you. Even if your credit history isn’t the best, there are options available. Below is a list of the best solutions for your funding needs.
Business Loan
A business loan is money loaned to you from a traditional bank or lender. There’s a lot of steps to go through before being considered, let alone approved. Once you have been approved, they will give you a certain amount of time to pay off the loan with fixed monthly payments. They have control over your spending, so this is something to consider when working with the bank or lender.
Personal Loan
Personal loans are easier to be approved for than business loans. Your interest rate depends on your credit history, so this can be a good or bad option for you. Traditional banks and lenders offer these types of loans, so there’s no shortage of places to apply. If you only need the money for a short time, your approval rate may go up. It’s worth a try if other options aren’t working for you.
Invoice Factoring
Another way to get the money you need is to sell your invoices to a factoring institute. They give you a portion of the invoice’s worth and they collect the rest when the payments are made. With this option, you don’t have to wait for outstanding balances to be paid while you’re struggling to get by. The approval process is often quick, too.
Merchant Cash Advance
Merchant cash advances are great if you want flexibility in your spending and payment plan. You receive a lump sum of money to go towards your business and you repay that lump sum with your future sales. A percentage is taken out to pay off this debt during each credit and debit card transaction. It’s easy to get approved since they have forgiving requirements.
SBA Loans
SBA loans are designed for eCommerce businesses that are both starting or growing. If you don’t qualify for traditional funding, this may be the route to take. Most likely, they will have lower interest rates. Some even have access to mentorship, so if you’re fighting the numbers, reach out for help. Down side? They give limits on how much you can spend per month and what you spend it on.
Which Type Of Funding Is Right For You?
Which one is right for you? Consider your money needs. Is it strictly inventory that you need help with? Or is it other business expenses? What is your credit history like? How long have you been in business? What is your business’s worth? These are the questions to ask yourself when looking at different loans. The loans that fit your specific needs and the lenders that have the best chance of approving you are the qualities you’re looking for when applying. Feel free to reach out and ask them, too. If they’re website isn’t clear or if you have questions that aren’t answered, they’ll always be happy to help. They want you to make money so that they can make money, after all.