What is Inventory Financing
Inventory Financing (also called Inventory Loan) is a type of Asset-Based Lending (ABL) which provides a revolving line of credit to businesses that have some inventory for securing the loan. Cash received from converting inventory into sales is used to gradually pay off the loan and purchase new inventory with a new line of credit. Businesses usually apply for Inventory Financing to purchase new inventory as well as to get through seasonal fluctuations in cash flow.
No slow cash flow seasons
Retailers and wholesalers usually experience an influx of business before or during holiday seasons like Christmas. Still, during other periods throughout the year, sales might not be as high thus resulting in an insufficient cash flow. Inventory Financing provides businesses, which have slow cash flow periods, a solution for maintaining operations at normal levels.
Banks usually require a good credit history in order to approve a loan and so small to medium sized retailers, as well as wholesalers with a poor credit history or an inadequate cash flow, are likely be turned away by traditional banks. Since they still require funds for purchasing inventory, they need to find another solution. Inventory Financing is a great option for obtaining the needed funds, as it allows using current inventory as collateral.
Keep your shelves stocked.
Retailers need to have product on their shelves in order to attract customers and have a steady stream of sales. Small and medium sized businesses might have limited available capital to keep operations running smoothly. Inventory Financing allows such companies to use a revolving line of credit to stock their shelves because their loans have been secured with inventory.