Inventory financing involves borrowing money from financial institutions such as banks and securing it with your inventory. This usual goal is to liquidate assets. Companies that have tangible items in inventory they can enjoy this option. This is not for companies that sell intangible goods such as services and others.
Why is inventory financing?
For companies that do not meet the requirements to get funds through conventional funding sources, inventory financing is a grace. Also, the company with the history of credit is tarnished, which requires capital, can choose this type of financing to get cash and improve their business.
What is the financing of inventory?
The basic function of inventory financing is to provide credit pathways to businesses that have an inventory as security. For inventory financing, you need to generate your sales record. This helps lenders check the market value of your inventory and evaluate whether it is quite feasible to provide loans to you.
This verification in the lender section cannot be avoided. Loans come with the risks themselves and each lender wants to ensure that you are a viable client to take risks. Lenders can also ask you to produce certain documents and other details. This shouldn’t bother you.
As mentioned at first, this type of financing is only for business with a real inventory. Lenders are interested in companies that have consistent sales records over the years, plus considerable credit.
Placing your physical inventory as a security to dig money does not mean that the lender will have your inventory if you default on the loan. The main reason for securing your inventory of loans is to ensure the lender that their investment is protected in the worst case. Maybe, that’s why, it’s not a good idea for a new business to choose inventory financing. They have no stable sales or inventory records to be displayed.
For companies that anticipate the exacarious inventory turnover rates, good inventory financing. The lack of liquid cash needed to continue their business operations should not be a deterrent in their success. It may also happen that you have a warehouse full of goods that are ready for shipping, but do not have enough capital for the next lot production. You can use this warehouse inventory to get cash.
When choosing inventory financing to get liquid money, you must be realistic in your approach. If you are not sure how to do it, hire a financial advisor specializing in business financing.