Basics of Purchasing Inventory Through a Line of Credit
Running a small business would be impossible without inventory. Inventory management is crucial to your business model. It fills your shelves and keeps your customers coming back for more business. Even if you don’t have a brick and mortar store, you still need supplies to perform and maintain your services.
Unexpected expenses can eat away at your profits, especially if you planned on using that cash flow to purchase more inventory. You have some options available to you for getting additional cash. Some of these options are more convenient than others.
Traditional loans, credit cards, and lines of credit are some of the ways in which you might want to obtain additional financing. However, if you need it to buy inventory, an inventory loan may be the best option.
Inventory loans are short terms loans or lines of credit specifically meant for small businesses to purchase inventory. You can use your inventory as collateral against the loan, meaning your stock is surrendered to the lender if you’re unable to repay it.
Who Can Use Inventory Financing
Existing businesses get the most benefit out of inventory financing. Startup businesses have to purchase much more than just inventory and need more substantial small business start-up loans with more financing options. To obtain inventory financing, lenders are interested in a business’s track record for buying and selling inventory before agreeing to use the inventory as collateral.
If you have strong sales and a proven track record of sales performance, you’ll have an easier time of getting financing. Large, established businesses, especially in the retail industry, find it easier to access lines of credit to propel their business forward when they run into temporary cash flow issues.
The approval process for inventory financing is more flexible than with traditional lenders, and they look at many different factors. Even if your business doesn’t have perfect credit, lenders may overlook that aspect of your application if you can demonstrate consistent sales.
How Inventory Lines of Credit Help
If you need a quick turnaround for funding, you may be able to find fast business loans or even same day business loans online. The advantage of quick financing is that you can get it when you need it, so when the need strikes, you’ll be prepared.
You can also use these inventory loans to stock up on inventory before you anticipate a rush or a heavy sales period. They enable you to provide a better experience for your customers, and when your shelves look full, you’ll set a better impression for new visitors, generating more repeat business.
Seasonal businesses also benefit from this type of loan because they need more substantial inventory at certain times of the year. Inventory loans and business lines of credit help beef up inventory before the season starts and allow you to pay it back in a relatively short amount of time.
Benefits of Inventory Financing
There are numerous benefits to inventory financing that may be obvious, but it doesn’t hurt to understand more thoroughly the impact of larger inventory numbers.
Inventory financing helps improve flexibility and adaptability. When you know you can increase inventory as needed, you’ll feel more comfortable budgeting your expenses freely for the things your business needs. It has a tremendous impact on your bottom line. Overhead costs like retail space and utilities aren’t cheap, and when you know you can afford to pay your bills, you have a lot less stress.
Inventory financing helps to keep your shelves more full. This is pretty obvious, but you may never know the full repercussions of being sold out of a favorite item. When customers shop either online or at the store for something they need, and you’re sold out, they’ll get it somewhere else. Their frustration causes you lose the initial sale, repeat business, and positive word of mouth marketing. You may even risk a negative review online for all the world to see.
Inventory loans are great options for businesses who have been turned away for other types of loans. Poor credit and lack of cash or collateral can impact your ability to get financing when you need it. Because inventory lines of credit use the inventory you purchase as collateral, you don’t necessarily need any of these other things to obtain the financing you need, when you need it.
Seasonal businesses benefit from inventory financing during slow sales periods. It’s tough to make it through nine slow months on the money generated in the three months that were actually busy. Inventory financing can help weather- or holiday-related businesses through the ebbs and flows.
Should You Consider an Inventory Loan?
If you have strong sales leading to high inventory turnover, you need to restock to prepare for the next sales cycle, you’ve been turned down by a bank or other traditional lender, or you want more flexible working capital, you may want to consider an inventory loan.
Inventory loans can help you manage your finances, seasonal business, or slow sales periods. You don’t need high credit, and you don’t have to have collateral. Inventory lines of credit can help free you from the stress of limited cash flow and allow you to refocus on what matters.
Tips for Getting Inventory Loans
Once you decide that an inventory loan may benefit you, all you have to do is position your business in the best possible way. Potential investors can see that you’re a positive investment. Here are some things to consider:
- Make sure your inventory management systems are accurate, organized, and easy to use. Accurate records show that you’re responsible with your inventory and you know exactly what you need.
- Demonstrate appropriate inventory protection methods. If your inventory needs to be stored at a particular temperature or light saturation, make sure you can prove that you follow these practices. Damage to inventory can jeopardize your chances of getting financed.
- Always be prepared. Loan officers can make unexpected visits to make sure operations look normal. Keep everything clean, display your inventory efficiently, and manage the spaces that customers can’t see, because lenders will look there, too.
- Established and stable sales are key to getting approved for inventory financing, so keep accurate sales records.
Inventory loans are essential for replenishing inventory, freeing up your cash flow, keeping your store stocked, and making your customers come back. Efficient and profitable businesses keep operations moving by carefully planning their inventory. Sometimes this means reaching out for a helping hand, but it’s possible with inventory financing. Keep this option in your back pocket for a rainy day. It’s easy, fast, and practical.
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