Home Business Insights & Advice Inventory financing explained: What you need to know

Inventory financing explained: What you need to know

by Ben Jones
14th Nov 22 12:10 pm

As we continue to plough through economic crisis after economic crisis, many businesses are having to search for alternative sources of financing to keep them afloat. Especially during seasons where expenses are particularly high or revenue is decreased, cash flow issues can become a deciding factor in a business’s future.

One lending solution that might be suitable for a wide range of businesses is known as inventory financing, or stock financing. Here, we take a close look at what that entails, and whether it might be a suitable solution to your financial woes.

Inventory financing defined

For companies that have a significant amount of stock, it can sometimes be possible to secure a loan against the value of that inventory. The amount offered won’t normally be for the entire value of the stock – it’ll be a certain percentage, based on certain factors. These factors include how fast the stock is selling, the quantity of goods, and where they’re stored.

The key parties in attaining inventory financing tend to involve the business seeking a loan, an inventory or stock finance broker, and a third-party inventory evaluator. First, the evaluator will assess the value of the stock. Then, based on that sum and the other variables mentioned above, the stock finance broker will offer a loan solution to the business in question.

What kinds of finance can you receive?

One of the many benefits of inventory financing is that you can receive a broad range of financial assistance packages. These consist of cash advances that you pay back as you start to sell off the stock, ongoing credit lines that give funding on a long-term basis, and short term cash loans.

What ties all these options together is the fact that they’re secured against physical assets – the business’s inventory. This makes inventory financing an excellent solution for some businesses, but not for others.

Who can benefit from inventory financing?

Inventory financing tends to only be available to businesses with a significant amount of physical products stored somewhere. It doesn’t necessarily matter where they’re stored, but if they’re in a less accessible international location, the amount of funding they could secure could be less than if they were stored in a more accessible, secure domestic location.

For businesses that meet the necessary criteria, inventory financing has multiple benefits. Unlike many other forms of credit, it’s quite discreet – it doesn’t have to be made public, and you often don’t need to inform stakeholders. It’s also versatile in terms of the different kinds of finance that can be secured.

Whether or not your business needs a loan right now, it’s definitely worth knowing all of your options. As financial forecasting continues to look increasingly dire, many businesses will need to utilise all the channels of assistance that are available to them. Inventory financing can be a useful tool, and may very well save the day in the coming years.

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