Inventory financing, working capital

How Inventory Financing Can Help You Manage Your Cash Flow

ByContent Manager

Running a small business means overcoming a tremendous number of challenges, especially when it comes to maintaining sufficient working capital. As a result, business owners often have to get creative when it comes to financing.

What is Inventory Financing?

Inventory financing is an option that allows the business to leverage the capital that is tied up in inventory and allow you to use it elsewhere in the business. It is a type of short-term loan or a revolving line of credit that can be used to purchase products that can be sold in the future. With inventory financing, the inventory purchased serves as collateral to secure the loan.

Small and mid-sized retailers often use inventory financing, especially if they need a lot of stock to create sales. Unfortunately, many traditional financing options may not work because the company may lack a sufficient financial history or have enough assets to secure financing.

While the concept is cut and dry, there are variables that financial institutions take into consideration when determining whether inventory financing is a good option. They will look at factors related to the products, such as:

  • Resale value
  • Perishability
  • Theft
  • Business, economic, and industry inventory cycles
  • Shipping constraints
  • Depreciation

How Can Inventory Financing Help Manage Cash Flow?

Inventory financing is a way to even out the seasonal fluctuations in cash flow. It can also help a company achieve a higher sales volume as it can acquire additional inventory. In this regard, inventory financing lets a business unlock the capital tied up in inventory at any time to achieve specific business goals, whether to raise capital during a slow season, expand the product line, or increase volume.

Any way you look at it, inventory financing allows you to have greater control over your cash flow at any time, which results in helping you achieve your long- and short-term business goals. Companies commonly use inventory financing for multiple reasons:

  • To provide funding during short-term cash shortages
  • To build up inventory for an anticipated increase in demand
  • To expand product lines
  • To unlock the capital tied up in inventory
  • To secure upfront cash to meet consumer demand

In addition to giving you more options for accessing working capital, inventory financing has the following benefits:

  • It uses the inventory as collateral, so you don’t have to provide other business or personal assets to secure the funding.
  • Securing the loan can happen quickly, ensuring access to the funds when you need them most. This benefit also means you can purchase more inventory quickly when discounts are available.
  • Your personal credit record isn’t generally a big factor in consideration for funding.
  • Even new businesses can secure inventory financing.
  • You have the freedom to make smart business decisions with your working capital, which means you can take advantage of new opportunities as they arise.

Inventory financing may not be the right fit for every business, but they remain a great option for many businesses looking to secure working capital. Contact PenComCapital today to learn more about your working capital options.