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Advantages of Inventory Financing for Small Businesses

Managing inventory can be much more complicated than stocking shelves and selling merchandise to customers. The main issue small business owners face is the fact that their merchandise is generally purchased with cash from the business up front, tying up cash flow. They need to keep capital reserves and business lines of credit available for other operational expenses. That’s where the convenience of inventory financing comes into play. Inventory financing is a smart solution to purchase inventory without compromising cash flow.

Types of Inventory Financing

There are a few options for funding inventory besides paying upfront for it out of pocket. Here are three most common ways:

A Business Line of Credit

A revolving business line of credit is way to gain access to short-term funding as you need it. The most common uses for this type is for operational expenses, payroll or, increasing inventory. This line of credit helps even out a business’s cash flow by allowing the borrower to draw against a predetermined credit limit as needed instead of taking on the full amount at one time like a short-term financing situation.

Vendor Financing

Vendor financing occurs when a vendor lends money to a borrower to buy that vendor’s merchandise. It’s a mutually beneficial loan arrangement as it helps the vendor increase sales and it allows the small business to get the inventory needed while building a strong relationship.

Short-Term Inventory Financing

Short-term inventory financing is designed specifically to help small business owners access funds for inventory quickly and especially if they’ve been turned down by the bank. This type of financing can be used to help get through seasonal fluctuations in cash flow or to meet operational expenses. A short-term lender like Reliant Funding can give you funding for inventory financing without using the inventory as collateral like a traditional bank line would.

Financing inventory gives your small business a big advantage.

Our inventory finance options are a smart way to fund your purchases if used wisely. A few strategic ways to use our funding include:

Use Inventory Financing to Get Ahead of Peak Season

Many small businesses are seasonal and experience cyclical peaks and slow times. A significant part of preparing for the busy season is by strategic inventory management. For example, if you have projected sales data calling for double the inventory on popular items, you’ll need to invest in stocking your shelves. Inventory financing is one way to do this without hurting the business’s cash flow.

Use Inventory Financing to Turn a Bigger Profit

Inventory financing gives seasonal small businesses an opportunity to turn more profit. With an inventory line of credit, it’s possible to make a profit the entire time a funding line is established. For example, it’s your busy season and you apply for a six-month inventory finance term to buy 100 units and those sell out in 30 days. At that rate, you can turn your inventory six times during the line. Profit on top of profit.

Take Advantage of Discounts/ Increase Buying Power

Financing larger inventory purchases help a business owner take advantage of unexpected opportunities to purchase product at a deep discount. Vendors are usually willing to offer these discounts at large volumes. The same goes for off-season discounts. You can navigate seasonal gaps by anticipating what you’ll need and buy accordingly. The beauty of this type of financing versus working the bank is that inventory financing will allow you to move quickly and snatch up these opportunities.

Signs your Small Business Would Benefit from Inventory Financing

  • You need flexible small business financing to help free up your cash you normally use for inventory to help with other business expenses.
  • You been in business for 6 months or longer.
  • You’ve applied for a small business loan through a bank and were turned down.
  • You have a high inventory turnover rate and strong sales record or a strong sales projection.
  • You need help to restock inventory to prepare for another sales cycle.
  • You want to take advantage of a discount from a vendor on a bulk purchase and you need to act fast.

If you would like more information about our funding solutions for your inventory needs, please reach out to us. We are always here to help.

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