Small businesses should always have enough inventory. At the end of the day, your customers will come to you if you have what they need. Having inventory purchasing power is critical to delivering on the promises you make to your customers.
There are two types of inventory:
- Items that are in demand all year round and require constant replenishment. Purchasing such inventory can be difficult if your business is prone to inconsistent cash flow.
- Seasonal items like school supplies and winter wear whose demand spike only during specific periods. Typically, such inventory is ordered a few months in advance and have to be paid upfront or shortly after placing the order.
Making advance payments may be difficult if you’re in a slow business season and don’t have enough money to pay for extra inventory. Inventory should turnover regularly depending on the nature of your small business and the products that you sell. Making periodic payments using a traditional loan doesn’t make sense. This money is better used for long term investments like marketing or upgrading equipment.
For a business requirement like inventory purchasing, short term financing is ideal. Short term loans can help small businesses during seasonal revenue fluctuations or during times when they require immediate funding.
Suppose you run a clothing retail store and demand for a particular product has gone up because a celebrity has suddenly made it popular. You should immediately stock up as much of the item as you can. Doing so might require you to go for a small business short term financing because most short term financing is tied to immediate sales. Short term financing options are rarely secured with a collateral. Instead, the inventory the business is buying often serves as collateral.
Quick and Easy Cash
Short term loans are relatively easy to qualify for than long term financing provided your business has a positive cash flow. It shouldn’t take more than a few days between filing the application and getting the money deposited in your bank account. If you are using a traditional lender to finance inventory purchases, you are likely to run into a few obstacles. This is extremely important in situations where you don’t have weeks to wait to purchase inventory. Short term financiers might also give you the flexibility of negotiating terms of repayment.
Prepare for Seasonality
If your business is seasonal in nature, short term financing can help you prepare for the busy season. Acquire inventory a few months before the busy season begins. Your suppliers might even give you discounts for placing orders in advance.
Many businesses struggle with cash flow because of low profit margins and the timing of sales in contrast to their expenses. This is where a short term financing option can be used to finance the purchase of inventory. This frees up working capital for other business expenses.
Short term inventory financing can also enhance your inventory purchasing power by improving the business’s revenue. This can be achieved by maximizing the amount of inventory you have for sale. This is particularly useful when there is a high demand for products.