No matter how profitable a business is, access to additional working capital is an essential component of running a retail business. Late customer payments, unforeseen expenses, and slow seasons are just some of the reasons why you need access to funding. There are different financing options available for small business owners to secure working capital including lines of credit, traditional bank loans, asset-based loans, and more. But for small retail businesses that need to purchase or manage inventory, inventory financing for your business is the best solution.
What Is Inventory Financing?
Inventory financing is a form of asset-based loan that gives you the funds you need to purchase or manage inventory. The total amount of the loan is usually based on a percentage of your inventory’s value and the inventory will serve as collateral for the loan. Most business owners think that inventory financing is solely used for inventory purchases. However, you can use it for other types of expenses as well. Here are five things you can do with inventory financing for your business.
1. Keep Your Storeroom and Shop Fully Stocked
Purchasing inventory with the funds from an inventory loan seems obvious, but put yourself in your customer’s shoes. Wouldn’t you be frustrated if the product you’re looking for is unavailable? When your customers can’t find what they’re looking for, this could mean lost sales and missed opportunities. Keep in mind that frustrated customers are less likely to come back. They may even give your business a bad online review. Inventory loans keep your store fully stocked all year round.
2. Purchase Inventory in Bulk
In some cases, business owners need to purchase inventory in bulk. While buying in bulk may give you a supplier discount, it’s still relatively expensive to place a large purchase order upfront. Applying for inventory loans ensures that you have the cash you need to keep your storehouses and shelves fully stocked with the necessary products.
3. Offer More Product Lines
It’s important to keep up with existing product lines because if you don’t, you’ll jeopardize your business. But if you only focus on what you’re currently selling, you could be missing out on opportunities for growth and expansion.
When your customers purchase a product, chances are, they’ll want to purchase a supporting item as well. For example, if you own a shoe store, you might want to consider selling foot socks, shoe cleaners, shoe deodorizers, bags, and more. By adding complementary products to your repertoire, you’ll eventually enjoy a major sales increase. Inventory loans give you the working capital needed to invest in new product lines.
A Lifeline During Slow Seasons
Seasonal businesses need access to funding to keep them operational throughout the year. If you sell Christmas decorations and items, you can expect a sales drop after the holiday season. But to prepare for a surge of sales come the next Christmas season, you need to have the working capital necessary to buy more inventory despite the recent slow season. Inventory loans can help you do just that and more.
5. Keep a Larger Amount of Inventory
Wholesalers and major retailers may need to keep a larger amount of inventory on hand in their storage facilities. If you don’t have sufficient cash to replenish your supply, you may face product shortage in the next few months. Inventory loans give you access to a reliable source of funds to purchase additional inventory and complete future customer orders.
Applying for Inventory Financing for Your Business Today!
Every growing product-based business should consider applying for inventory financing at some point. To increase your chances of approval, potential lenders need to see a good credit record, a list of the types of inventory you want to finance, business sales history, sales projections, and profit and loss statements. Additionally, you should be able to show an excellent inventory management system so lenders wouldn’t have to worry that you might be buying more than what you need. Once qualified, your lender may inspect your inventory now and then to ensure that it has retained its value.
Keep in mind that the qualification requirements vary from lender to lender. Make sure you’re working with a reliable financing company that’s concerned with the growth and expansion of your business. Talk to them and ask them questions regarding their experience in funding businesses similar to yours.
