Inventory financing is a type of business loan in which a business receives a short-term loan or line of credit to purchase inventory, and the inventory is in turn used as collateral. It can be particularly useful when your inventory is in high demand and you need to keep your shelves stocked, or if you are purchasing the inventory at a discount.
The terms of your inventory financing agreement will typically be determined by how quickly you expect your inventory to sell. If you expect the inventory to turn over quickly, it would make sense to have a shorter loan term. Conversely, if you expect the inventory to take a while to sell, longer loan terms make sense. Because of this variance in loan terms, it is especially important for you to take into consideration the total cost of the loan before agreeing to any inventory loan contract.
Who Can Use Inventory Financing
Inventory loans aren't for everyone. This type of financing is generally used by wholesalers, distributors and manufacturing companies who often have to meet requirements such as:
Have inventory or raw materials that are marketable
Use an inventory management system with perpetual inventory
Have reliable financial statements
Alternatives to Inventory Financing
Another way many business owners obtain inventory financing is with a business line of credit. It can be an especially useful option for companies that don't need to borrow as much money. Unlike a term loan, a line of credit allows the business owner to access as much funding as they need, up to their available credit limit, repay it and access it again as needed. Additionally, interest is only charged on the funds that are used
What Does Headway Capital Offer?
Headway Capital Offers an alternative to inventory financing in the form of a business line of credit. It is unsecured (so you don't have to use inventory as collateral), and we pride ourselves on transparency and have no hidden fees. Once approved, you can borrow as much as you need (up to your credit limit), as many times as you need to, without having to reapply. It's great for seasonal ups and downs and working capital and can be used to cover any business expense. Accessing your line of credit is easy; all you have to do is log in to your online account and request a draw! As you repay, you replenish your available credit, so you can keep your business running at full strength at all times.