Inventory financing deal or inventory financing is commonly referred to as a specific or a particular loan used to fund inventory purchases in a business. In turn, the purchased inventory is applied for collateral to secure the loan. Most of the time, this applies to warehouse and distribution center companies as they have the most accounts for inventory and stock management.
This is a general definition or idea of inventory funding, and there’s still a lot left to uncover and learn more about this funding option. To find out more about inventory financing, this article will serve as a walk-through on all the details of specific loans, steps in securing a loan, and tips on getting great inventory financing deals should your business need one.
How Does Inventory Financing Work?
As mentioned, inventory financing in a loan funding solution that banks or other types of lenders provide to businesses for the mere purpose of investing in products or goods for sale.
In turn, these products will then serve as collateral for the financing itself, something like equipment or material financing. Furthermore, purchased equipment will act as a replacement for the said loan. For as long as you keep meeting deadlines and scheduled payments, your inventory appearing as collateral is solely yours to keep as you see fit. However, if you fail in meeting deadlines and keeping up with payments on time and in full, the bank or the lender has all the right to foreclose your inventory or equipment in exchange and as payment for your debt.
Besides, finding your own space or establishment that doesn’t cost a lot can significantly help you in applying for inventory financing deals as you can save much more and pay off your loans in due time. For one, you can try considering warehouse spaces for lease in Kansas City as they provide great deals for businesses, so you have fewer worries about finances and costing!
Tips on Getting a Great Inventory Financing Deal
Reliable loan applications usually come from banks or lenders knowing every detail about the borrowers’ business, profit, intent, and ability to pay the loan. In fact, inventory loans require so much documents than a general and straightforward term loan, so it’ll more likely take a few weeks before you receive all due funds. Here’s a list of tips that can help you better understand and learn more about getting great inventory financing deals for your business:
Know Your Business
Banks offering loans would want to know if you understand the essence of your business and how it works. So, do you? Think of it this way: if you were the bank or lender, what would you want to know about the company you’re about to lend money or inventory to? Or better yet, try to answer the following questions and see for yourself how well you know the nature of your business, and if you’re really ready to apply for such financing loans:
- How much money do I need?
- How much money do I want?
- Does my company frequently get uneven cash flow due to seasonal circumstances?
- If my company purchases another set of inventory, would we need added workforce or space to be able to sell it?
- If I’m a startup, am I growing well? Do I know or recognize all business needs to keep growing in the industry?
- If I’m an established business, am I currently struggling? If yes, do I know the reasons behind my company’s struggles?
- If I’m an established business, am I thriving? If yes, am I keeping track of all the company’s performances?
Ideally, banks and lenders would want their money to go someplace that guarantees thriving and flourishing. If you’re a startup business that doesn’t keep track of all records and performances, chances are, lenders would automatically reject your application. Generally, they have to rely on your credentials to ensure that you’re fulfilling your duties by paying on time or a guarantee of return on investment.
Understand What Lenders Want
Different banks and lenders also look for different kinds of borrowers. In turn, you have to research and know more about the type of lender that suits your business the most. Some lenders don’t really need strong credit scores, while some do. This is why you really need to do extensive research as a way to prepare for loans and financing deals. You never know, a simple research or background check may impress your lenders more than you should have.
Weigh In All Pros and Cons of Each Offer
It’s crucial to weigh in all the pros and cons of each offer as you make a decision about which loan is right for your business. And, it’s a lot easier if you already have a definite business plan in place. At the very least, your business plan should be your sole basis of distinguishing your business needs, goals, and objectives.
Relating this to inventory financing deals and other loans, it’s your responsibility to compare and contrast all offers laid out to you to arrive in a decision of picking which bank or lender offers the best set of deals, which you can definitely meet and pay for in the long run. As an entrepreneur, you’re continually making trade-offs and other risks with time, resources, and money. Be responsible enough to know which ones to prioritize and which ones not to.
Inventory financing deals and loans are precarious actions to take, considering you’re in a fast-paced and fast-growing industry. Hence, it gets tougher to get approval. In turn, thorough research, responsibility, and decision-making is crucial to help you and your business prepare for any response from banks and lenders. If you ever wish to apply for such loans, just make sure you follow these tips mentioned above to eliminate or lessen any conflict that may arise between you, the borrower, and the lender.