A small business looking to expand is dependent on its inventory. The pace of growth is dependent on inventory size and the speed at which it can be replenished. If the company cannot provide its orders in a timely manner, customers will go elsewhere, and the company will slow down instead. As a small business owner looking to grow, your first step is to finance a larger inventory to fit that expansion. There are many effective financial tools to achieve this. Read on to discover the inventory financing options for business growth.
The most straightforward way to finance your inventory is through an inventory loan. This sort of business loan uses the inventory you intend to buy as collateral for the loan. Since your inventory is one of your company’s biggest assets, this lets you use that value to buy itself. A good inventory loan will also base repayment on your rate of sale, making it harder to default. However, these loans are hard to get. You must prove you have been in business at least a year, and the bank will want hard proof that the inventory your buying will turn a profit. If you can get through application process, this is a safe and effective way to finance an inventory expansion.
If you need the financing fast, a quick cash option is a short-term online loan. These loans are offered by online brokers. They offer a lot more flexibility than an inventory loan. Lenders use automated financial review to approve loans in around a day, instead of several weeks. These loans can give you the quick burst of fund you need to expand the inventory until higher sales kick in. However, if that burst of money will not cover that gap, it can become a burden to your company. Used wisely, these short-term loans can provide you inventory with the perfect amount of money at just the right time.
Business Line of Credit
The most flexible solution to finance your inventory is a business line of credit. Like a personal credit card, a line of credit can be borrowed against at any time. This is a great tool if you want to maintain ‘just-in-time’ inventory practices. This practice balances your in-stock inventory with your sales and production to minimize your storage needs. If you succeed, you will have minimal excess inventory to store without stock shortfalls. However, you may need to make small changes over time to get this right. A line of credit gives you the flexibility to make these changes as they happen.
Purchase Order Financing
If your company is an Alberta wholesaler, you can use purchase order financing for your inventory. This option uses your purchase order as collateral for a loan. With the funds, you can buy the inventory to fill the order. In exchange of a percentage of your profit, the lender effectively covers your cash flow for the order. This only works if your company is getting bulk purchases from clients. Otherwise, the individual order won’t be big enough to attract a lender. If you have enough order history, this is a great way to take on bigger orders you don’t yet have the inventory for.
Merchant Cash Advance
A merchant cash advance can get you quick cash to restock your inventory. This is not a traditional loan, but an advance determined by credit card sales. The lender takes a percentage of your credit card sales, called a holdback, to pay back the advance with interest. This sort of advance is easy to get if you do a lot of credit card sales. Since it is not a loan, it also does not affect your company’s credit score. However, these sorts of advances usually come with high interest rates. If you are in a hurry to increase your inventory, and do not want it to affect your credit, a merchant cash advance is a good financing option.
There are several options to finance your company’s inventory. You can get an inventory loan that uses the inventory itself as collateral. A short-term online loan can get you a flexible loan quickly. Meanwhile, a business line of credit lets you make the small adjustments need for a ‘just in time’ inventory. If you are a wholesaler, you can use purchase order financing to cover your cash flow. If you need to avoid a loan altogether, a merchant cash advance can get you fast cash without affecting your credit score. Any of these tools can be used to cover a bigger inventory as your company expands.