Financing inventory can be done in many ways. One popular method is taking out a loan or line of credit and using the cash for additional purchases. While this strategy offers convenience, there are also potential drawbacks to consider.
Before applying for any loan or line of credit, it’s wise to consult your lender or financing company first to understand their exact guidelines. Doing this will save you time and energy in the future when applying for a loan or line of credit.
Maintain Accurate Sales Records: Lenders want to know that your business is doing well. A strong sales record can serve as evidence of success for business owners when determining whether they should receive an inventory loan or line of credit.
Inventory Turnover Rate: The faster your inventory turnover is, the more advantageous inventory financing may be. This is especially true for businesses selling items in high demand such as food items, clothing items, and household goods.
A successful sales record can also give your lender or financing company insight into your potential for growth. They want to know that you are an established business with a bright and secure future.
Maintaining detailed records of your inventory is another advantage when applying for an inventory loan or line of credit. Doing so gives them a comprehensive view of how well-run your business is, as well as the cost and quantity of goods being purchased.
You Need a Large Amount of Inventory: The more inventory you have on hand, the higher your chances are for approval for an inventory loan or line of credit. Lenders will view your assets as collateral for such loans or lines of credit.
Other advantages to this type of inventory financing include its lack of credit check requirements. This is especially beneficial for business owners who may not have had much prior credit history.
When seeking an inventory loan or line of credit, make sure the lender or financing company offers terms that you can comfortably afford. This should include the interest rate, fees, and payment schedule.
Inventory loans are not suitable for every business. They tend to benefit those that have been established for a significant amount of time and whose inventory turnover rates indicate their business is growing and prospering.
The downside of taking out an inventory loan or line of credit is that you are adding debt to your business. As this is a significant expense, you need to be certain it will be worthwhile in the long run.
Finding a trustworthy financing company to supply you with inventory can be challenging. Unfortunately, there are plenty of unscrupulous individuals out there waiting to take advantage of those who fail to do their due diligence when seeking out options.