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How to apply for Inventory Financing

Published on 28th November 2017 - Last update on 1st April 2020

If you operate in sectors such as catering, retail, manufacturing or apparel, your inventory will no doubt play a vital role in your business’ day-to-day operations. Without access to a constant supply of fresh stock, your business won’t be able to offer the goods and services that your customers desire. Although your business might be operating on a tight budget, the answer could lie with the contents of your inventory. With Inventory Finance, you can apply for a short-term line of credit (LOC) secured against your business’ stock, supplies, ingredients and raw materials. Much like a credit card, Inventory Finance could grant your business access to an allowance each month that can be used to acquire additional stock, refresh the contents of your inventory or even support your cash flow. So if you feel that your business could benefit, you need to answer the following questions:

  • How much is your inventory worth?
  • Is an inventory management system in place?
  • How reliable are your sales?

How can I value the contents of my business’ inventory?

The value of your business’ inventory is an important aspect of Inventory Finance, since it allows lenders to determine the size of the allowance. Although it’s tempting to simply say that your inventory is worth £100,000, for example, just because that’s how much you paid your supplier, in truth, it’s only worth how much your customers are willing to pay for it. Although lenders may send a representative to inspect your inventory, they’ll also want to know what method of valuation you’ve used. This could be:

  • Specific Value: If your business mainly deals in antiques, artwork, jewellery or ornamental decor where the purchase price of each item is its appraised worth, this method may prove suitable.
  • First in, First out: This method is used if you expect to sell the oldest item in your inventory first. It is often used by small businesses that sell perishable goods such as food, drink and flowers.
  • Average Cost: This method of valuation simply takes into account the average worth of the goods your business sells each month.

Having a hard time keeping your shelves full? Need to refresh your inventory in time for a new season? Apply for Inventory Finance, or learn more about how your business could benefit.

What is an inventory management system?

Another factor that lenders will look at is whether your business has a reliable inventory management system in place. Such systems are designed to help you record and manage stock levels, orders, sales and deliveries. By maintaining such records, lenders will be able to use this data to determine how fast your business can convert the concerned stock and raw materials into cash. Plus, it also allows lenders to tell whether you’re looking to buy more stock than you can sell. This is crucial since a Line of Credit typically requires full repayment within 30 – 90 days. If you haven’t already got an inventory management system in place, there are plenty of systems to choose from, including Wasp, Fishbowl and Agiliron.

How will lenders assess the reliability of my business’ sales?

As well as assessing the value of your inventory and whether you have a sufficient inventory management system in place, lenders will want to review various documents relating to your business’ performance and sales. So, as well as your business’ registration information, you may be required to submit bank statements, your balance sheet, collateral documentation, appraisal reports, tax returns, profit and loss statements and copies of any inventory invoices. Lenders will also request permission to see your business’ credit score, enabling them to determine whether you have any outstanding county court judgements (CCJ), arrears and a reliable history of paying off past debts. This allows lenders to assess the amount of risk involved in lending to your business and helps determine which rate of interest to offer. In addition, some lenders may also require you to provide a written or verbal Personal Guarantee, expressing your commitment to fully repaying the loan on time.

Need help maintaining your business’ inventory?

To ensure the success of your business, tending to the needs of your customers by providing the goods and services they desire is crucial. However, if you’ve got a tight budget to work with, that’s easier said than done. By using your own funds to purchase stock, supplies, ingredients and raw material from your suppliers, you risk damaging your working capital. But if you don’t, you risk having declining sales and the possibility of insolvency if the situation doesn’t change. This can make you feel like you’re stuck between a rock and hard place, which needn’t be the case. If you’re in need of more stock or you’re looking to refresh your inventory, apply for Inventory Finance today, or find out more with Rangewell.

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David Harrison

David Harrison

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