What is Inventory Finance?Published on 23rd November 2017 2017-11-23T00:03:37+00:00 - Last update on 19th November 2019 2019-11-19T17:09:42+00:00
Maintaining a well-stocked inventory is crucial to your operations. But as your business grows more popular, so does the strain upon your goods and services. Ultimately, this may mean purchasing more stock and adding to your operating expenses. But, in order to make the most of the opportunities available and avoid customer dissatisfaction, applying for Inventory Finance could offer you a solution. Inventory Finance is designed specifically towards the purchasing and selling of goods and services. So if you’re considering supporting your business with Inventory Finance, here’s what you need to know:
- What is Inventory Finance?
- How is Inventory Finance secured?
- How to qualify for Inventory Finance?
- Other ways of financing inventory?
How does Inventory Finance work?
From catering, retail and e-commerce to wholesalers, there are many sectors in the UK that rely on Inventory Finance to operate. A secured short-term form of asset-based lending, Inventory Finance typically operates much like a Revolving Credit Facility, allowing you to buy and refresh your inventory or acquire support during slow trading periods. Enabling access to a lender controlled facility, it offers you the ability to withdraw an allowance based on the value of your business’ inventory. As your stock is converted into cash, you can either repay the money that you’ve taken immediately using the proceeds of the sale, or within 30 to 90 days. Plus, when your business needs even more additional stock, you can use this product and begin the cycle all over again.
How is Inventory Finance secured?
Inventory Finance is typically secured against the stock, giving lenders additional confidence in your business’ ability to afford the agreement. However, in the event of nonpayment, the lender can repossess stock in order to gain what’s owed to them. Therefore, you must ensure that you settle the debt within the timeframe expressed by the lender, which is usually 30 – 90 days. That said, some lenders may also require you to offer a Personal Guarantee, which is a written or verbal expression of your commitment to repaying the product on time.
What does my business need to qualify for Inventory Finance?
In order to qualify for Inventory Finance, you must be able to demonstrate that you’re able to quickly convert the concerned stock into cash and have an inventory management system in place. As such, along with your business plan and credit profile, lenders will also want to review your business’ sales reports and bank statements in order to establish whether you have a reliable income and trading history. And, of course, you’ll need to provide lenders with a list of the inventory that you wish to finance and a valuation of the inventory according to either the specific value of each item (e.g. antiques), First in, First out (FIFO) or the average cost of each item sold in a month.
Are there any other ways that I can finance inventory?
As well as applying for a Line of Credit, there are other ways that you can acquire stock and raw materials for your business. Some of the products that you can use in this regard include Invoice Finance and Asset Refinance. With Invoice Finance you could unlock up to 90% the money owed to you in unpaid business-to-business (B2B) invoices that are worth in excess of £5,000. Meanwhile, Asset Finance allows you release the equity contained in your existing unencumbered assets, such as equipment, machinery and vehicles, which are worth at least £5,000. Because both of these products carry no usage restrictions they can be used for a wide variety of purposes, including purchasing stock.
Looking to finance your inventory?
If your business requires a constant supply of inventory and raw materials to operate, doing so using your own finances can be risky, especially during slow trading periods. But if you’d rather not take that risk, you could explore how applying for Inventory Finance could help. A popular means of financing the process of buying and selling stock, Inventory Finance can help you ensure that your products are fresh and appealing to your customers. So if you’re looking to acquire additional stock or refresh your inventory in time for seasonal trends, apply for Inventory Finance today, or find out more with Rangewell.
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