How to qualify for Inventory Financing

By David Harrison
Content writer
Published: 19 February 2019 | Last update: 11 April 20201 minute read

Table of Contents

Although expanding your customer base is crucial to your long-term sustainability, satisfying customer demand doesn’t come without its challenges. On top of ensuring sufficient stock levels, you also need to make sure that the goods and services you offer are up to date with the latest styles and trends. However, if you’d rather avoid adding to your working capital expenses, you could explore how Inventory Financing can help with this. Inventory Finance offers your business a Line of Credit (LOC), granting you access to a lender-controlled facility from which you can withdraw a monthly allowance to support the movement of goods and services within your business. So if you feel Inventory Finance could benefit your business, here’s what you need to qualify.

  • Providing security
  • Inventory inspections
  • Documents to submit
  • Credit checks

How is Inventory Finance secured?

Inventory Finance is a form of secured asset-based lending that uses the stock, supplies, ingredients and raw materials you’re financing as collateral. Since the product is secured, this gives lenders greater confidence when considering your application. However, this does mean that if your business fails to repay the amount withdrawn within 30 - 90 days, the lender will have the right to repossess the contents of your inventory in order to satisfy the debt. Although this is something you’ll naturally wish to avoid, it's useful to understand that none of your other assets, such as equipment, machinery or property, is put at risk in the event of nonpayment. However, it’s worth noting that some lenders may also require you to offer a Personal Guarantee, expressing your commitment to fully repaying the agreement on time.

Need help keeping up with customer demand? Rather avoid adding to your working capital? Apply for Inventory Finance, or learn more about how your business could benefit.

Are inventory inspections required?

When considering your application for Inventory Finance, some lenders will also to ask to inspect the stock that’s being financed, as well as the conditions in which it is kept. What lenders want to know is that your business has every chance of quickly converting these goods into cash. So, as well as determining the stock’s appraised worth, they’ll want to see that it’s being well maintained and won’t get damaged under your care. Note that such inspections can also occur periodically throughout the agreement, which can vary depending on your choice of lender.

What documents must I submit when applying for Inventory Finance?

To qualify for Inventory Finance, you’ll need to submit various documents, giving lenders a stronger understanding of how well your business is performing. In addition, you must also possess a trading history of at least 2 years. So, as well as providing your business’ registration information, some of the documents you may need to submit alongside your application could include your latest and past bank statements, your annual turnover report, inventory invoices, appraisal reports, tax returns and Profit and Loss statements to Standard Industrial Classification (SIC) code. Plus, you must also be able to show that you have a reliable inventory management system in place which generates detailed reports to show stock levels, orders, sales and deliveries. So, by presenting lenders with all the data that they need, they’ll be able to determine whether your business has the capability to sell these goods in a timely manner and handle such an agreement.

How much attention will lenders give to my business’ credit profile?

When applying for this type of finance, lenders generally expect your business to possess a strong credit score, informing them that your business has a high probability of repaying the agreement on time. When reviewing your credit score, lenders will check whether your business has any outstanding CCJs, Accelerated Payment Notices, arrears and a reliable history paying off debt. The reason why lenders take such a tough stance when considering this form of finance comes down to the challenges that are involved when dealing with inventory. For example, the stock can lose its retail worth if customer trends change or if it sustains any damage, making it harder for your business to sell the items and repay the agreement. Or, if the deal involves perishable goods such as food and drink, these items can quickly spoil making it impossible for lenders to resell them in the event of non-payment. If you have any concerns affecting your business’ credit score, you can read more on the topic here.

Does your business require Inventory Finance?

Many UK businesses rely on a constant flow of goods and services reaching their customers. However, as your business grows in popularity, keeping up with customer demand can prove challenging, putting your working capital under immense pressure. But with Inventory Finance your business could benefit from a Line of Credit (LOC) that allows you to quickly replenish your inventory as each item is sold to your customers. So if your business is in need of additional stock, apply for Inventory Finance today, or find out more with Rangewell.

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