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A Guide to Ecommerce Inventory Financing

Ecommerce inventory finance - or stock finance - can help fund the purchase of stock for your ecommerce business

Learn more about this type of finance and how to apply in this guide.

Running an ecommerce business can be a very profitable pursuit, but there are a lot of factors to consider to ensure success. Many online retailers experience cash flow issues, for example, as there are many initial setup and ongoing maintenance costs to running a business like this. If you sell products online, then you will understand the importance of maintaining a balance between buying and selling new stock. 

Inventory finance, also known as stock finance, is a popular solution for ecommerce businesses that require support bridging that gap between stock purchase and sales turnover. Ecommerce businesses tend to hold stock in a garage or warehouse and, until this stock is sold, it’s costing money to both acquire and store. 

A common strategy is to invest profits from stock sales into purchasing more stock for your inventory, but what about if you have a slow sales period or need a big cash injection to pay for operating costs like staff wages, warehousing, web hosting and other expenses. This is where inventory finance comes into play.

Keep reading to learn more about inventory finance, including how to qualify and what to consider before applying. If you’re ready to start the application process, get in touch with Rangewell today and we’ll help you to determine whether inventory finance is right for you and help you to secure the best funding to grow your ecommerce business. 

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What is ecommerce inventory finance?

Inventory finance, also known as stock finance, is a form of specialist finance that allows ecommerce businesses to raise funds that can be used to purchase stock. 

The lender will offer funding based on your existing business performance, sales projections and other factors such as your business plan. They will offer terms based on the specifics of the finance offered, which can vary. You can, for example, leverage finance against existing stock in your warehouse - which is generally only useful for businesses that hold expensive, slow-moving inventory such as vehicles. In this style, the loan is repaid once the stock is sold. The funding is calculated based on a number of factors, including the type of stock you are looking to secure working capital on, whether it is raw materials or ready for sale and the stock conditions. 

More commonly in ecommerce inventory finance, however, is that lenders will offer funds based on your existing business model and revenue streams. The dynamic nature of e-commerce makes it difficult to say which terms will be offered - which is why having a broker like Rangewell who can negotiate on your behalf is a great idea. Some lenders will even accommodate e-commerce finance repayments as a percentage split by your different sales channels, which is perfect if you sell across third-parties such as Amazon and eBay as well as your own site. 

Ecommerce is a flourishing industry, but the UK market for inventory finance is still maturing. Many lenders are not aware of the specifics of ecommerce finance and attracting the right rates means putting your business and opportunities across to the lender in the right way. To make sure you have access to the best possible funding options for your business, work with Rangewell and we will work with you to secure the finance you need.

How to qualify for ecommerce inventory finance

We recommend speaking to one of our expert advisors to find out which type of finance is right for you, and whether you qualify for any other funding products. With that in mind, here are some considerations for inventory finance. 

In order to qualify for ecommerce inventory finance, you must have:

  • An established ecommerce business with a history of purchasing inventory 
  • Access to financial accounts and an understanding of key metrics such as daily sales, profit and COGS (Cost of Goods Sold)
  • Met certain criteria regarding your credit history

There may be additional considerations depending on your circumstances and how much finance you need, so make sure to speak to Rangewell to find the right option for you.

Benefits of inventory finance for ecommerce

Ecommerce is a fast-paced environment. If the product your customer wants is out of stock, they might turn to another retailer to make their purchase instead of waiting for you to restock. Of course, if your products are unique then this might not be the case, but stock availability is still a key consideration for any ecommerce business.

The reality of cashflow, however, means many e-commerce businesses face a difficult phase where they must wait for customer order revenue to facilitate a new stock order. If demand is high, you'll quickly run out of stock and be waiting for a new shipment - disappointing customers and potentially losing sales. Inventory finance grants an almost instant cash injection that can be used to purchase new stock without impacting your existing cashflow - or even used to increase your stockholding capacity so you can store more UK-based stock ready to ship at a moment's notice. 

If you're facing the opposite issue and have expensive stock unsold in the warehouse but need to raise cash for new stock, you can apply for specialist inventory finance that can release the working capital you need to buy new stock using your existing inventory as collateral.

However you approach the application, the benefits of inventory finance are numerous - the finance package allows you to keep your warehouse stocked, pay your expenses and continue to deliver the best possible customer service, all while paying back finance through terms that should be suited to your business, provided you negotiate the right deal. 

Benefits of inventory finance include:

  • Access finance without tying it against physical assets such as property
  • Fill cash flow gaps
  • Maintain stock availability
  • Continue business operations between seasons

Plus so much more. Bear in mind that inventory finance is a fantastic funding option for many, but might not be the right solution for you and your ecommerce business. That’s why we encourage you to get in touch with Rangewell’s team of specialists who can advise you on the best approach, and help to scour the whole of market for the most appropriate finance products. As a finance broker with specialised experience in working with the ecommerce industry, we will be able to support you to find out whether inventory finance is right for you, or if another product such as business credit cards, merchant cash advance, purchase order finance or any other more traditional loans could be a better fit.

Considerations of inventory finance 

While inventory loans can be a viable solution for many ecommerce companies, there are still several factors to consider before signing on the dotted line. As mentioned above, this may not be the best solution for you. However, before you determine how to go forward, here are some of the biggest considerations for ecommerce businesses looking to take out finance. 

The scale of funding you require

Depending on what lenders are able to offer, you may not be able to secure the scale of finance you require with just inventory finance. However, this product could also be paired with another business loan to reach your desired sum or an alternative may be available, so it’s always worth speaking with our advisors about your circumstances 

Your business status

Typically, inventory finance is only available to established ecommerce businesses with a proven track record of selling online. Since the finance is secured against your business, the lender wants to know the inventory will sell and your business plan is robust. If you're a new business without a track record, you may be unable to meet the lender’s criteria - in which case, this might not be the finance product for you. 

Interest rates

If you are considering inventory finance, then it’s vital you speak to a broker like Rangewell as the interest rates offered to tend to vary greatly. Getting a good deal is really important, so make sure you follow the best path with regards to this sort of finance and the interest rates available to you. 

Your future plans for the business

Since inventory finance relies on you selling your inventory and growing your business in order to repay the loan, you should think carefully about the future of your business and make sure you are in it for the long run. If you choose to cease operations while you still have inventory finance debt, this could cause an issue with your credit score and you will have to repay in another way, often on worse terms.

Ecommerce inventory finance with Rangewell

Inventory finance can be a great way to increase cash flow and keep your online store operating during difficult times. Whether you are experiencing ups and downs brought on by the post-COVID economy or you run a business that relies on seasonal sales, this finance product may be the solution to help you maintain strong business performance. 

The finance can be used in a number of ways, including to settle invoices, pay staff wages, grow your offering or even secure new inventory for your business. As we’ve explored in this guide, the world of ecommerce is growing and established online business owners are still facing a number of struggles in 2022 and beyond, such as supply chain issues, unpaid invoices and unfulfilled orders.

So, for some businesses, finance products like inventory finance, purchase order finance and merchant cash finance provide a layer of security and gives them the reassurance they need to keep growing their online store.

Want to know more about inventory finance and find out if it’s the right solution for you and your business? Get in touch with Rangewell’s team of expert advisors today and we’ll help you to find the best finance product to meet your needs. 

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