If you are a retailer, reseller or distributor striving to maintain and increase your inventory sales rates while growing your business and improving profitability, you most likely need the services of a reputable inventory financing lender. With the aid of an inventory financing loan you will have the necessary financial support to acquire and increase your regular inventory supply of products. In addition, your business will be able to utilize early pay discounts with vendors and offer attractive customer credit terms. Depending on the size of your company, you will have additional funding available to meet growing payroll requirements and hire more staff members as needed. More information on Asset Based Lending for Inventory
Since borrowers applying for inventory financing can use inventory as collateral, they are not required to offer other business assets for this purpose. Such asset-based lending can ensure better advance rates than those provided by traditional bank lines of credit.
What Kind of Lenders Will Consider Providing Inventory Finance?
The major types of lenders currently providing business inventory financing are business financial solutions companies, finance companies offering small business loans (SBLs), and commercial banks.
Business Financial Solutions Companies
This type of business financing agent is a leader in providing highly successful business solutions for small-to-mid-sized companies. Such lenders' comprehensive services are tailored to the specific needs of each client. One major area of their expertise is providing retail financing for distributors and resellers. For example, if a small reseller business is selling office equipment to other companies, with the assistance of an inventory financing loan from a financial solutions company, the reseller can greatly improve sales volumes, liquidity and cash flow while saving capital.
All customers benefit from flexible payment structures when employing the services of finance problem solving advisers. These sales business finance experts also keep clients constantly updated on the latest opportunities for accounting and tax savings.
One very popular financial aid for online resellers, retailers and wholesale distributors is the Internet sales and marketing sector of Web-based inventory financing companies. Their teams of financial experts can help any Web-based sales enterprise grow and realize profits. When you register your company with these online financial solutions websites, their professional staff will assist you in determining and receiving the necessary funding to buy your business inventory. Your loan funds are then quickly transferred directly to your online PayPal account for your business use. Or, if you prefer, your lenders will complete your funds transfer to your business bank account within three to five business days.
Many satisfied customers of Internet-based sales business finance experts report that use of these inventory finance companies is an excellent way to expand any e-commerce business today. Especially with their simple, highly efficient and secure lending assessment process, such lenders solve the problem of inventory financing for vast numbers of Internet-based businesses. These funding sources charge no hidden fees, and customers pay an advance charge only for funds already transferred to them. Your company's information and funding history are encrypted and completely safe when entered on the site of a respected online inventory financing company.
If your business currently operates on any of today's most popular Web-based marketplaces—EBay, Amazon, Yahoo or Etsy—you can link your store or seller's account to the website of your inventory finance lender to establish easy visibility of your sales transaction data. In many instances, such inventory funding sources have supplied immediate cash funding of as much as $40,000 to promising online sales ventures.
Small Business Administration Loans
The Small Business Administration is now offering some inventory financing to both car and boat dealers. Their pilot program in February, 2011, granted loans as high as $5 million to successful applicants. The only major problem presently confronting use of Small Business Loans (SBLs) is the reluctance of many US banks to fund small business and consumer loans. As a result, some small-to-mid-sized sales business owners are obtaining general business loans to purchase their inventories. If your business lending agent can obtain a suitable SBL for meeting your inventory flow requirements, you are fortunate. However, your loan advisor may suggest applying for funding with an asset-based or inventory financing company instead.
Some US banks do offer inventory financing services, but the borrower must have a good debt-to-worth ratio (often lower than four or five to one). These banks stand apart from the majority of banks in the nation, since conventional banking institutions in general do not provide options for asset-based lending. They focus instead on funding businesses with stable and well-proven track records of performance and profitability. In addition, asset-based lending requires day-to-day attention which banks are not equipped to offer.
What Are the Business Sectors Related to Inventory Finance?
The business sectors most directly related to inventory finance that make regular use of this type of loan funding are retail sellers, resellers and product distributors. Also affected are the wholesalers and manufacturers from whom these sellers purchase their inventories. The sellers, resellers and distributors all benefit from the financial stability they gain from having ongoing funding available. This funding enables them to continuously buy and increase their sales product inventories. They never have to use their business equipment, real estate or other assets as collateral to obtain funding. Instead, inventory finance lenders assess the borrower's inventory and sales transaction records before approving these loans.
For retail sales companies and resellers or product distributors, inventory financing can be crucial in the early stages of business to attain commercial success and profits. Later on, having ongoing access to such funding sources can prove vital to a sales company's growth, especially in respect to increasing inventory volumes and varieties.
Wholesale businesses of all sizes benefit greatly when their customers have regular inventory financing. These seller clients can increase their inventories much more quickly and extensively with the financial support of inventory funding agents. With the seller acquiring and selling larger volumes of products, both retail seller and wholesaler receive greater profits on a continuous basis. Customers of the seller also have larger and more diverse product selections to choose from, so both business owners and consumers benefit.
In essence, the main difference between a retail and wholesale inventory finance agreement is that wholesalers purchase products in large quantities, usually directly from manufacturers. Retailers and distributors, on the other hand, buy primarily from wholesalers and in smaller product quantities. The difference in inventory sizes regularly purchased by wholesalers and retailers directly affects which lending institutions will provide them with inventory funding. Commercial banks generally will not accept sales transactions criteria with debt-to-worth ratios greater than four or five to one for granting inventory funding. For this reason, wholesalers qualify much more often for inventory financing through banks than do retailers. Since their lending decisions are not ruled by the typical restrictions banks impose, asset-based lenders can and do finance low-capitalized companies.
Each loan agreement between an asset-based lender and a retailer, or between a bank and a wholesaler, will outline the specifications of the lending and repaying schedule as well as the advance lending allowances offered and all lending fees required by the lender. Since the intention is that lender and borrower will have an ongoing and successful inventory funding and repayment arrangement, each loan agreement is customized to best benefit the two business entities (lender and borrower) involved.
1. Retailer Requirements
• The seller (retailer) agrees to grant a security interest in its receivables and inventory to the lender as collateral for the purpose of securing the loan. In most instances, the lender will require personal guarantees from the seller company's owners.
• The borrower (seller) is required to submit a borrowing base certificate to the lender, often on a monthly basis. It reports the updated status of the lender's collateral to be compared with the balance sheet for accuracy.
• The majority of asset-based lenders who lend to retailers do require credit insurance. Credit insurance is relatively inexpensive and is issued to reputable sellers by insurance companies to provide coverage for the receivables.
2. Wholesaler Requirements
• Advance rate. – This rate is the highest percentage of the current borrowing base that the lender can issue to the borrower (wholesaler) in funding. Due to the large inventory quantities and values involved, this rate must be agreed to initially by both wholesaler and lender before entering into an inventory financing agreement.
• Dilution of receivables. – This figure reveals the difference between the total gross inventory amounts and the cash collected to-date for the corresponding invoices. The dilution percentage is very important since the lender uses it when determining the advance rate. The following example illustrates a calculation of dilution of receivables:
A company bills $1 million to its customers for invoices. Of that, $930,000 is eventually collected. The difference is $70,000 ($20,000 represents returned goods; $5,000 is subtracted for prompt payment discounts; and $45,000 is written off as bad debts). The rate of dilution would be 7% ($70,000 ÷ $1,000,000).
An inventory financing agreement commonly entrusts the asset-based lender with control to oversee the borrowing company's customer receivable cash receipts. Using a blocked account (lockbox) the lender receives the accounts receivables payments. This lockbox is normally established at the borrowing company's bank. Lender credits all receivables to the loan balance. Lender then makes new advances against the revolving loan when requested by borrower. Under the terms of a “revolver” loan, the seller can repay the loan and then re-loan as needed throughout the entire length of time the inventory financing agreement remains in effect.
Without doubt, inventory financing is of great benefit to sales businesses of all sizes and types. For retailers, resellers and distributors, this type of funding can be the deciding factor affecting a business owner's ability to increase regular inventory buying and sales profits. In some cases, lack of such funding may result in a seller going out of business temporarily, or even permanently. Since retailers often cannot obtain funding from commercial banks due to bank loaning restrictions, they are dependent on business financial solutions companies and some SBLs for ongoing inventory purchases resulting in business growth. Wholesalers, however, can more easily obtain inventory financing from traditional banks as long as their debt-to-worth ratio is consistently less than four or five to one.
Asset-based funding, or inventory financing, has proven to be a great advantage to the success, profitability and longevity of many sales businesses of all types. Even relatively new or start-up companies both online and off can gain stability and begin to realize sales profits within a short period of time with the aid of inventory financing lenders. With a secured revolver loan in place, small companies attain the confidence levels and incentives needed to persevere, even in tough economic climates. With secure and steady funding, wholesalers can also overcome financial difficulties and often will extend extra cost-saving perks to their retail customers in the form of reduced purchasing and delivery rates. Inventory financing has become a crucial and valued tool and monetary aid for enhancing the survival rates and success of sales ventures of all varieties and sizes in today's uncertain worldwide economies.
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