It benefits all aspects of the business from project design to factory production to packing, shipping and delivery of an inventory to its destination. During the manufacturing process, previously acquired funding pertaining to the company's existing inventory along with other fluid assets such as accounts receivable are now part of the cash flow that aids the production stage of future products for sales inventory.
Manufacturers that build their own brand or line of goods for sale rely heavily on inventory finance to ensure their capability to produce the necessary product volumes to satisfy their new customers and loyal clients. Buyers often favor manufacturers that operate using responsible sources for lending for production and inventory since this popular funding method provides the manufacturer with the financial stability that may otherwise hinder delivery obligations.
Product buyers know that this kind of ongoing financial support will finance the supply chain that may include manufacturing, distribution, sales and consumption of these goods. A reliable asset-based lender will finance myriad types of inventories as long as the products are proven to be marketable and popular among consumers in the current marketplace.
How does inventory lending work and what are advantages provided by asset based financing companies for both manufacturing and distribution enterprises:
Because funding is based on assets and is often more versatile and reliable than other forms of lending, it has become a favored form of lending among both funding agents and borrowers in numerous product manufacturing, distribution and sales businesses.
There are several essential steps to obtaining an inventory loan for your company. Your inventory finance company will want to be assured that you can meet regular loan payments from profits on your ongoing inventory turnover through high sales volumes. When applying for your asset-based loan, you will most likely be required to submit specific data and information, including:
When you have successfully satisfied the loan application criteria, inventory loan companies should provide you with fast notification concerning your loan approval status. It is highly probable that, if you meet the necessary requirements, your request for lending on inventory will be approved. Once your loan is issued, you will have the added assurance and confidence that your company's production and sales operations can proceed at full speed toward the strong promotion and benefit of your continuing business success.
There are many variables and each lender has its own lending parameters on the value of the inventory. While some lenders do not require an accounts receivable value ratios, they will require a sales trend report of the skew numbers that are moving. Monitoring the value of the inventory is vital for the credit facility to stay up to date and so the borrower can take advantage with the most available eligibility.
A downturn can have a big risk for both the borrower and the lender if the sales drop, or the skew numbers become obsolete and have to be cleared out on a fire sale discounted below its original appraised value.
Almost every lender wants additional collateral and accounts receivable assets are the number one choice to backup the inventory component.
Once the sales are flowing and the lender establishes the initial appraised value of the inventory. The client will submit a Borrowing Certificate that list the inventory items with a cost value. The borrowing certificate will state the allowance (Advance Rate) based on the cost of the inventory. In most cases, the client also has to list the accounts receivable aging and value. Some lenders put a limit or cap, based on the receivables to inventory ratio and the borrower cannot exceed those ratios.
1st Commercial Credit provides asset based lending and supply chain financing for distributors and manufacturers.
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