Depending on your cash flow, businesses that generate very healthy margins may be able to use their own cash and reinvest to acquire more inventory. However, that is not the case for many businesses that carry inventory. Most businesses that carry inventory can generate anywhere from 5% to 20% net returns per month. If you generate $300,000 gross per month and you can generate 20% net per month; you are left with $60,000 at the end of the month. However, $60,000 may not be enough to expand your inventory based to expand your business.
If you have a new customer or opportunity and you require a cash outlay of $200,000 your net margins will not do the job. Funding to existing businesseswho face this growth dilemma can only be solved by obtaining some sort of financing. Very few lenders lend versus inventory, but like inventory based businesses because they have track records of sales history. It is easy to calculate future earnings based on past performance. If you carry inventory, you are good candidate for obtaining alternative financing.