Inside Money Today

Lendinero's blog on Growing Your Business

What is Inventory Financing?

Inventory financing is when a business needs capital to acquire products for their business.  Any business that carries inventory needs to have their shelves stocked consistently. We understand the sales cycle and vendor payments.  Obtaining a loan or a business line of credit to purchase inventory can help you rotate more products and increase productivity.  This is particularly true if you have an opportunity to buy that inventory at a discount.

Capital Makes a Difference When Purchasing Inventory

How quickly your inventory turns is an important element in choosing a loan for your business.  For example, if you expect your inventory to turn in one to three months, it will not make sense to obtain a long-term loan.  A shorter-term loan will be more feasible.  Why?  You can gain access to capital every time you need inventory.  A long-term loan will not make sense because next time you need to make an inventory purchase you will not have access to capital.

When you consider a small business loan for buying inventory, you need to take into consideration various factors such as:
– Turnover Time
– Accounts Receivable Time Frame
– Return on Investment
– Projected Purchases

Another solution is a business line of credit. Unlike a business loan, a line of credit allows the business owner to access part, or all, of the credit line, repay it, and access it again as needed.

Does a Business Loan or a Business Line of Credit to Purchase Inventory Make Financial Sense for Your Business?

There are costs associated in borrowing money.  What is more expensive: Losing an opportunity or Buying Inventory at a Discount? Also, can you achieve return on investment. If you pay 2% per month and you can make 15% return per month; you are still generating a 12% gross profit without having to use your existing cash.  Access to capital to purchase inventory may make financial sense.

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