SBA inventory financing is helpful for small business owners who may encounter occasional cash flow problems. Unfortunately, this roadblock occurs when customers need to be faster at paying their bills. 

When this problem occurs, a business owner may see the need to consider applying for small business inventory loans. When a company needs a little help to finance and buy inventory, this loan is often the best solution. 

What makes an inventory loan unique compared to other types of business loans? First, let’s take a brief look at what an inventory loan is all about, which should give you a better idea of whether it is right for you. 

The most important thing about an inventory loan is that the products become the loan’s collateral. You are allowing a company to purchase your inventory for you and signing an agreement to pay it back in a certain amount of time that is decided between you and your lender. 

But keep in mind that your lender owns your inventory until you have paid the borrowed money back in full. Don’t be alarmed by that fact. Lenders want to help you and your business continue to be successful. 

An inventory loan is meant to help those who are sure that their inventory is vital and will be purchased with the confidence that it will help their business to remain profitable. 

This type of loan is meant to cater to small businesses as working capital. Working capital is the difference between a company’s current assets and current liabilities. Current assets include cash, accounts receivable, unpaid customer bills, raw materials, and inventory. Current liabilities include company debt and accounts payable. It is commonly used to measure the short-term health of a company. 

Small business owners will benefit from inventory loans as working capital. Here is why: 

Let’s start at the beginning – What is inventory financing? 

When considering an SBA inventory loan for your business, you want to educate yourself on the ins and outs of why this may be a good decision for you. This type of loan is most often used in small retail businesses. 

However, when your livelihood (in a business setting) depends on your current and future inventory and that well runs dry, you might have to think outside the box and consider inventory funding

Basically, you are borrowing money to get the products you need for your business to keep running on all cylinders (AKA remaining a money-making establishment). No inventory means no sales, and no sales means no profits. This can be detrimental to a business. 

However, there are options to keep your business afloat. When you find yourself in a cash flow crunch, having additional cash on hand can give you the help you need to purchase the necessary inventory. 

Who should consider inventory financing? 

This type of loan is not intended as first-in-line funding for startup businesses. Instead, it is designed to help existing companies stay on track by loaning money to keep products stocked for continued success. It is catered towards product-oriented businesses rather than service businesses (which typically do not have physical inventory). 

More established businesses tend to find easier access to lines of credit. In contrast, a smaller company in a “rough patch” may be facing detrimental consequences without a little financial help. For example, a small business with a track record of solid year-after-year sales is more liable to receive an inventory loan. 

Here is a little more inside information to give you an idea of when an inventory loan can be used to its best advantage:

  • A small grocery store owner might need to restock shelves during a seasonal slump. 
  • A clothing retailer that is getting ready for a boost in sales during the holiday season. 
  • A clothing retailer who wants to make sure they are stocking the current fashions. 
  • A business owner who is low on cash flow but expects profits soon. 

Top ways that inventory financing can benefit a small business: 

  • Small business inventory financing is available for companies who must keep displays and storerooms fully stocked. Keep in mind that this is also great for online retailers. 
  • Inventory loans are an excellent option for businesses that may have had trouble being approved for traditional loans. 
  • Some small businesses will experience seasonal ebbs and flows, depending on what their company is selling. If you specialize in winter clothing, you will most likely see sales drop during the summer. 
  • For wholesalers seeking financial help, your company may require more financial assistance. A small business inventory loan may be different from the direction you need to travel. 

What are the next steps? 

  1. Make sure your business is demonstrating accurate inventory management. A well-organized company should be able to prove that it is trustworthy. 
  2. Be aware of the elements involved with your inventory. Are things accurately temperature controlled? Are you over-purchasing? That could lead to too much inventory on hand. 
  3. Always be prepared. Here’s the thing –  inventory loan lenders may (and most likely will) make an unannounced visit to your business. A lender wants to peek at the inventory you are using as collateral. So, prepare your workspace (even if you do not receive a visit), and establish a professional pattern with your employees to ensure high working standards. 
  4. Do you have accurate records showing that your sales have been consistently immaculate? Lenders want to feel comfortable that you are confident about how you manage your inventory. This will reflect how you manage your loan. 
  5. Waste not, want not. This is important when you are planning how to maintain your inventory. A warehouse or storage facility overflowing with “unmovable” products will show poor planning and forecasting. Knowing the difference between what you have, don’t have, and need is crucial. 
  6. Only have on hand what you are confident that you can use to fulfill present and future orders. 

Now that you have the tools to keep your business running with the appropriate amount of inventory, you can start your journey toward getting an inventory loan. Let the business funding experts, Lighthouse Financial, help you through the loan process. Apply now and help ensure your business will be financially secure now and in the future.