As Americans become more confident in the U.S. economy, sales at retailers could pick up, which might lead to increased demand for retail inventory financing.
With the possibility of sales levels increasing, small-to medium-sized businesses may have a need to replenish inventory. Retailers of this size often have limited available capital, which is why financial assistance is likely needed.
Gallup's Economic Confidence Index for the week ending June 23 stood at minus-8, which is unchanged from the previous week. While this level is below the peak seen in late May of minus-3, confidence among Americans is stabilizing and is on the higher end of what has been measured in the past five years.
Confidence in the economy has been fueled by the improving employment and housing markets.
"Unambiguously, the economy is showing signs of improvement despite sizable fiscal drag," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, told Bloomberg. "Among the positives has been the improving labor market, but in addition, wealth in general has been rising, at least up until last week."
As Americans begin to feel better about the economy, consumer spending could pick up, potentially leading to higher retail sales.
When sales volume increases, small-to medium-sized businesses generally need to purchase additional inventory to ensure that shelves remain full, but this can be difficult for retailers of this size, as they often have limited available capital and slow cash flow.
That being said, retail inventory financing might need to be utilized, as this form of asset-based lending allows a company to use current product as collateral to obtain a revolving line of credit that can be used to purchase inventory.