Bump in consumer spending could boost inventory financing demand

While the past couple of months have been a struggle for U.S. retailers, consumer spending picked up in June, potentially increasing inventory financing demand. 

As consumers purchase more goods at small- and medium-sized retailers, product will be coming off the shelves and will need to be replaced. This can be difficult for smaller companies to do on their own dime, which is why asset-based lending can prove beneficial. 

With home values and stock prices rising, as well as an improving jobs market, consumer spending increased 0.5 percent in June, up from 0.2 percent in the previous month, according to the U.S. Commerce Department. This was in line with expectations, as economists surveyed by Bloomberg called for 0.5 percent gain. 

"Consumers continue to spend but they're effectively treading water," Omar Shariff, U.S. economist a RBS Securities, told Bloomberg. "There's not a lot of momentum but they're holding their own for the most part."

Strengthening employment situation providing consumers with a boost
Part of the reason consumers may be spending more money could be the improving jobs market. July proved to be another solid month, with the private sector adding 200,000 new positions, up from 198,000 in the previous month, the ADP National Employment Report revealed. 

Small businesses continued to lead the way by creating 82,000 jobs, followed closely by medium and large businesses at 60,000 and 57,000 positions, respectively. The manufacturing industry was the only one that last jobs in July, dropping 5,000 positions. 

"Job growth remains remarkably stable," said Mark Zandi, chief economist at Moody's Analytics." Businesses are adding to payrolls in most industries and across all company sizes. The job market has admirably weathered the fiscal headwinds, tax increases and government spending cuts. This bodes well for the next year when those headwinds are set to fade."

Inventory financing could rise with increased consumer spending 
As consumers begin to spend more, sales at small- and medium-sized retailers could begin to rise. In response, these businesses will need to replenish inventory. 

The first place a retailer may turn is a bank. However, due to a number of reasons, such as limited available capital, lagging cash flow or a poor credit score, these financial institutions may say "No." Should this be the case, inventory financing can be utilized by qualifying businesses. 

This type of asset-based lending enables small- to medium-sized retailers to use current product as collateral to obtain a revolving line of credit, which, in turn, can be utilized to purchase additional product. Essentially, inventory financing allows businesses to keep shelves full without tying up too much available capital.

Struggling retailers can take advantage of this financing agreement as well, which could be beneficial if sales levels don't pick up. Slow sales can lead businesses to struggle because their operating expenses don't go down. However, the funds available through the revolving line of credit can be used to cover expenses while business is slow.