Heightened retail sales levels could boost inventory financing demand

With consumers feeling more confident in the economy and their personal financial situations, retail sales are likely to increase in the coming months. 

As a result, demand for inventory financing could rise, with small- to medium-sized businesses needing to replenish stock to keep shelves full. 

Economists surveyed by Bloomberg project purchases at retailers jumped 0.8 percent in June – the most in four months. Two of the driving forces behind more retail sales were the strengthening economy and housing market. 

"The transition from a soft patch to a more sustained rebound is slowly beginning to take shape," Milan Mulraine, director of U.S. rates research at TD Securities USA, told Bloomberg. "The underlying tone of retail sales is encouraging. The positive momentum in housing will continue."

Retail sales could continue to climb with consumer confidence remaining at a high level. The Thomson Reuters/University of Michigan preliminary index on consumer sentiment dipped slightly but was still at 83.9, down from 84.1 in the previous month. The index measuring current conditions hit the highest level since July 2007. 

When sales at retailers surge, small- to medium-sized businesses often need to replenish inventory. Without the ability to buy product on their own dime, some sort of financing is necessary. Oftentimes, the first place these businesses turn to is a bank, but these requests aren't always successful for any number of reasons. That said, inventory financing could prove beneficial. 

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