Small- to medium-sized businesses might need to turn to retail inventory financing in the near future, as surging consumer confidence could lead to a spike in spending at retailers across the United States.
Confidence among consumers hit a five-year high in May, as the Conference Board Consumer Confidence Index increased from 69 in April to 76.2. Both the Present Situation Index and the Expectations Index improved in May as well.
"Consumer Confidence posted another gain this month and is now at a five-year high," said Lynn Franco, director of economic indicators at The Conference Board. "Consumers' assessment of current business and labor-market conditions was more positive and they were considerably more upbeat about future economic and job prospects."
Franco added that these back-to-back monthly gains in confidence show that consumers may be putting the negative impact of the fiscal cliff, payroll-tax hike and sequester behind them.
Rising home prices have played a large role in rising consumer confidence
Many factors, such as the improving economy and recovering employment situation, have helped boost confidence, but increasing home prices might be the biggest aid.
All three composites in the Standard and Poor's/Case-Shiller Home Price Indices showed improvement in the first quarter. The 10- and 20-city composites increased by 10.3 percent and 10.9 percent respectively, while the national composite jumped 10.2 percent.
"Home prices continued to climb," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. "Home prices in all 20 cities posted annual gains for the third month in a row. Twelve of the 20 saw prices rise at double-digit annual growth. The National Index and the 10- and 20-City Composites posted their highest annual returns since 2006."
The Phoenix metro area posted the strongest annual gain at 22.5 percent, closely followed by San Francisco and Las Vegas – both higher than 20 percent. Meanwhile, New York had the weakest appreciation at just 2.6 percent.
With improving home prices helping boost consumer confidence, small- to medium-sized retailers might increasingly need to utilize inventory financing.
Rising confidence can potentially lead to more spending, which, in turn, could create the need to replenish inventory. Even with higher sales, this can be a struggle for smaller companies, which is where retail inventory financing can be useful.
This type of asset-based lending allows a company to use current inventory as collateral to obtain a revolving line of credit, which can be used to keep shelves stocked.