During the spring season home buying activity generally picks up, and with mortgage rates rising in the past couple weeks, buyers may need to commit more money to their home purchase.
That being said, retail spending could take a hit among people who buy homes, which could lead to a slow down in business for U.S. retailers.
During times of lagging cash flow it can be difficult for these businesses to obtain a loan from a bank. However, inventory financing could be an available option to help get through these trying times.
Fixed mortgage rates increased for the third consecutive week in the week ending May 23, according to Freddie Mac's latest Primary Mortgage Market Survey. Fifteen-year FRMs jumped from 2.69 percent to 2.77 percent, while 30-year loans hit 3.59 percent.
Coupled with the fact that home buyers may have higher mortgage payments when purchasing a home, many said they are more willing to pay a steeper price for a property.
According to the Redfin Real-Time Home Buyer Survey, 41 percent of buyers said they would consider paying more for a home in May, compared to 34 percent in the first quarter.
With home buyers committing more money to home purchases, they might be forced to cut back on retail spending. If, in fact, this leads to fewer sales at U.S. retailers, these companies might need to utilize inventory financing.
Lower sales levels could lead cash flow to lag, which can make it difficult to obtain a loan from a bank. During these difficult times, small businesses still need funds to operate, so those turned away by a bank could use inventory financing.
This type of asset-based lending allows a business to use current inventory as collateral to receive a revolving line of credit, which can be used to get through periods when cash flow might fall below normal levels.