Cash flow is essential to keeping small- and medium-sized retail businesses running smoothly. Unfortunately, maintaining cash flow can be difficult if a business is unable to keep its shelves stocked with inventory.
Although a retail business may have been able to buy a first round of inventory, it could be difficult to finance any further purchases. As long as it has items in stock, a company can take advantage of a form of asset-based lending (ABL) called inventory financing. This can be a great option for small-to-medium-sized businesses when a bank says "No" to a loan request.
- Keeps the shelves stocked – One of the major benefits of inventory financing is that it allows a business to keep its shelves stocked. Without product in the store, a retail business would not be able to make any sales and could potentially go out of business. As long as a company has inventory in stock, it can use it as collateral to obtain financing.
- Provides a revolving line of credit – A second benefit is that it provides a business with a revolving line of credit, which they can draw down and repay over time. Businesses utilize inventory to secure financing thereby increasing the availability of capital. Depending on the terms of the agreement, as the borrower repays a portion of their loan, an amount equal to the repayment can be borrowed again.
- Provides financing when the 'bank says "No"' – Whether a small- to medium-sized retail business has poor credit or inadequate cash flow, it could be denied financing from a bank. In this instance, inventory financing allows them to obtain funds using their inventory as collateral.
Any small- to-medium sized retail business can benefit from inventory financing, as it allows them to keep items on their shelves and continue its growth into a successful organization.