Are you searching for a way to get the extra money your business needs to get through a tough spot or to expand and grow? If so, you might be thinking about getting the money you need through inventory financing. With inventory financing, a business can use its inventory as collateral in order to obtain the money it needs. In some cases, assets such as accounts receivable may also be used to secure an asset-based loan. Still, before you take out an asset-based loan, it is important to explore the pros and cons of this type of loan in order to determine if it is the right type of loan for you.
Pros to Inventory Financing
The obvious pro to inventory financing is the fact that it provides a business with the cash it needs to remain operational or to expand. In some cases, a business may need the money to pay for regular expenses, such as payroll, fuel, rent or electricity. When money is tight, inventory financing can free up the money that is necessary and can be used in a way that is similar to a revolving line of credit. In this way, the business can continually grow and to stabilize.
Cons to Inventory Financing
One of the cons to inventory financing is that these loans are typically short-term and often have to be repaid within one year. Therefore, any business that is interested in inventory financing needs to be prepared to come up with the necessary funding to repay the loan in a relatively small amount of time.
Another downside is that many banks are unfamiliar with inventory loans. Therefore, finding a lender who is willing to provide this type of a loan can be a challenge. Still, as with any loan, it is always a good idea to research a variety of different lenders and business loan managers before deciding on the lender that is right for you.
When researching lenders, you will likely find that most consider inventory financing to be a high-risk loan. This is largely because the value of inventory is difficult to assess, particularly since some items may command a high price tag for a period of time before interest dies out. Furthermore, merchandise can be stolen or damaged, which will reduce the overall value of the inventory. For this reason, some lenders may be reluctant to provide this type of loan or the loan may include some unattractive terms and conditions. For these reasons, it is important for a business owner to decide whether or not the risk to the business in obtaining an inventory financing loan is worthwhile.
Learn more about inventory financing at Republic Funding.
