Succeed As Your Own Boss

ENDING SMALL BUSINESS FAILURE

  • Home
  • About
  • Book Melinda
  • Consulting
  • SBL Store
  • SmallBizLady University
  • Subscribe to Podcast
  • #Smallbizchat
    • Be a #SmallBizChat Guest
  • Blog
  • Contact
You are here: Home / Cash Flow & Finance / What is Inventory Financing and How Does It Benefit Small Business Owners?

What is Inventory Financing and How Does It Benefit Small Business Owners?

May 11, 2021 By Melinda Emerson Leave a Comment

Feel free to share...Share on Facebook
Facebook
Tweet about this on Twitter
Twitter
Share on LinkedIn
Linkedin
Pin on Pinterest
Pinterest
Share on Reddit
Reddit
Email this to someone
email
Print this page
Print

What is Inventory Financing and How Does It Benefit Small Business Owners? 1200 x 1200Product-based businesses know the importance of inventory. Without it, you wouldn’t have a business to run. Inventory keeps your operations going and your customers happy. But if you find yourself in need of additional business financing, did you know you can use your inventory as collateral to secure the capital you need? 

If your product-based business could use some extra cash and you have a warehouse full of unsold inventory, inventory financing may be a viable funding option. 

In this article, we’ll learn what inventory financing is, the types of inventory financing, and how it benefits your business. 

What is Inventory Financing?

Inventory financing is an asset-based loan where borrowers can secure working capital by using existing inventory as collateral. The terms, rates, and loan amounts depend on the value of some or all of your inventory. Business owners sometimes use the funds to purchase more inventory, but they can also use it for other business expenses like equipment purchases, payroll, utilities, etc. 

This financing option is best for bridging short-term cash flow gaps for businesses with a huge chunk of their capital tied up to their inventory. It’s also a great option for stocking up inventory to prepare for the busy season. Inventory financing is often used by businesses with large quantities of unsold inventory, like retailers and wholesalers. 

2 Types of Inventory Financing

 Inventory Financing 2 Types of Inventory Financing

Inventory financing is usually structured in two ways: inventory loan or an inventory line of credit. While both options need to use inventory as collateral, they differ in repayment terms, payouts, and more. 

  1. Inventory Loan

Inventory loans are structured similarly to your class small business loan; lenders give you a lump sum which you’ll need to repay in fixed monthly payments over a specified period. You’ll need to repay the full loan amount and once you’ve repaid everything, you’ll need to reapply and take out another loan if you need additional financing. 

  2. Inventory Line of Credit

Inventory lines of credit provide you with additional working capital on an on-going basis. It’s structured similarly to business credit cards, where you’re given a credit limit that allows you to withdraw money as needed, provided that you don’t exceed the limit. 

Many business owners prefer inventory lines of credit so they’ll be able to handle emergency expenses that may pop up. Unlike loans, you don’t have to reapply if you need more money. Once you’ve repaid what you’ve withdrawn, your credit limit goes back up to its original value. Lenders may have you sign an inventory financing agreement detailing the terms and conditions of a potential long-term business financing partnership.

How Inventory Financing Benefits Small Business Owners

Inventory Financing Benefits Small Business Owners image

As mentioned, there are several ways you can use the funds from inventory financing. Here are some of the ways small business owners can benefit from this type of financing:

1. Secure Additional Working Capital

All types of businesses need working capital to operate, so securing additional capital is one of the main reasons business owners apply for financing. The funds from an inventory loan ensure that you’ll have enough cash in the event of business growth spurts and seasonal sales fluctuations. 

2. Buy Inventory

 Inventory Financing buy inventory

Small businesses commonly apply for inventory financing to purchase more inventory or raw materials. You can also use the funds to expand your product lines. By having a wide range of products, you’ll have more than enough to keep up with demand and keep your customers happy.

3. Marketing and Advertising

Many small business owners refuse to spend money on marketing and advertising because those cost a lot of money upfront. However, marketing is essential in establishing your brand and increase awareness. The money you get from inventory financing allows you to pay for online advertising, SEO, and other promotional strategies to take your business to the next level. 

4. Purchase Insurance

Insurance costs a lot, but it’s a necessary expense. Your business might need employee healthcare insurance, malpractice insurance, liability insurance, property insurance, and calamity insurance, and an inventory loan can help pay for the cost of buying insurance.

5. Seize Business Opportunities

Seize Business Opportunities image

Some business opportunities are just too good to pass up. If you need to jump at any opportunity to ensure the success of your business, you can use inventory loans to pay for these once-in-a-lifetime opportunities. 

If you have a high volume of inventory lying around, inventory financing is a great way to secure the additional working capital you need. But before you take out a loan, it makes sense to compare interest rates, fees, and even lending companies. Be sure to read the fine print, so you know what you’re agreeing to.

Rumzz-Bajwa imageAbout the Author: Rumzz Bajwa is a digital strategist and content marketer at SMB Compass. She enjoys spending time with her family. She loves to go out and experience new moments whenever they come to light. Rumzz discovers satisfaction in investigating new subjects that help to extend her points of view. You can frequently locate her immersed in a good book or out searching for a new experience.

Feel free to share...Share on Facebook
Facebook
Tweet about this on Twitter
Twitter
Share on LinkedIn
Linkedin
Pin on Pinterest
Pinterest
Share on Reddit
Reddit
Email this to someone
email
Print this page
Print

Filed Under: Cash Flow & Finance, Grow Your Business Tagged With: Business Opportunities, inventory financing, inventory lines of credit, purchase more inventory, working capital

Fix Your Business Now!

Order SmallBizLady's new book Fix Your Business, 90-Day plan to Get Back Your Life and Reduce Chaos in Your Business. It includes the 12 Ps of Running a Successful Business and readers will finish the book with a new strategic plan to take their business to the next level.

About Melinda Emerson

Melinda F. Emerson, “SmallBizLady” is America’s #1 Small Business Expert. She is an internationally renowned keynote speaker on small business development, social selling, and online marketing strategy. As CEO of Quintessence Group, her Philadelphia-based marketing consulting firm serves Fortune 500 brands that target the small business market. Clients include Amazon, Adobe, Verizon, VISA, Google, FedEx, Chase, American Express, The Hartford, and Pitney Bowes. She also has an online school, www.smallbizladyuniversity.com, that teaches people online marketing and how to start and grow a successful small business and publishes a blog SucceedAsYourOwnBoss.com. Her advice is widely read, reaching more than 3 million entrepreneurs each week online. She hosts The Smallbizchat Podcast and is the bestselling author of Become Your Own Boss in 12 Months, Revised and Expanded, and Fix Your Business, a 90 Day Plan to Get Back Your Life and Reduce Chaos in Your Business.

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Let’s Connect

  • Facebook
  • Instagram
  • LinkedIn
  • RSS
  • Twitter
  • YouTube

We’re proud to be part of the Mediaplanet Empowering Small Business campaign! The COVID-19 pandemic brought hardship and ruin on the nation’s small businesses, but there’s now reason for hope. Learn about the resources, support, and tools available to help your small business bounce back and grow stronger than ever by picking up a copy of the campaign in USA Today and reading it online here.

Get a FREE Chapter of SmallBizLady’s Book,
"Become Your Own Boss in 12 Months, Revised and Expanded"!

Become Your Own Boss

Let me send my best blog posts to your inbox each week.

Most Popular Posts

>Seven Ways to be More Profitable in Your Small Business
> 7 Ways to Attract Customers to Your Small Business
> 6 Tips for Managing Small Business Finances
> How to Run a Successful Multilevel Marketing Business
> 10 Ways to Grow Your Small Business With Instagram
> How to Sell on Facebook
> How to Get Over the Fear of Starting a New Business

Featured Videos

Bloomberg News Interview
How to Support Small Businesses During the Holidays

“12 Principles of Highly Profitable Businesses with Melinda Emerson” from Sonia Dumas
October 2020

MSNBC Interview
Top Tip: Never Let a Customer Down

National Speakers Association
Winter Conference 2016

Fox Business
Five Steps to Becoming a ‘Social Media Ninja

MSNBC
The importance of job mentoring for women

#SmallBizChat Live
National Small Business Week: Q&A

Good Day Philadelphia
Expert Shares Tips on How to Become Your Own Boss

Google
Best Practice for Social Media

Testimonials

Become Your Own Boss is a must read if you’re thinking of launching a business of your own.
Jean Chatzky, Bestselling Author of Money 911 and Financial Editor of NBC’s Today Show
Great step-by-step advice for anyone looking to start their own business.
Andrew C. Taylor, Chairman, Enterprise Rent-A-Car
Melinda Emerson has written a remarkable book. It is essential reading for anyone seeking to make the transition from working girl to successfully working it, as an entrepreneur.
Cynthia McClain-Hill, Past President, National Association of Women Business Owners
The perfect companion for those planning to go out on their own. Melinda delivers firsthand practical advice on how to be the successful entrepreneur. Read it if you want to get it right the first time.
Kenneth L. Shropshire, Professor at the Wharton School of Business, University of Pennsylvania
If you are looking for a versatile speaker who can talk about how to grow small businesses or get started with social media, look no further.
Heather Van Sickle Executive Director, National Association for Community College Entrepreneurship (NACCE)
Her wit and depth of subject knowledge were entertaining and empowering. Melinda is definitely on our short list of seasoned entrepreneurs and business leaders we look to invite back in the near future.
Tennille M. Robinson Senior content & Event producer for Inc. magazine
Melinda Emerson, “SmallBizLady,” is an engaging and witty speaker and a great addition to any conference. Her terrific presentation and compelling delivery give people the information they need and want to become their own bosses and grow success… Read more
Laurie Dalton White Conference Director, Pennsylvania Conference for Women
Melinda Emerson has been a fantastic small business and social media resource for the Pitney Bowes team. Not only is she personable and easy to work with, but she also has an innate understanding of the small business audience. My marketing programs … Read more
Justin Amendola, Former VP, Global SMB Digital Strategy, Pitney Bowes

SmallBizChat

  • Twitter

Latest #SmallBizChat

Pricing Tips and Other Strategies for Service-Based Businesses with Bridget Brown Featured Image

The SmallBizChat Podcast: Pricing Tips and Other Strategies for Service-Based Businesses with Bridget Brown

Bridget Brown is the Owner and Lead Web Developer of Pages and Post, a digital design agency based in Alabama. Bridget—a mechanical engineer by profession—served in the energy and aerospace industry before founding Pages and Post. She served as an engineer for the Southern Company and as a staff engineer and flight controller for the […]

Fix Your Business Q&A Video

Recent Posts

  • The SmallBizChat Podcast: Pricing Tips and Other Strategies for Service-Based Businesses with Bridget Brown
  • Can AI Solve Your Customer Service Problems?
  • The SmallBizChat Podcast: Strategies for Running Effective Remote Teams with Liam Martin
  • How to Train Your Team to Provide Excellent Customer Service
  • The SmallBizChat Podcast: Traditional and Self-Publishing 101 with Stephanie Chandler

Categories

  • 10 Things Lists
  • 12 Things
  • 15 Things Series
  • 31 Ways to Boost Your Small Business
  • Ask Smallbizlady
  • Become Your Own Boss Tips
  • Branding & Marketing
  • Business Inspiration
  • BYOB2011
  • Cash Flow & Finance
  • Customer Service
  • Featured Post
  • Featured SmallBizChat
  • Fix Your Business
  • Grow Your Business
  • Guest Articles
  • How to Start
  • Leadership
  • Melinda Emerson @SmallBizLady
  • Mompreneurs
  • My Recommendations
  • Pink Slip Entrepreneurs
  • Q & A Interview
  • SmallBizChat
  • SmallBizChat Live+
  • SmallBizLady Recommends
  • SmallBizRadio
  • Social Media
  • Solopreneurs
  • Special Reports
  • Starting A Small Business
  • Teams
  • Technology
  • Telesummit
  • The SmallBizChat Podcast
  • Uncategorized
  • Women in Business
  • Your Small Business

#SmallBizChat

  • SmallBizChat Archive
  • @SmallBizLady

Business Advice

  • How to Start

SmallBizLady Store

  • Products
  • Free Chapter

Get In Touch

  • Write For Us
  • FAQ
  • Be a #SmallBizChat Guest
  • Contact Us
Copyright © 2021
Quintessence Group
PO Box 280
Drexel Hill, PA 19026
(610) 352-0680
Privacy Policy · Refund Policy

Copyright © 2022 · News Pro Theme on Genesis Framework · WordPress · Log in