Inventory Financing Pros and Cons
Inventory financing is a financing option employed by many businesses to manage their inventory.
In this article, we will be going over the pros and cons of using inventory financing.
Quicker Approval than Traditional Financing
Inventory financing is best suited for manufacturers, wholesalers, and other inventory-heavy businesses that do not meet the credit criteria set by traditional lenders to secure a bank loan.
Since inventory financing is secured by collateral, less-than-stellar personal credit scores will not necessarily be a deal-breaker for approval. Because of the less stringent criteria, there is also generally less paperwork for application and most approval decisions are made quicker than it would be for traditional financing.
No Personal Assets as Collateral
Because the inventory itself acts as collateral, inventory financing saves you from the risk of offering your own home or property as collateral on the loan or signing a personal guarantee.
Seasonal businesses can prepare for their peak season with inventory financing, using the capital tied up in inventory to purchase additional inventory. Having access to a line of credit or a loan dedicated to purchasing inventory can save your business from not meeting customer demand.
Expand Product Lines
In addition to replenishing your inventory, inventory financing can also help your business add new product lines. Adding new products helps you add more sales channels, generate more revenue, and expand your business.
Potentially Expensive Due Diligence Process
If your lender requires due diligence, the process of meeting with an auditor and compiling records can be time consuming and expensive.
Potentially Higher Interest Rates
Because inventory financing is typically considered less secure than traditional loans, some lenders may compensate for that added risk by charging higher interest rates.
Accel Business Funding has provided business loans and business lines of credit through asset-based lending, which includes inventory financing, and has funded many businesses for more than $380 million. When banks say NO, we say YES to funding in 24 hours!