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Inventory financing – the types and the alternatives

by UrgentRCM
Inventory Finance

Inventory financing refers to a short-term loan for businesses that can borrow money against inventory not to be intended to be sold quickly. 

This kind of financing is aimed at manufacturers struggling with seasonal cash flow problems due to a plunge in demand or any other economic reasons. However, these loans could be effective for you when you have to increase your inventory supplies, add a new product line, and the like. 

What are the types of inventory financing?

There are generally four types of inventory financing in the UK you can use when your business is struggling with cash flow to meet operations and expand your sales:

  • Warehouse financing

This form of inventory financing is aimed at manufacturers who have stock in warehouses and are struggling with cash flow. This will require you to move the entire inventory against which you have borrowed money to your lender’s warehouse facility. 

Since it is considered collateral, you cannot sell it. It is vital to bear in mind that your lender will appraise the value of your commodities and, based on that, will be willing to lend up to 70%. Even though it is secured against inventory, interest rates will be higher. In case you make a default, your lender will seize your whole inventory and cash it out. Find a suitable lender from the list of licensed money lender in Singapore.

  • Loan against inventory

This is similar to warehouse financing, where you borrow money against inventory that is not to be immediately sold, with the only difference being that your lender will take charge of it when you make a default. Most funding companies will pay money directly to your suppliers instead of you. The payments will be made in instalments as a percentage of sales. 

  • Inventory line of credit

Inventor line of credit is an ideal option for those who are often in need of money due to poor cash flow or any other reasons. You can withdraw cash as much as you want, provided there is a balance in your line of credit. 

It works as a credit card, and interest rates are charged on the basis of cashed-out funds. You will have to pay small processing fees. In case of a default, your lender will repossess your whole inventory to recover their money. When a line of credit expires, the whole amount will be paid back as a loan.

What are the alternatives to inventory finance?

It is likely that you will find inventory financing an expensive option. If so, you should consider the following alternatives:

  • Business loans with guarantor

Business loans with guarantor can help you qualify for lower interest rates. These loans are also available when your credit score is no so perfect, but your guarantor must have. If you cannot arrange a guarantor, you can secure it against your business assets. 

  • Business credit cards

If you need money every now and then, a business credit card should come in handy. They provide you with an instant access to cash. You can use credit cards for any business expenses.

  • Working capital loans

It is possible that your business expenses continue to rise even if your sales are not proportionately going up. Working capital loans are exclusively aimed at funding day-to-day small business expenses. The loan size will be determined based on your revenues and expenses. 

To wrap up

Inventory financing is subject to borrowing against your inventory that is not to be immediately sold. This kind of financing can help you meet your cash flow needs. However, you can also seek alternatives such as business credit cards, working capital loans, and business loans with no guarantor.

For more such informative articles, visit here.

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