Inventory Financing

Inventory financing is bank line of credit secured by the company's inventory. This type of financing can help to free up some of the cash you have tied up in inventory for more pressing needs. Although not really available to pure start-ups as a track record of sales is required by the lender, the start-up founder should be aware of this type of financing for later down the road.
Start-ups which can use inventory financing include:

• those with tangible inventory (in other words, service business may not qualify),
• those with a proven sales history and good credit since lenders aren't really interested in taking possession of your inventory if you can't make your loan payments.

Inventory financing makes sense for smaller companies only:

• when your company enjoys a high inventory turnover rate but is short of the cash needed to replenish its supply,
• when your small business has a warehouse of goods ready to ship, but is short of cash to buy supplies for the next production cycle,
• when having to maintain high levels of inventory ties up much of your cash.

It's not a good idea when you have either obsolete or hard moving inventory. Why add interest charges to your problems?

Tips for Getting Approved

• Demonstrate to lenders that you have a proper inventory management system in place which provides accurate and timely information on its size and cost.
• Ensure that the inventory is protected from damage and shrinkage by either the elements or people, respectively.
• Make sure your assets are maintained in good shape; your lender may require to inspect the inventory from time-to-time;
• Demonstrate to lenders that the inventory is actually selling by showing sales order.
• Show that you are managing your inventory as efficiently as possible by keeping the bare minimum on hand while maximizing the turnover rate.
• Utilize any non asset specific working capital like certain term loans and unsecured lines of credit for inventory and secure other financing methods for equipment, leaseholds, and receivables

Retail inventory financing is one of the toughest types of debt financing your can attempt to secure.