Inventory Financing 

What is 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 startups as a track record of sales is required by the lender, the startup founder should be aware of this type of financing for later down the road.

Which Companies Should Use It

Startups which can use inventory financing include:

• those with tangible inventory (in other words, service business need not apply),
• 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. For this reason startups need not apply.

When Does Inventory Financing Make Sense for a Small Company

Inventory financing makes sense when:

• when your company enjoys a high inventory turnover rate but is short of the cash needed to replenish its supply,
• 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.

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.