Inventory financing is the one way of financing used for purchasing assets for the company. This type of financing will help you manage the line of credit for future use. This can help improve your company’s cash flow and provide funds to pay for business expenses or to purchase additional inventory. Yes, there are many cases where you might not be eligible for inventory financing and you shouldn’t apply for it too. This may have sparked many questions in your mind. This article can always help you find the right answers for all these questions.
What is the right strategy for inventory financing?
The first thing we should say about this solution should be used strategically. In most cases, inventory financing should not be your first option of financing. This is because it is more expensive than other alternatives. Instead, you should consider trying to finance your receivables first.
How does it work?
It allows you to finance inventory shortly after it has been purchased. Your company gets the funding by submitting a draw request to the lender, who deposits the funds in your bank account. Once you have the funds, you can use them for any business expense. Transactions settle regularly as inventory is turned into a product and sold off to customers.
Uses of Inventory Financing
It can be used by the wholesalers, distributors, or manufacturers. These companies are often looking for financing and they can benefit from it all the time. It helps them purchase inventory and further leads them to successfully earned revenue without any interruption.
Generally, lenders will ask to fulfill certain requirements including a line of credit, collateral and complete relevant documents to keep the process going. However, you have a chance to make your decision only by keeping all these rules in mind. Now, take your chance but don’t forget about the advantages and disadvantages of it.
Advantages and disadvantages of Inventory financing
This type of financing has some advantages over other solutions. Some advantages include:
- Allows you to leverage inventory
- Allows your business to accumulate inventory (i.e. to meet contractual obligations)
- Easier to get than conventional financing
- The line can increase as your company grows
It is one disadvantage that due diligence can be expensive. This is due to the nature of the inventory itself, which requires additional financial controls. As the process of review, the company will need to, perform a field examination of your facilities, review your accounting system, test your inventory system, and appraise your inventory and raw materials.
If it is not suitable for you in any way, you can always go for the alternatives. It can be anything from equipment financing, hiring financing or marketing financing. Keep in mind that you will need to have a proper plan of action. Define your circumstances and do not forget to build up your workforce for marketing. You need all aspects together before approaching for the loan in Singapore. So, keep all the factors, requirements, constraints and benefits in mind. Make a map in mind then apply for it.