Product-based businesses need inventory in order to survive. However, one of the biggest challenges they face is affording inventory while keeping operations afloat. Businesses often use an inventory line of credit to afford inventory without taking away from operations and growth. While a line of credit or other financing may come at a cost, focus on the growth you’ll be able to achieve as a direct result of healthy inventory stock and cash flow. An inventory line of credit is not the only solution for funding inventory though, be sure to do your research. A little bit later we’ll cover an alternative solution for inventory funding.
What is an inventory line of credit?
A line of credit specifically for inventory is similar to a traditional line of credit. The main difference is that it’s secured by inventory purchase. Repayment terms may also be structured around inventory selling, which can offer more flexibility. On the downside, since lenders understand that inventory needs to sell before money borrowed is repaid (in most cases) they may charge higher rates and fees. A line of credit can be compared to a credit card. As an example, let’s say you have a credit card with a $5,000 limit. You can spend up to $5,000 on the credit card – as long as you keep up with monthly payments. Monthly payments can vary depending on the usage of the credit card.
How does an inventory line of credit work?
An inventory line of credit is a line of credit that is secured by inventory. By using an inventory line of credit you can avoid borrowing against business or personal assets. However, if you default on payments, the lender can seize your inventory. A line of credit comes with a limit. While the credit line is open you can draw any available amount as needed to purchase inventory. For companies that need constant access to cash for inventory, a line of credit can be a good solution. It can also be a good solution if you’re struggling to qualify for traditional term loans and other financing options. Inventory loans present risk for lenders since the borrower typically needs to sell the inventory to repay the loan. Therefore, they may be harder to qualify for in general. Keep in mind they come with fees and interest too which will drive up the cost of goods sold.
Common uses of an inventory line of credit
An inventory line of credit is generally limited to only being used for inventory. A general line of credit on the other hand can be used for most business expenses. The biggest advantage of an inventory line of credit is that it helps free up cash flow so that you can cover operating expenses and grow your business. Business owners face unforeseeable expenses everyday. Having access to cash that you may or may not need provides an extra layer of support. As a business owner, being proactive is always a good idea.
What types of businesses can qualify for inventory financing?
If your business sells inventory, then you may be a candidate for inventory financing. Keep in mind, there are several types of financing and funding available. Depending on your situation and industry, the best type of inventory funding may vary. Below are some industries that qualify for inventory funding. To learn more about each industry, click on the links below!
- Apparel Brand Inventory Financing
- E-Commerce Inventory Financing
- eBay Seller Financing
- Amazon Seller Financing
- Food & Beverage Inventory Financing
- Inventory Financing for Small Business
- Nail Salon Supply Distributor Financing
- Shopify Capital for Financing
- Startup Inventory Financing
- Walmart Inventory Financing
- Wholesale Inventory Financing
- Cosmetics & Beauty Financing
- CBD Business Financing
- Pet Store Financing
- Retail Business Financing
- Sporting Goods Retail Financing
- Exercise & Gym Equipment Financing
- Skin Care Business Financing
- Technology Company Financing
- Fashion Accessories Financing
- Fragrance Business Financing
- Hair Care Inventory Financing
- Home Decor Financing
- Supplier Financing
- Mocktail Mixes Financing
- Seasonal Business Financing
- Healthcare Business Financing
- Fashion Jewelry Financing
How to qualify for an inventory line of credit
Qualification requirements can vary depending on the lender, but in general you’ll typically need to meet the following requirements:
- Minimum time in business (6-12 months in most cases)
- Must sell products or raw materials
- Meet inventory minimums (if set by the lender)
- Provide proven sales
- Personal credit score requirements may be considered
Most lenders can share basic requirements prior to submitting an application. To ensure you are working with the right lender or source, find out what requirements are involved before applying.
What is the best way to finance inventory?
The best way to finance inventory is the one that costs the least amount, yet provides the most flexibility. The type of financing that matches this description can vary depending on what you qualify for. In most cases, term loans offer better interest rates than a line of credit, but can be harder to qualify for. Luckily, in today’s world, business owners are not stuck with traditional bank loans and means of financing. Startups and small businesses often reach out to backers and private investors for funding. You may want to consider alternative options for inventory financing.
Is an inventory line of credit right for you?
A line of credit for inventory sure has its benefits. But as you know, there’s always a downside too. Ultimately, you may need to borrow money to grow or maintain your business. Whether you’re a startup that needs inventory to grow or a seasonal business experiencing a lull, financing can help overcome challenges. Sure, it comes at a cost, but what opportunity does it deliver? When determining if an inventory line of credit is right for you, consider the opportunity, but consider the risk too. Can you repay the loan? Are you confident about how much inventory you need? Will profits increase or decrease with additional expenses? By the time you apply for inventory financing, hopefully, you have some data to help you make decisions. Inventory financing can help businesses, but it can destroy them too – if they are not managed properly.
In some cases, an inventory line of credit may be the best option. However, in some other cases, it may not be. Consider your own needs, explore what’s available, and always keep your vision top of mind.
How Kickfurther can help
Qualifying and affording inventory financing is often where business owners encounter challenges. Created by an entrepreneur that once faced these two challenges trying to obtain inventory financing, Kickfurther was born. Kickfurther can help you get funding for inventory up to 30% lower cost than similar options.
Kickfurther is the world’s first online inventory funding platform that enables companies to access funds that they are unable to acquire through traditional sources. For companies that sell physical products or non-perishable consumables and have revenue between $150k to $15mm over the last 12 months, Kickfurther can help. We connect brands to a community of backers who help fund inventory on consignment and give brands flexibility to pay that back as they receive cash from sales. With more than $100 million in inventory funded to date, Kickfurther can help you get funded within a day or even minutes to hours.
Being a business owner involves creativity. Some may think creativity only applies to the sales side of business, but trust us, it counts on the financial side too. You’ll have to come up with just the right formula to keep cash flow healthy. This may involve financing for some businesses, and that’s perfectly okay. In fact, it’s encouraged, but you’ll need to make sure it makes sense for your situation. Remember, if there’s a will, there’s a way. As a business owner it will be up to you to find the way. Hopefully, Kickfurther can be just the solution you need to fund inventory at an affordable cost.
Interested in getting funded on Kickfurther? Create a free business account, complete the online application, review deals, and get funded in as little as minutes!