Not having enough cash on hand can hurt any kind of business. Even the most successful businesses are known to encounter a shortage of cash due to unforeseen circumstances. Business owners then turn to bank loans, lines of credit, or credit cards to cover their day-to-day operations. However, defaulting on these loans can severely impact a business’ credit score. Fortunately, if your business mainly deals with the sale of tangible goods, an inventory financing loan may help cover short-term needs with little risk.

What is inventory financing?

Inventory financing is a form of asset-based lending that enables businesses to pledge their inventory as collateral to be able to obtain a term loan or a line of credit. Through inventory financing, a business experiencing poor cash flow can acquire a much-needed cash injection to cover outgoing cash flow instead of waiting for inventory to be sold. The difference, however, is that a term loan involves a one-time payment while a line of credit can be accessed, paid, and accessed again as long as the borrower consistently pays the amount that they have borrowed.

When it comes to inventory financing, it’s important to bear in mind that your loan does not solely rely on the value of your assets. Rather, it depends on the loan-to-value (LTV) ratio set by your potential lender. An asset’s LTV is calculated by dividing the amount borrowed by the appraised value of the property being put up as collateral. As a rule of thumb, most lenders set an LTV of 50% to inventories pledged as collateral. This means that it is highly unlikely that you would get the full appraised value of your inventory when you apply for inventory financing loans.

What are the different types of inventory financing?

In this section, we’ll talk about the two main types of inventory funding to determine which one best fits your business’ current financial requirements.

What is an inventory loan?

This type of inventory funding is characterized as a short-term loan that businesses use to purchase additional inventory. An inventory loan comes in the form of an upfront lump sum that businesses have to pay based on the payment terms set by the lender. Businesses experiencing rapid growth and an increase in market demand should consider an inventory loan as it is often easier to acquire as opposed to other kinds of loans. However, business owners must remember that an inventory loan is often used as a short-term solution.

Compared to other business loans, inventory loans are repaid over a shorter period meaning larger monthly payments. Another downside of an inventory loan is that it’s a one-time payment. If you need another loan, you would have to go through the application process again.

What is an inventory line of credit?

Like other lines of credit, an inventory line of credit can be accessed by businesses to buy the inventory they need when they need it. A line of credit’s repayment terms differ from a term loan as you only pay interest on the amount that you have borrowed and not the total amount available. What sets an inventory line of credit apart from an inventory loan is when used properly, a business will be able to manage its cash flow better and reinvest the additional capital back into the business. But, like an inventory term loan, an inventory line of credit typically has interest rates that are much higher compared to other more traditional loans.

The Benefits and Drawbacks of Inventory Financing

As with any important financial decision, business owners must understand the different advantages and disadvantages of inventory financing for you to make an informed decision. Let’s talk about the pros and cons of inventory funding.

Inventory Financing Benefits

• An inventory financing loan could be a short-term solution for a business’ cash flow problems.
• Businesses can use inventory financing loans to expand product lines.
• An inventory financing loan allows a business to stock up on inventory – getting ahead of potential inventory issues.
• May be easier to qualify for since an inventory financing loan requires a borrower to pledge collateral.

Inventory Financing Drawbacks

• An inventory financing loan requires an extensive due diligence process which can be as expensive as it is time-consuming.
• Depending on the lender, an inventory financing loan may have high interest rates and high loan minimums.
• Inventory loans can only be used to buy additional inventory and cannot be used for other purposes. For instance, you cannot use an inventory financing loan to consolidate debt, pay your employees, or cover other cash flow needs.
• An inventory loan is collateralized by your inventory – this means that the lender can seize your inventory in case you default on the loan.

Who can use inventory financing?

Inventory financing, as the name implies, can be used by businesses that deal with tangible products. These include retail stores, wholesalers, distributors, and manufacturing companies that experience high inventory turnover rate. For a business to enjoy the myriad of inventory financing benefits, they must first meet the following criteria:

• Must be operational for at least one year
• Must be a product-based business with a reliable inventory management system
• Must provide relevant and accurate financial statements
• Must prove that the business is profitable
• Must provide credit history and scores

Is inventory financing right for your business?

As the business owner, you would be the best person to gauge whether or not acquiring an inventory business loan would help meet your business goals. In general, inventory financing loans are sought after by small to medium-sized businesses that have exhausted other options to acquire additional funding. Larger companies with an established financial history would be better off with traditional bank loans that offer more favorable repayment terms as opposed to an inventory financing loan. Remember, the loan you’re applying for should depend on the type of business you have and what you’re looking for to accomplish.

Are there other alternatives?

Insufficient capital is one of the many roadblocks that business owners face when running a business. The great news is, depending on your business’ qualifications, you may be eligible for other types of financing that may be more favorable for your current financial requirements. Let’s check out some of the alternatives to inventory financing.

• Traditional term loans – A term loan is a funding option offered by financial institutions such as banks, credit unions, and online lenders. What makes term loans popular is their predictable monthly costs as businesses can borrow a fixed amount of money and pay it back with interest over a set period of time. While it’s available to both start-ups and established businesses, term loans may be more difficult for small businesses to acquire if you have bad credit or poor cash flow.
• Traditional lines of credit – Like term loans, traditional lines of credit are also offered by banks, credit unions, and online lenders. The great thing about this type of funding is that a revolving line of credit can be accessed and repaid either immediately or over time. Payment is also straightforward as you only pay interest on the amount that you take out rather than the whole available amount.
• Business credit cards – While it’s true that this kind of financing may be easier to qualify for compared to other traditional financing options, business credit cards do not have the most flexible payment terms. The biggest advantage that credit cards have is that every purchase helps the borrower earn rewards, points, or cash back depending on the type of credit card that they have.
• Angel investors – Angel investors are high-income individuals that provide the necessary funding for businesses in exchange for an ownership stake in a company. These individuals typically invest in a startup during its early stages – using their own money.
• Crowdfunding – Crowdfunding is a relatively new method used by businesses, organizations, or even individuals to fund a business idea or an expansion project. Crowdfunding asks a large number of people, often friends, family, customers, and the general public, to donate their own money during a set period of time. Once the goal amount is met, businesses can take out the amount raised and use it however they want. If you’re interested in financing your inventory through crowdfunding, consider using Kickfurther.

How does Kickfurther help small businesses finance their inventory?

Kickfurther is a unique crowdfunding platform that helps businesses grow their inventory through fundraising efforts backed by the public. It is the first crowdfunded marketplace with the main objective of financing a company’s inventory needs. Kickfurther enables a larger and more cost-effective inventory production by enabling a true consignment inventory from people that support and believe in your brand and your product. If you think Kickfurther is the right financing option for you, learn more about their services by visiting www.kickfurther.com.

Key Takeaway

An inventory financing loan, if used properly, can be a great way to cover your business’ short-term funding needs. Make sure to shop around and study the different loan amounts and interest rates that you are able to qualify for to determine which type of loan makes the most financial sense for you and your business.

Thinking about starting a clothing brand? Or are you looking for new growth strategies? After all, just how difficult could it be? Whether you’re a seasoned veteran or a complete newbie in the fashion industry, operating a competitive brand is an all-consuming process. As with any other business, starting your very own clothing line presents a plethora of challenges that could make or break your business. The key, of course, is preparation.

From the get-go, it’s important to recognize that starting and growing your business can be an exciting yet extremely challenging opportunity. Thankfully, there are some steps that you can take to ensure that you are well-prepared to tackle all the challenges that would come your way.

Have a Strong Business Plan

Are you currently googling “how to make a business plan for your clothing brand” without actually looking into your business first to determine what you need? Unfortunately, this is a common mistake that all business owners make. Before developing a business plan, ask yourself the following questions first:

• What are you planning to achieve?
• What is your clothing brand’s purpose?
• How are you going to achieve your business goals?
• Do you have the means or the financial backing to support your plans for growth?

Whether you’re just starting out or exploring new ways to grow your clothing brand, your clothing brand business plan is an important tool to help guide you when making critical business decisions. Bear in mind that the fashion industry can be quite erratic – make sure that your business plan is conclusive enough to keep you on track of achieving your goals but also flexible enough to be able to adapt to an ever-changing industry.

A business plan would be able to help your business if you’re trying to secure additional funding. In fact, one of the most common requirements when applying for clothing store loans is a business plan that explicitly lays out your growth plans as well as the amount of financing you need to achieve them. Presenting your business plan gives your potential lender an overview of your plans and enables them to find the right loan product that would best meet your current financial needs.

Create a Brand Identity

Developing your own brand identity is of utmost importance now that more and more consumers are paying attention to brands and how they conduct their business. Not to be confused with branding, brand identity is – simply put – what makes a company stand out. Brand identity is the individual elements that form part of your overall brand. These include your brand’s name, your logo, and the colors and shapes associated with your brand’s image.

What makes brand identity so vital is that it helps set you apart from the competition. It is a culmination of several visible elements that you want your brand to be associated with. What’s your brand’s personality like? How about the tone of your messaging? What are your values? Ultimately, your company’s brand identity must be able to answer these questions in order to build a reputation that resonates with your potential customers.

Choose a Niche

Now that you have a business plan and a clear strategy to develop your brand identity – what’s next? Another common mistake that many small businesses make is selling a wide array of products to try and appeal to a broader audience. Not only is this unsustainable, but it may also present issues to your brand identity as you would have a more difficult time standing out in a congested industry. Choosing a niche market allows your clothing brand to avoid excessive competition by claiming a small slice of a large pie.

However, it’s important to note that having a well-defined niche is not enough to guarantee success for your business. As the business owner, you should equip yourself with the necessary knowledge to understand the niche that you would be operating in. Once you become an expert in your field, it’s easier to acquire more customers that are interested in your niche product. One great thing about choosing a niche is that after building and improving your reputation, you can gradually introduce new products that are consistent with your company’s brand identity.

Manufacturing Your Products: Get the Best Price from Suppliers

Suppliers play a vital role in the success of your business. From sourcing raw materials to helping you develop a great product, expect to work closely with your suppliers to ensure the quality of your clothing line. Keep in mind that getting the best deal from your suppliers does not necessarily mean negotiating the lowest possible price. Rather, other factors such as payment terms, product quality, and logistics should also be taken into consideration. After finding the right supplier, the next thing you have to do is to nurture your relationship with them. Properly managing supplier relationships fosters better communication, loyalty, and customer service.

Develop a Robust Financial Plan

Financial planning, as the name implies, is the process of allocating the necessary funds to determine how a business will achieve its short-term and long-term business goals. As mentioned above, the clothing industry can be unpredictable. It only makes sense to develop a financial plan that enables you to monitor your progress and adjust your expenses to stay on top of your spending especially during low revenue periods.

A well-thought-out financial plan takes into account cash flow fluctuations during slow seasons and suggests spending adjustments to better manage incoming cash flow. In the long run, a robust financial plan will help your business manage your finances better and ensure that your clothing brand stays afloat.

Financing Options for Your Clothing Store

As the old adage goes, nothing ventured, nothing gained. Growing your clothing store, at one point or another, means you would have to take risks. One such risk means borrowing additional funding in order to reinvest back into your clothing brand. Educating yourself about the different financing options available for your clothing store could help you get ahead of the competition and help you stay competitive in an ever-changing industry. Here are some of the financing options you should consider:

• Term Loan – A term loan is when a lender provides a lump sum to a borrower and the borrower agrees to pay that money back in steady increments over a fixed period of time. Term loans typically have fixed interest rates which makes it easier for businesses to calculate monthly payment costs.
• Line of Credit – A business line of credit, or revolving line of credit, is another funding solution that clothing brands can explore. Simply put, a business line of credit is similar to having a credit card. Your lender sets a limit to the credit line and you only pay interest on the amount you have borrowed, not the total amount available.
• Online Lenders – Loans provided by online lenders usually have a faster application process compared to traditional financial institutions like banks and credit unions. The reason why is that online lenders allow borrowers to go through a pre-qualification process that would determine the different interest rates and terms that they would be able to qualify for – significantly shortening the process. Borrowers, based on their creditworthiness, can then pick and choose the loan terms that would best meet their current financial needs.
• SBA Loans – The Small Business Administration (SBA) is a government-affiliated organization that provides businesses with low-cost loan options with reasonable payment terms. For instance, the SBA 7(a) loan enables small businesses to apply for additional funding that can be used for essentially any business purpose. The only downside is that not all businesses would be able to qualify for SBA-backed loans.
• Crowdfunding – Crowdfunding is a method of raising capital by asking a large number of people to donate money during a set period of time. Donors contribute their own money to reach the total amount required for a new business project or venture. If you’re thinking of using crowdfunding to raise the necessary capital for your clothing brand – try Kickfurther.

Kickfurther puts a twist on the crowdfunding phenomenon by asking backers to fund a company’s inventory in exchange for a consigned rate. This innovative platform helps grow your business by receiving financial support from people that want to see you achieve your goals. In doing so, a business would not have to go the traditional route of applying for loans from traditional financial institutions. It’s also important to note that Kickfurther works best with businesses that have low cash flow but is currently experiencing strong demand. If you think Kickfurther fits your current requirements, make sure to visit Kickfurther’s website at www.kickfurther.com.

Why should I consider inventory financing for my clothing brand?

Due to the nature of the clothing and retail industry, you would most likely encounter seasonal cash flow fluctuation. Many businesses use apparel inventory financing as a short-term funding solution to help cover emergency expenses during periods of low demand. An inventory financing solution would help businesses prepare for peak seasons without having to worry about getting additional funding that might hurt their finances in the long run. Another great thing about inventory financing is that it can be paid off within weeks or a few months – depending, of course, on how quickly you sell your inventory.

Final Thoughts

By no means is this a comprehensive list of the things you need to keep in mind to ensure success for your clothing brand. However, it’s a solid start. As your clothing brand becomes more and more stable, you can start looking into expanding your product lines, finding new niches, and beefing up your marketing strategies to appeal to a wider audience.

What are Inventory Business Loans?

Whether you are a retailer or wholesaler you can use an inventory loan to grow your business. In most cases, inventory business loans are short term business lines or revolving lines of credit used for purchasing inventory. However, most companies try to find the lowest cost inventory financing solution that offers ideal repayment terms for their situation. As demand for inventory financing increases, so do the available options. If you use a term business loan you should receive funds in a lump sum with a monthly repayment over a specified term. If you use a business line of credit you should have access to a certain amount of money whenever you need it. However, you should only pay interest on the amount of money you use. Businesses that sell a physical product or products with over $150,000 in sales should seriously consider Kickfurther for inventory financing. Kickfurther takes a unique approach to crowdfunding that allows business owners to secure inventory financing and pay back loans as inventory sells. While this may be your first time hearing about Kickfurther, they have funded over 800 deals with a 99.5% success rate. Keep reading to learn more about inventory business loans.

How do inventory loans benefit businesses?

If you are looking for an inventory loan you are most likely determined to grow your business and increase revenue. Inventory loans can benefit your business and your customers. However, we all know there are pros and cons that come along with most business decisions. Before committing to an inventory loan you should compare the pros and cons and do plenty of research so that you can make an educated business decision. Here is a short list of some of the benefits inventory loans can offer. . .

• Increase revenue
• Attract more customers
• Improve customer retention
• Expand customer selection
• Smoother daily operations
• Avoid running out of inventory
• Deliver better customer service
• Competitive advantage

Why do I need an inventory loan?

If you are having troubles keeping up with customer demand or having cash flow problems you should consider an inventory loan. Making sure you have enough inventory on hand, especially during seasonal changes, can be difficult. Many businesses are unable to pay cash for inventory, business expenses, payroll, and all the other expenses that add up. Most businesses that have inventory use inventory loans or business financing. Many businesses use a combination of financing to support their business while it grows. Inventory financing may be simpler to manage than other types of business loans. Companies should calculate the actual cost of the inventory loan to decide what they need to sell products for to remain profitable. Inventory loans can help business operations run smoother while expanding customer selection and increasing revenue.

What types of businesses can benefit from an inventory loan?

There are a variety of businesses that can benefit from inventory loans.  While retail stores, online sellers, and wholesalers are the primary borrowers there are other business models that can use inventory loans. For example, many service based businesses such as nail salons, pet grooming salons, car repair shops, and more can carry inventory to generate more revenue. As long as you have proven sales and sell physical products you may qualify for an inventory loan. Let’s take a look at some examples of businesses that may require inventory loans. . .

Retail stores:

Retail stores can include a large umbrella of different types of businesses ranging from large department stores to specialized stores. Department stores typically carry clothing, jewelry, makeup, shoes, houseware, decor, beauty products, and more. Specialty stores typically carry less products and are more focused on certain niches such as toys, sports equipment, shoes, and more.  No matter how many products a retail store offers they usually need an inventory loan or loans.

Wholesalers:

Wholesales use a different business model compared to most retail stores. Most wholesalers focus on buying large quantities of product at a lower price. Wholesalers can then sell inventory in bulk to retailers. Wholesales usually need inventory financing in order to store such high volume of inventory. In addition, wholesalers need plenty of warehouse space to store inventory.

Online Retailers:

Whether you sell your product at a store front or online only, you can use an inventory loan. Our current economy is seeing a huge increase in online only retailers that need inventory financing. Online sellers that sell products using platforms such as Amazon should consider using Kickfurther for inventory financing.

Can you get an inventory business loan with bad credit?

If you have bad credit it may be challenging to qualify for an inventory loan. However, we encourage you to put in the extra work because it’s not impossible to qualify for an inventory loan with bad credit. If you have bad credit you should apply with a co-signer or co-owner that has better credit. If you do not have a co-signer you should try to provide a down payment or asset as collateral to reduce the risk for the lender or individual. Bad credit borrowers may want to start with smaller personal loans to help bring their credit score up.

What do you need to apply for an inventory business loan?

Regardless of what type of inventory loan you apply for, you should be prepared before applying. Most lenders or individuals loaning money will want to see proof that you are a legal business, bank statements, a business plan, profit and loss statement, tax returns, inventory list, projected sales, and in some cases an executive statement. Gathering this type of information beforehand can increase your chance of approval. In addition, it helps you submit a more accurate initial application. Whether you plan to apply with a bank, online lender, or company like Kickfurther you’ll most likely need to start with an application. In some cases, you may be requested to submit certain documents during the application process. In addition, most lenders will require more documents to be submitted post-application. If you have narrowed down the lender you want to use you can ask them specifically what documents you should have prepared. If you want to give Kickfurther a try, you can visit our website and complete a simple form. The form starts with basic information such as contact information, warehouse type, ownership, and annual revenue. After completing this form businesses can receive an estimate of funding potential. Here are 4 easy steps to using Kickfurther for inventory financing…

#1. Create your online account

#2. Get funded within minutes to hours

#3. Customize your payment schedule

#4. Complete and repeat

How do inventory loans benefit small businesses?

Running a business can be full of surprises such as seasonal sales slumps, inventory breakdowns, late invoice payments, and more. While larger businesses may have more capital to deal with surprises, small businesses may not. Finding affordable inventory financing solutions can help small businesses free up cash while increasing sales. All businesses have to start somewhere so if you own a small business that you dream of expanding, an inventory loan can help you achieve growth goals. If you are a small business owner under the impression that you cannot get inventory financing, you are wrong. There are many programs designed to help small businesses secure inventory and business financing. Small businesses may need unique terms in order to make sense of an inventory loan. Kickfurther is a top-rated site for small businesses to secure inventory financing with terms that work for their business. In fact, the terms are actually created by the business owner. Kickfurther allows business owners to create favorable terms and request a certain inventory loan amount. The pitch is then shared with multiple individual investors and real people that can decide to approve the request.

Conclusion

In conclusion, small and well established businesses should apply for an inventory loan through Kickfurther. Kickfurther innovates a unique approach to crowdfunding that allows companies to give people the chance to buy inventory on consignment. Depending on your expected cash flow, you can set the repayment schedule between 2-10 months.

Kickfurther supporters are repaid in full plus dividends. Companies can secure inventory loans between $50,000 to $500,000 in as little as 1-hour using Kickfurther. Business inventory loans can help your business overcome challenges and achieve growth goals. As a business owner and entrepreneur you have most likely invested many hours of time into solving problems. You may even feel as if some of your best ideas have come from solving problems. When we can truly relate to a problem and experience it firsthand we have the opportunity to create an effective solution. For this reason, Kickfurther is a company that was created by a business owner trying to overcome challenges, just like yourself. After struggling to finance inventory for a business and only finding expensive options, the seed for Kickfurther was planted.

Originally launched in 2015, Kickfurther offers business owners a platform that allows them to raise money to purchase inventory.  Kickfurther’s unique approach to crowdfunding can deliver fast funding up to $2M and flexible terms.

Compared to other financing options, Kickfurther is up to 30% cheaper. Kickfurther allows business owners to pay back loans as inventory sells. Most companies that have used Kickfurthers platform have proven its success and flourished from its support.

Every business deserves to take advantage of every opportunity. Kickfurther can help your business access the working capital it needs to take advantage of opportunities. Kickfurther has been praised by experts for their creative funding model that has helped business grow and survive tough economic times.

Clicker here to apply for an inventory loan now!

What are reverse auctions? What are some reverse auction examples? Do reverse auctions provide a win-win scenario for both buyers and sellers? In this article, we will guide you through everything there is to know about reverse auctions to help you determine if it’s right for you and your business. Let’s dive right in!

What are reverse auctions?

Reverse auctions, or backward auctions, refer to a type of auction in which sellers bid against one another to secure the buyer’s business. Like regular auctions, reverse auctions also go through a bidding phase where suppliers can bid in real-time – essentially making the price more and more favorable for the buyer. Due to its potential savings, reverse auctions are commonly used as a procurement method by government agencies, large corporations, and nonprofit organizations.

How does a reverse auction work?

Mostly conducted over the internet, reverse auctions make it easier for multiple sellers to connect with an interested buyer. Unlike a traditional auction where bids go up, bids in reverse auctions tend to go down as a result of sellers competing against each other until the one willing to sell at the lowest price point remains. However, note that reverse auctions may not be ideal for all industries.

What are some reverse auction examples?

To gain a better understanding of the concept of reverse auctions, let’s take a look at some examples:

• According to the U.S. Government Accountability Office (GAO), “the government sometimes uses reverse auctions to buy goods or services where vendors bid against each other with lower prices to win a contract. We found reverse auctions often led to a vendor bidding more than once with a lower price, and may have saved the government up to $100 million in 2016.”
• Other local government organizations use reverse auctions for a variety of purposes. For instance, a local school district may organize a reverse auction to find the best deal on IT support services. An IT support provider can then respond to the local school district’s proposal with a bid along with a clear description of the services they would provide.
• Another example of a reverse auction is when a company wants to procure office supplies, equipment, and other materials needed to open a new office location. Large organizations use reverse auctions to be able to acquire supplies and/or raw materials at a fraction of the cost.

What are the benefits of reverse auctions to buyers?

To determine whether or not reverse auctions fit your business’ needs, it’s important to look at the key benefits of this type of procurement process. Check out the key benefits of reverse auctions to buyers:

• Save time collecting bids from suppliers – Typically, buyers that conduct reverse auctions provide a request for proposal detailing what they require. Suppliers then respond to a proposal by putting forward a bid based on the buyer’s qualifications. This straightforward process reduces the amount of time both buyers and suppliers have to spend studying their options.
• Increased transparency in the bidding process – In traditional procurement settings, small businesses offering their products and services may find it difficult to compete with big companies. Reverse auctions level the playing field for suppliers, regardless of business size, since everyone receives and responds to the same request for approval. Reverse auctions also have an open bid phase where sellers can customize their offerings for their bids to remain competitive.
• Get the best deal possible – A higher sense of competition between participating suppliers means buyers will almost always get a great deal.
• Decisions are made on time – Since auctions have a set date, buyers will be able to make timely decisions about their most pressing procurement needs.

What are the benefits of reverse auctions to sellers?

What makes reverse auctions a popular procurement method is that it presents multiple benefits to both buyers and sellers. Check out the benefits of reverse auctions to sellers:

• Improved accessibility – Reverse auctions allow small businesses, regardless of size, to compete with bigger companies. Another common issue that suppliers face is location. Because reverse auctions are mainly conducted online, sellers can now tap into new markets and gain new customers.
• No more time-consuming negotiation phase – In business, a dragged out negotiation phase is both tiring and time-consuming. Reverse auctions eliminate the negotiation phase since buyers can easily compare bids and simply choose the one that meets their needs.
• Ability to filter qualified buyers – Reverse auctions enable sellers to find a qualified buyer instead of spending time, money, and other resources on strategies that may not work.

The Top 5 Things You Need to Know About Reverse Auctions

As a business, you want to get quality products at terms that make financial sense. While much of the heavy-lifting is done by the suppliers participating in your auction, it’s equally important for you – the buyer – to familiarize yourself with the ins and outs of reverse auctions. Here are 5 things to keep in mind:

• Reverse auctions must be your last resort

While it’s true that reverse auctions may get buyers a good price, it doesn’t necessarily mean that they are also getting goods/services with the highest quality. Always remember to perform enough research in order to find the right balance between quality and price.

• Ensure that there is enough competition among suppliers

One of the key things to remember when conducting a reverse auction is to ensure that there is enough competition among suppliers. This means that the criteria set by the buyer should not be solely based on prices but should also be agreeable enough to motivate several suppliers to bid and participate. After all, you don’t want to have just two suppliers participating in your reverse auction, right?

• Avoid focusing on costs – consider a product’s overall standards

As mentioned in the previous section, price must not be the only thing that defines your requirements. As a buyer, a reverse auction allows you to pick and choose a bid that would provide you with the best value. Carefully considering a supplier’s reputability, quality of goods/services, and rates can go a long way!

• Set clear bidding qualifications for suppliers

One of the main reasons why reverse auctions fail is when buyers are not clear about their bidding requirements. Before administering a reverse auction, be sure to provide clear information that describes your qualifications. This enables sellers to respond to your proposal with the necessary information to make an informed decision.

• Plan your bidding process and give ample time to suppliers

Never conduct a reverse auction on short notice. Excellent communication between buyers and sellers is essential to ensure the success of a reverse auction. Provide enough time for sellers to review your proposal and prepare for the system and bidding process that you are planning to use.

How can you get the best deal from a reverse auction?

In a reverse auction, buyers need to understand that it’s not solely about saving money. Buyers participating in a reverse auction should consider a seller’s overall bid. Are they known for making excellent products? Where do they source their raw materials? What’s their reputation like? Buyers have to take into account the costs involved in shipping, taxes, and other relevant fees to better gauge the value of a bid.

Who is likely to win in a reverse auction?

Suppliers that provide detailed information about their product or service and personalize their bid based on the qualifications set by the buyer will most likely win a reverse auction. Setting a lower price for every bid does not guarantee that you will win every reverse auction you participate in. Rather, it’s better to understand the specifications listed by the buyer and adjust your bid accordingly.

Why do reverse auctions fail?

Some of the reasons why reverse auctions fail are lack of preparation, unclear bidding requirements, and not understanding how the process works. Instead of providing vague details about what you need, ensure that you are providing clear and specific information about the product or service you are trying to procure. After all, the end goal of a reverse auction is to achieve an exchange of goods and services that is favorable for both buyers and sellers.

Another reason why reverse auctions fail is that the quality of products or services may seem disappointing in the long run. While it’s understandable that reverse auctions generally focus on getting the lowest price possible, buyers need to consider the overall product before agreeing to a bid. It’s also important to note that reverse auctions may not be effective for businesses in industries with a limited number of suppliers.

For example, retail companies that conduct reverse auctions search for manufacturers that would give them the right balance between quality and cost. Unfortunately, low-cost products, more often than not, aren’t exactly well-built. If you are unwilling to compromise the standard of your products to cut costs, it’s probably wise to look for financing options to bolster your inventory.

Pro tip: For your inventory needs, use Kickfurther! Kickfurther is an inventory funding platform that enables businesses to scale their inventory production to meet demand, such as when being awarded a contractor or purchase order. Kickfurther is a unique channel for businesses to purchase additional inventory without hurting their cash flow. It’s built for growing product brands whose growth is limited by cash on hand or limited traditional funding options. 

Key Takeaway: Preparation is key

The success of a reverse auction depends on how well-prepared buyers and sellers are. Both parties should be able to understand how a reverse auction works and how to make full use of the process to be able to maximize its benefits. Reverse auctions can be an impactful process that can be mutually beneficial for both parties.

Whether you are a small business or an established company, cash flow determines how much your company is able to invest in growth. Having poor cash flow doesn’t necessarily mean you’re running a company poorly; many companies with seasonal products experience extreme variances in cash flow throughout the year, and any product company that orders inventory and then has a gap between when they pay the manufacturer and when they receive the product can experience temporary cash flow pinching. To help overcome this or fund expansion, businesses take out various types of asset-based loans to cover expenses, fund expansion projects, upgrade existing equipment and machinery, or increase working capital.

Here we’ll help you understand the basics of asset-based loans so you can review whether they may help your company.

What is asset-based lending?

As the name intends to suggest, asset-based lending is a type of loan that is secured by a company’s assets. These loans are often used by businesses in order to cover short-term cash flow demands or recurring expenses. It can also be used as additional working capital to upgrade existing machinery and equipment, hire seasonal staff, and improve business operations through the acquisition of new technology.

How does an asset-based loan work?

You’ll often see asset-based loans in two formats: a traditional term loan or a business line of credit. The way asset-based loans work is that a lender offers you an advance of capital based on the assets you put up as collateral. To simplify, if you put up collateral worth $10, you can expect a similar amount to be loaned to you.  Asset-based loans can be secured using different assets, such as accounts receivable, inventory, equipment, and property. However, you should know that your loan amount does not solely rely on the value of your assets — it also depends on how the lender values the items you use as collateral; you’ll hear this referred to as the loan-to-value ratio. Lenders often let you borrow a set percentage of your asset’s value, and they value different types of assets differently. For example, lenders will often let you borrow up to 70% of the value of accounts receivables and 50% the value of existing inventory. So generally, the loan-to-value ratio for receivables and inventories are 70% and 50% respectively.

As for paying back your loan, repayment terms depend on the type of asset-based financing you applied for. For instance, if you opt for a term loan, you’ll find the repayment terms similar to most other loan types: Your business would pay back the money you borrowed, plus interest, over a set period of time. If you’ve opened an asset-based business line of credit, you only need to make payments on the amount you borrowed and the accompanying interest.

What assets can be used to secure a loan?

As mentioned above, an asset-based loan can be secured using different assets such as accounts receivable, inventory, equipment, and property.

• Accounts Receivable – Accounts receivable refers to the incoming money owed to a business for products or services. Lenders use this as collateral as it shows them that the borrower has enough incoming cash flow to pay back a loan.
• Inventory – Lenders may also take a look at a business’ inventory and appraise it to use as collateral in the event that a borrower defaults on a loan.
• Equipment or Machinery – Typically, lenders appraise a business’ equipment and provide funds around 50% of the equipment’s liquidation value. In some cases, a larger loan may be provided for newer and more advanced equipment.
• Other business property – Businesses may also use commercial and other real estate properties as collateral in asset-based loans.

Why do lenders ask for collateral while lending?

The main reason why lenders ask for collateral is security. If the borrower defaults on their loan, the lender has the right to sell the collateral in order to secure the repayment of a loan and recoup financial losses (if there are any). Collateral indicates a customer’s commitment to paying back the loan and lessens the risk for the lender. This makes asset-based loans perfect for borrowers with poor credit or businesses that are operational for less than a year. What makes asset-based loans attractive to multiple kinds of businesses is that it provides a level of accessibility to different kinds of borrowers. However, if you don’t pay back your loan, you risk losing whatever property you put up as collateral.

What are some examples of collateral?

As discussed, lenders that provide asset-based loans are very particular with assets that can qualify as collateral. The assets that lenders may consider would depend on the nature of your business as well as the assets that you currently have. When it comes to asset-based financing, companies usually put up collateral such as property, inventory, accounts receivable, machinery and equipment, and other assets owned by the borrower.

The 7 most important things to know about asset-based lending

If you are seriously considering asset-based lending as an option to increase your working capital, here are seven important things that you need to know to help you make an informed decision.

1) Understanding loan-to-value ratio (LTV)

If you are new to asset-based loans, one of the most important things to understand is the concept of loan-to-value ratio. Loan-to-value (LTV) ratio is calculated by dividing the amount borrowed by the appraised value of the property being put up as collateral. This means that even if you put up a valuable asset as collateral, you will never get the full appraised value in the form of a loan.

For example, if the asset you put up as collateral is worth $100,000 and your lender gave you an LTV of 75%, then you would be eligible to borrow up to $75,000.

2) Advantages of asset-based loans

Like other types of loans, loans secured by collateral have their advantages and disadvantages. Let’s take a look at some of the most common pros and cons of asset-based lending to help you determine if this is the type of loan for you.

• Easier to qualify for as opposed to other types of loans
• Perfect for manufacturers, distributors, and other businesses that deal with seasonal demand
• Greater flexibility when it comes to spending the capital
• Lenders are more willing to look past bad credit as long as the loan is secured by collateral

 3) Disadvantages of asset-based loans

• The biggest downside of asset-based financing is that you lose your assets if you default on your loan
• Lenders are very particular with assets that can qualify as collateral
• May come with additional fees

 4) What types of companies use asset-based lending?

Since collateral can include a wide range of items, there are various businesses that can be eligible for an asset-based loan. Some of the businesses that typically use asset-based lending are those in the manufacturing, distribution, and retail sector. In addition, companies that have valuable equipment and machinery can also apply for asset-based financing.

 5) When should I use asset-based loans?

Businesses, regardless of size, need money to keep day-to-day operations going. Determining when you should apply for asset-based loans depends on how you are planning to use your loan and how soon you need additional funding. Businesses with bad credit or experiencing poor cash flow would do well in choosing asset-based loans as it’s usually more flexible and easier to acquire.

6) How does an asset-based loan work?

For example, Company A mainly deals with selling high-quality electronics and is seeking a $100,000 loan to fund its expansion project. If Company A pledges its inventory, the lender may grant a loan amounting to 50% of the appraised value of the inventory. If Company A’s inventory is valued at $150,000, this means that the lender is willing to loan $75,000. Note, however, that asset-based loans highly depend on the type and value of the collateral you are pledging.

7) How do I get an asset-based loan?

To qualify for an asset-based loan, businesses must have valuable assets that can be borrowed against. After identifying collateral that can qualify as an asset, you would have to submit documentation requested by your lender in the application process. Once the lender determines that you are a good candidate for a loan, you will receive an offer that you are required to make a preliminary commitment to before a lender performs an audit of your assets.

Are collateral loans a good idea?

It highly depends on what your company needs at the moment. While collateral loans are easier to qualify for, remember that your prospective lender can seize a valuable business asset if you become unable to pay back your loan. If you are still unsure about whether or not asset-based lending is right for you, it’s worth shopping around for alternative financing options that could best fit your business’ current needs.

Are there alternatives to asset-based lending?

The reality is, asset-based loans are not compatible with all small businesses. Asset-based loans involve some risks and limitations that may prove to be a burden to some borrowers. The great thing is, there are other financing options available that may be a better fit for your business’ unique needs. Let’s talk about Kickfurther.

Kickfurther is an inventory funding platform that enables businesses to purchase enough inventory to meet trajectory, even if that amount is higher than the company’s available cash on hand. Kickfurther can pay your manufacturer directly and then you pay a small profit percentage later on each funded item as it sells, with no payments until inventory begins selling and payment timelines that are customized to your production and sales cycles, from one to 10 months.  If you are a product business and looking to grow sales and maximize the potential of the money you have on hand to expand your business, , visit Kickfurther at www.kickfurther.com.