Involved in short-term financing, inventory finance allows the firm to purchase the stock or inventory it needs to operate without paying for it immediately. Demand will thus be met by the firm, cash flow sustained and its growth feared to be interrupted by inability of running out of money with this type of financing. In this blog post, I will try to discuss what inventory finance is and its advantages towards the company.

How Does Inventory Financing Work?

Basically, inventory finance is a secured loan taken with the inventory that a company purchases. Instead of real estate or other assets, the company uses its own shares as collateral. The amount they can borrow may be determined by your value of inventory, which lenders can lend you up to an unstated percentage.

Merchandise financing allows you to make purchases in advance without exhausting your savings, for instance, you can think about this should you run a retail store and you want to stock up during peak season. You will pay the loan through the sales of the inventory once it is liquidated.

Why Use Inventory Financing?

1. Seasonal Demand: Depending on cash flow, a business that faces seasonal demand increases may benefit from inventory finance for pre-purchase stock building.
2. Higher Procurement Volume: A business that buys higher volumes of goods can take advantage of suppliers’ discounts offered for higher quantities or advance purchases.
3. Cash Flow Flexibility: Businesses use inventory finance to keep free cash flow for such costs that are requisite, such as payroll, rent, and marketing instead of using existing cash to buy the goods.

Through inventory financing, companies stay liquid and can have effortless and profitable management of their purchases of inventories, maintain cash flows, and appreciate expansion opportunities.