How Businesses Benefit from Inventory Financing

By Nancy Gerdes-Hibsch

Many businesses, including seasonal businesses that experience busy and slow times of the year and businesses with a lengthy manufacturing process, will at some point consider inventory financing. For example, a business that produces holiday gifts could use this type of financing to purchase more items in order to prepare for the expected additional demands of the holiday season. Learn more about how this specific approach can help businesses to cover the cost of maintaining their inventory.

What is Inventory Financing?

Inventory financing is a line of credit or a short-term loan for a business so they can purchase inventory upfront for future product sales. The purchased inventory functions as the collateral for the loan. Inventory financing is often used to build up a company’s product inventory for high demand peak seasons, to take advantage of purchase discounts, to meet growing sales demand, or to launch a new product.

What Lenders Consider

Some common criteria that lenders consider when evaluating a business’s qualification or eligibility for inventory financing are the owner’s personal credit history and the business’s fiscal health. To determine the fiscal health of the business, lenders will typically require tax returns, financial statements, and an understanding of your inventory management systems. The lender will want to ensure that the cash flow of the company’s operations is adequate to repay the loan.

How Businesses Benefit

Inventory financing is often used by small or medium-sized retailers, wholesalers, and manufacturing companies to accumulate inventory. Because the loan is collateralized by inventory, the interest rates to borrow money is lower than unsecured debt. This kind of financing is beneficial for some companies that need to pay their supplier right away or have a longer manufacturing process that lengthens the time between purchasing materials and receiving payment from customers. It can also be used to expand product lines and keep popular products stocked, so the business does not have to reduce investments in other areas of the company to purchase inventory.

Federated Bank Can Help

Federated Bank has the flexible business financing options you need to fund your business growth.  Whether you are looking to finance a business expansion or considering the purchase of equipment or property, our lending professionals will help you assess the options that fit your situation. Call your local branch today to talk with us about our flexible lending options.


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