If you are running a business, you must be aware that a financial crisis may occur at any time. Managing a financial crisis might be difficult if you do not have enough assets to apply for a regular loan. This is where your inventory comes in handy. An inventory refers to its raw materials, products that are work-in-progress, and finished goods, i.e., all the goods that the business owners can make a profit out of, by selling in their respective markets.
Inventory Financing is a solution for any financial crisis faced by a company, especially small and medium-sized businesses (SMBs). It is an asset-backed loan facility, through which the company obtains a loan based on the value of all or some of the business’s inventory. The loan is granted based on a percentage that is set by the investor, keeping in mind the inventory’s value.
The inventory itself serves as collateral for the loan availed, and if the borrower fails to make a profit, the investor can sell the goods/stocks in the inventory to obtain his/her money. The capital obtained from inventory financing can either be used to expand the business or buy more raw materials to meet higher demands in the future.
For example, a cosmetics business owner is expecting increased demand for wedding products during the wedding season, for which stocking up on inventory will help. But, to purchase more products from suppliers will require a huge capital. Instead of loaning, approaching investors makes greater sense, based on the value of the cosmetic products that need to be purchased. The business owner approaches an inventory financing platform, where the inventory that needs to be purchased is opened for investors. Let us help you understand inventory financing better.
An inventory financing arrangement includes the following characteristics:
Inventory Finance is a secure financing arrangement, which means that the businesses must provide collateral in case they cannot repay the loan. In inventory financing, the products and goods purchased using the investor’s funds itself act as the collateral.
The interest rates offered in inventory financing vary from one investor to the other. Businesses receive funds based on the valuation of the inventory by the investors. While evaluating the goods is a standard metric to arrive at the funds to be given, the investors may also add their own terms and conditions in certain cases. As a result, the rate of interest, tenure, and turnaround time differs from lender to lender.
Inventory Management requires businesses to have a steady cash flow at all times. However, when the demand is low, businesses may require funds to keep the business going. During this period, businesses can obtain the required funds through inventory financing.
An investor venturing into inventory financing will use his/her own auditors to conduct an inventory evaluation of the business in question. Based on the evaluation, the investor will set the amount of capital to be released, the repayment rate, the turnaround time, and other aspects of inventory financing before releasing the funds to a business.
Inventory Financing is highly beneficial for businesses, especially those businesses that have a large portion of their capital tied up with their business inventory. Therefore, most small and medium-sized businesses (SMBs) use this financing option often.
Steady Cash Flow: Small businesses generally face several losses and gaps in cash flow before becoming profitable. Inventory financing makes it easier for such businesses to access funds and maintain a steady cash flow at all times.
Size of the Business Does Not Matter: In order to get an inventory financing loan, the business does not have to be well established. Most investors only require the business to be running for a period of just six months in order to qualify for an inventory financing loan.
Maintaining The Business’s Ownership: When opting for inventory financing, companies are not required to sell or mortgage their capital assets to secure their funds. The inventory will itself act as collateral for the funds availed.
Does Not Rely On Credit Ratings: Unlike other loans, the borrower doesn’t have to rely on the business’s or their personal credit rating or history in inventory financing.
Apart from helping businesses grow, inventory financing is also beneficial for investors, as it helps diversify their portfolios and increase their chances of getting higher returns. Even if the borrower or business owner is unable to repay the loan, the investors can regain their money by selling the inventory.
If you are looking to diversify your portfolio through inventory financing, Grip is the way to go! You can invest as low as ?10,000 and earn up to 12% pre-tax yields while investing with Grip. You can also be rest assured that your money is in safe hands, as you will be funding the companies/businesses that have partnered with Grip. For greater insight on inventory financing visit Grip to try out this unique investment today.