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Inventory Financing

Inventory financing is commonly used when a business needs additional credit and payment terms longer than 30 days in order to maintain a complete stock of inventory for immediate customer availability.

Inventory financing is similar to accounts receivable financing in that the loan is typically short-term and the interest rates are generally similar. The inventory is used as collateral, although lenders may require additional collateral and personal guaranty.

Lenders are generally very conservative on the valuation of the inventory and the advance rate. The amount advanced is based on the type and merchantibility of the inventory, the inventory turnover rate, and gross margin on inventory sold.

You can expect a lower advance rate if you are financing component parts and unfinished materials, as compared to a higher advance rate for inventory that is ready for delivery.

Some of the benefits of inventory financing include:

	Increased credit capacity based on the security in financed inventory
	Ability to stock inventory with extended payment terms
	Improved working capital (cash) position
	Does not count against customer's credit line

Inventory financing is best suited for:

	Wholesalers/Distributors/Resellers
	Manufacturers
	Companies experiencing good inventory turnover, but in need of cash to replenish inventory
	Businesses with good credit and sales history

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