Inventory Financing for Small Business Financing options for merchant inventory funding.
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What Is Inventory Financing?
Inventory financing is a type of short-term loan that allows businesses to purchase inventory by using the inventory itself as collateral. The loan is secured by the value of the inventory, meaning that if the business is unable to repay the loan, the lender can seize and sell the items to recoup their losses.
This type of financing is often used by merchants that have difficulty qualifying for traditional bank loans, as it is based on the value of the inventory rather than the creditworthiness of the borrower.
Inventory financing can take many different forms, but most commonly it takes the form of a line of credit, fixed rate business loan, or asset-based loan.
How Does Inventory Financing Work?
Inventory financing works by using the inventory itself as collateral. The amount of the loan is based on a percentage of the value of the inventory, so it is important to ensure that the inventory is valued correctly to avoid defaulting on the loan. The loan is typically repaid with a portion of the proceeds from the sale of the inventory.
How Can I Use an Inventory Loan?
Why LendThrive?
LendThrive understands how much value small businesses bring to the community, so we created easy and attainable loan options that contribute toward your success. We have an entrepreneur-oriented investment model, with the goal to support your dreams and bring your business to life.
When you acquire a loan with LendThrive, you can be assured that high-interest rates won’t be an additional stressor to your day. Our Fixed Rate Business Loans offer the opportunity to decrease your interest rate as you make payments. Pay off your loan early or make extra payments without penalty if you have the funds. Our goal is to make things easy for small business owners.
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Qualifications for Inventory Financing
There are a few general qualifications that businesses need to meet to be eligible for inventory financing. First, the business must have a verifiable source of income. Second, the business must have been in operation for at least six months. And finally, the business must have some form of collateral, in this case, your inventory, that can be used to secure the loan.
Types of Inventory Financing
There are three main types of merchant inventory financing: lines of credit, fixed rate business loans, and asset-based loans.
1. Lines of Credit
A line of credit is a type of loan that allows borrowers to access a set amount of funds as needed. Funds can be drawn down as inventory is purchased and repaid as the inventory is sold. This type of financing is ideal for businesses that have fluctuating inventory needs, as it provides flexibility in terms of both repayment and borrowing.
2. Fixed Rate Business Loans
Fixed rate business loans are another type of loan that can be used for inventory financing. These loans provide a lump sum of cash that can be used to purchase inventory, and the interest rate is fixed for the life of the loan. This type of loan is best for businesses that have a well-defined need for inventory and a clear plan for repaying the loan.
3. Asset-Based Loans
Asset-based loans are a type of loan that is secured by the value of the borrower’s assets, such as inventory, receivables, or equipment. This type of loan is typically used by businesses that have difficulty qualifying for traditional bank financing.
Inventory financing can be a helpful tool for small businesses that need to purchase inventory but have difficulty qualifying for traditional bank loans. By using the inventory itself as collateral, businesses can access the funds they need to grow and expand their operations.