Choosing the right business funding is somewhat like selecting a residential mortgage: there are various products, and each has a unique set of advantages and limitations. As such, there’s no standard “right” or “best” type of business loan — because that determination is ultimately based on the borrower’s needs and resources.
However, obviously there are borrower profiles that tend to choose one product vs. another. For example, many restaurant owners and other retailers obtain a merchant cash advance, because the repayment is easily affordable (i.e. a few percentage points of daily sales), and the term fluctuates based on revenues (i.e. the total cost of borrowing doesn’t rise if it takes longer to pay the advance back than originally anticipated).
In a similar sense, many businesses choose an inventory loan because it helps them solve one, some or all 3 of these critical yet common problems:
1. Running out of inventory.
Whereas real estate professionals point out that the three most important aspects of a property are “location, location and location,” retailers and wholesalers know that in their world, success and stability is all about inventory, inventory and inventory.
An inventory loan ensures that the shelves and warehouses are adequately stocked, so that customers get their orders promptly, and that the cash keeps flowing.
2. Breaching reseller agreements.
Many reseller agreements compel businesses to have a minimum threshold amount of inventory on-hand, regardless of whether it eventually sells. Failing to meet this requirement can lead to financial penalties (i.e. losing preferred rates or terms), and in some cases, it can trigger a material breach that invalidates the agreement and ends the relationship.
An inventory loan ensures that businesses are consistently in compliance with inventory level requirements, which could mean the difference between succeeding or shutting down.
3. Running out of working capital.
An inventory loan functions as a revolving line of credit, which businesses can draw down as required in order to cover expenses or investments. In addition to having immediate access to funds (i.e. there is no additional application process), the line is secured by inventory and so it’s less costly than an unsecured line.
At National Business Capital, we proudly offer inventory loans to businesses across the country — including many that have been told “no” by banks and other lending firms. To learn more, fill out our two minute application or start an online chat right now (click the bottom-left of your screen to get started).