For any businesses, fluctuations in cash flow are most often inevitable. Perhaps you want to make more sales by acquiring additional inventory, or maybe you want to maintain your inventory but do not have enough funds. Inventory financing is the solution.
Basically, inventory financing is a short-term loan granted by certain companies to an entrepreneur / business owner, to enable them to procure merchandise for sale. These products or merchandise will serve as the loan collateral, in case the borrower fails to pay off the loan on time. Inventory financing typically helps a business owner to acquire working capital to leverage inventory, without having to put up personal property as collateral.
How to Apply for Inventory Financing
To apply for inventory financing, your business must be an already-existing product-based company and not a startup. To get your inventory financing approved, you must have good inventory management — your products must be in good condition, and you must have a good sales record or history.
To apply for inventory financing, you must meet certain requirements, such as below:
Requirements for Inventory Financing
There are many companies that offer inventory financing, with these being the most common requirements:
1. Your business must be at least 1 year old
2. Have at least $50,000 annual revenue
3. Good credit score
4. Effective business plan & financial statements
5. Marketable products
6. Good inventory management system
Typically, your application can take weeks or maybe a month to get approved. Oftentimes, lenders do an onsite visit to inspect your inventory, and may also check your accounting records. This is basically part of due diligence.
Once approved, your lender will pay your supplier directly, then the supplier delivers the products to you, and you sell the products to repay the lender. If you fail to pay off the loan on time, the lender could take these products and sell them to satisfy the debt.
Where to get Inventory Financing?
1. Banks: This is probably the most common option to get financed, but this option has the slowest processing time. The bank will typically look into your business records, financial statements and credit score. Essentially, a bank will take your products as collateral, but can also place a blanket lien on your business assets, allowing them to seize any of your business assets if you are unable to repay the loan. Some banks can be loan sharks, so you should be careful in choosing which bank could financially help you without having to place a blanket lien on your business assets.
2. Vendor Financing: Vendor financing is a type of lending where the creditor is the supplier itself. For example, you want to purchase a product worth $1,000,000 from a certain supplier, but your cash on hand is just $500,000.Your supplier may lend you the other $500,000 at a certain interest rate, and the products will serve as collateral. Usually, vendor financing requires a solid relationship between the creditor and debtor – this type of financing can be instant and negotiable as long as you have a good relationship with your vendor.
3. Online Lenders: There are many online lenders you can find online, but here are my top 5 lenders:
Kabbage: Kabbage.com offers a line of credit of up to $150k for a 6- or 12-month term. Applications can take only 10 minutes, and approval can be instant if Kabbage is able to automatically obtain your business data and verify your bank account.
OnDeck: OnDeck.com can grant loans of up to $500k at a 9.99% annual interest rate. The application takes just a few minutes online or by calling them directly. OnDeck evaluates your business and typically provides a decision within minutes. If approved, you can receive the money in as little as 24 hours.
DealStruck: DealStruck.com offers up to $500k, as long as your business is a year old or more, your credit score is above 600 and you have $150k in annual revenue.
Behalf: Behalf.com offers business financing with a monthly fee that starts at just 1%, but fees are typically based on the applicant’s creditworthiness.
SmartBiz Loans: SmartBizLoans.com offers up to $350k at an interest rate that starts at 7% for a term of 10 years. The application takes only a few minutes; simply provide business data online and they will automatically tell you if you pre-qualify for working capital.
Amazon Inventory Financing
Most Amazon sellers encounter a fluctuation in cash flow and may eventually run out of working capital. This commonly happens during holiday seasons, where the product demand is high, yet some sellers are unable to maintain or get additional inventory due to insufficient funds. To apply for inventory financing for your Amazon business, you must meet the same requirements mentioned above to get qualified.
Amazon Lending Program
Did you know that Amazon has a lending program for its sellers? Yes, they have, because why not? They need more sellers to keep the business thriving. However, you can’t simply apply for a loan with Amazon Lending Program; Amazon itself offers you a loan if you qualify. Simply put, it is an invitation-only program. The program offers short-term business loans from $1,000 to $750,000 for up to 12 months. Amazon does not disclose interest rates, but it’s surely lower than credit cards’ rates.
How to Get Funded for Amazon Inventory
First off, you must be:
1. An Amazon top performer seller
2. Must be an active Amazon seller
3. You’re a small business entity
How Amazon Lending Program Works:
If you are qualified, an Amazon representative may contact you with a loan offer. Thing is, you can’t decide the loan amount, the loan term, or negotiate the interest rate. Amazon makes all the decisions.
When do you get an offer? This we will never know as well. Moreover, the funds are exclusively for your Amazon business only, be it for marketing/advertising expenses, extra inventory, investments in new products, and whatnot. Just like in any inventory financing, if you’re unable to pay off the loan, Amazon has the right to acquire your inventory.
If you never get an offer from Amazon Lending program, you can always try the options mentioned above: banks, vendor financing and online lenders.