Are Inventory Loans Right For Your Business? | Behalf
As a passionate small business owner you started your company with a vision that you then made a reality with hard work and perseverance. Now comes the even harder part: running that business. Whether you are still in the honeymoon phase or already up to your neck in payables, there will come a time where you need to master business financing. To become great, every business must capitalize on opportunities to grow and these opportunities typically require some sort of capital outlay. For example, if your orders double next month, how would you fund your inventory buy? Would you put this type of expense on a credit card, or are there better options for inventory loans? To ensure you don’t miss opportunities, it is important that you are always at the ready with your business financing options.
In the past, business owners mostly turned to bank loans in times of financial distress. However, traditional bank loan applications are time consuming – often taking longer to process than the urgent business need allowed – and small businesses have been negatively impacted by low bank approval rates. Bank loans are designed for large amounts (e.g., $250k+) and the approval process does not support smaller inventory loans. Over time, better financing options such as inventory loans have emerged to specifically serve the growing needs of small business owners. Figuring out what types of financing are right for you requires a basic understanding of your business needs and all of the available options. Below is a Q&A guide to help you self-assess if inventory loans are the right option for you:
What type of business do you own?
Depending on your business model, inventory loans may not be the best option for you. Inventory loans are ideal for product-oriented or retail businesses, as opposed to service providing businesses that lack a substantial inventory.
How long have you been in business?
Though it is really up to the business owner’s discretion, there are stages in your business development where financing methods other than inventory loans will better suit your business needs. Established small business owners with an impressive sales performance record and a strong track record of inventory purchases stand a better chance of getting their inventory loans’ applications accepted by lender than young start-up businesses.
What are your business needs?
The reason you are considering a loan is just as important as getting it. Are you looking for a long term or short term business financing tool? Inventory loans are better suited for short term business financing, like a large inventory purchase. In the event that businesses cannot repay their inventory loans, they must surrender the inventory, which will likely be used as collateral to their lender.
How is your financial history?
If your answer is anything less than stellar, qualifying for inventory loans will be difficult. A business owner with a high amount of debt may need to look elsewhere for financing. Ideally you should have a clean balance sheet with little to no debt.
What other options are there?
Many lenders are apprehensive about lending to small businesses outside of their given parameters, but those businesses still need funding to cover their short term and immediate business expenses. Small businesses tend to struggle to muster enough working capital to get going and keep going. The biggest mistake business owners make is using their personal cash reserve, if they are turned away by inventory lenders.
The better option is to apply for a purchasing a line of credit. You can qualify for a Behalf purchasing line of credit and increase your capital reserve. Using Behalf to fund your inventory buy or production line instead of cash frees up working capital, while also giving you flexible extended terms. With your choice of up to six month terms on everything you need to grow your business, you can always maintain a healthy cash reserve.