Inventory Financing 101

Inventory Financing 101

Cash flow and funding are both important areas of concern for most business owners. As a result, many business owners are constantly looking for different ways to achieve steady cash flow to meet the demands of their business. Inventory financing is often one way that business owners can keep their inventory abundant and their business moving while waiting on their profits. However, this type of financing is usually not the first type of financing that business owners seek because it can be expensive although it can help business owners improve their cash flow. 

What is Inventory Financing?

Inventory financing is asset-based financing. This type of financing allows you to finance/borrow capital against your inventory. This form of financing gives you access to cash right away which helps pay business expenses and purchase more inventory. This form of financing is beneficial to business owners who may have limited credit terms or suppliers/vendors that want to be paid quickly.

How Does Inventory Financing Work?

Inventory financing is a funding method designed to provide business owners with funds valued at seventy-five percent of the appraised value of their inventory. The funding may also be provided based on fifty percent of the actual cost of your inventory. Most inventory financing companies will fund whatever is lowest, either the appraised value or the actual inventory cost. Inventory is usually appraised at its net orderly liquidation value (NOLV). For some business owners, this is a problem because your inventory may be appraised as substantially less than its market value.

Despite the drawbacks of inventory financing, it can be used successfully if used strategically. This form of financing allows businesses to accumulate and leverage their inventory, and finding is often increased as your business grows. Also, this form of financing is easier to obtain than conventional financing and allows businesses to meet their contractual obligations. 

Working with the right commercial finance team can help your business thrive. The experts at Gipson Commercial Solutions have a wealth of experience with commercial lending and know how to help business owners find the right products for their financing needs. Our adherence to high professional standards and exceptional customer service practices make us a renowned industry leader.