Inventory financing helps companies buy more stuff to sell. It lets them get money from a lender to pay for things before selling them. This way, they can stock up on lots of products.
The company and lender make a deal. They agree on when the money needs repaying and what interest rate works. Then, the company uses the loan to buy inventory. The lender may ask for reports on how much stock is left. When the company sells the items, they use that money to repay the loan amount. Once all is paid off, any leftover money and items will belong to the company.
Inventory finance in the UK is very simple to get. Lenders promise to tailor lending terms to each customer. With their help, companies can buy bigger amounts of inventory. The experts there want to understand each business and help it grow over time. They aim to help companies succeed.
Types of Inventory Loans
Here are the different types of inventory loans:
Revolving Line of Credit
A revolving credit line means the business has ongoing access to financing as needed up to a set limit, like a credit card. They don’t take the full amount all at once. But it’s there to use in portions for buying inventory when required.
As money gets repaid, it frees up the credit to reuse for new inventory orders again and again. This flexibility helps manage cash flow swings.
Term Loan
With term loans, the lender provides a fixed amount the business must repay fully by the fixed maturity date, usually in months/years.
Repayments happen in small instalments over the term length also outlined at the start. These work for major expansions supported by financial projections that show loans can get repaid from sales revenue.
Purchase Order Financing
Businesses depend on inventory to fill purchase orders from clients. This financing helps fund the upfront purchasing of inventory needed to complete expected orders on the books.
As the client pays for their order, that revenue covers repaying the loan that made filling the order possible. This option aligns neatly with order fulfilment needs when the supplier can reasonably depend on payment from the buyer.
Warehouse Loans
Warehouse loans allow using owned inventory as collateral for financing, kind of like a pawn shop. The lender assumes some risk in case sales go poorly. But in exchange, they earn interest income for loaning money secured by the products in storage.
| Criteria | Revolving Line of Credit | Term Loan | Purchase Order Financing | Warehouse Loans |
| Credit Score | 600+ | 650+ | Proven purchase orders from creditworthy clients | Good credit history |
| Years in Business | 1-2 years | 2 years | 1 year | Varies by lender |
| Annual Revenue | £50,000+ | £100,000+ | £100,000+ | Sufficient inventory stock |
How Does It Work?
Inventory financing helps companies buy more stuff to later sell to shoppers. It lets them get loans to purchase goods and then use sales to repay the loans. After repaying, they can borrow again for ongoing buying inventory.
Getting a Loan to Buy More Inventory
The company works with a lender like a bank. They decide the terms of borrowing, including payback dates and other details important to the loan.
With loan money secured, the company can now buy more inventory in bulk amounts. Inventory means the products, materials, and goods that the company sells to customers.
Selling Goods to Repay the Loan
With more products stocked up from using the loan, the company sells inventory goods to regular customer shoppers. As items sell, sales bring in revenue and profits.
The company uses some profits from sales to repay the original loan amount. Repaying also includes paying interest costs set by loan terms earlier.
Benefits
Here are some of the top benefits:
Meet customer demand
One big benefit is meeting customer demand. Let’s talk about why having enough goods in stock is so great.
Inventory financing lets businesses buy more materials and products than usual all at once. This means when shoppers come to buy, the shelves will stay full. No one likes arriving at a store to find empty shelves!
Extra inventory on hand means customers can get what they need when they visit. If the business couldn’t afford big inventory orders, the stock would run out between shipments coming.
Bulk purchase discounts
One major benefit of inventory financing is companies can qualify for bulk purchase discounts. Let’s look at why buying large quantities can save money.
When a business orders a lot of one item at once, manufacturers may offer a discounted rate per piece. This discount makes the overall price better compared to small orders.
Flexibility & cash flow
Inventory financing offers flexibility for businesses. It also helps cash flow when done right.
Companies don’t take huge loans upfront without a plan. They take out financing as needed for specific inventory orders. This flexible approach prevents waste from unused funds sitting around.
Businesses time their financing and purchasing to match expected sales revenue. The sales income should cover loan repayment costs when inventory gets stocked. Proper planning prevents falling behind on payments.
Alternate Option
Unsecured business loans are another option for funding. These loans don’t require the company to put up property or equipment to get money.
They depend only on the business being able to repay. Approval for unsecured business loans in the UK is based on solid revenue and cash flow. Interest rates are higher with these loans since no assets secure them.
However unsecured financing can still help UK companies buy inventory or pay staff when low on cash. Even without pledged assets, loans are possible if finances look healthy to cover repayments coming from ongoing sales.
Conclusion
Online shops can sell to people all over the world. Someone far away can buy their products more easily. An online store may offer way more types of items than what fits in a physical store. Online shops do not have to rent a space or pay employees to be there. These things cost less when done online, saving the business money.
For most businesses, the extra customers and sales outweigh the shipping bills and such. It is especially as online buying keeps getting more popular and makes it easier for stores to manage. The benefits tend to be larger overall, which is why so many retailers open online shops.
Harry Kane is a financial writer and author who has covered wide topics related to business loans and finance for the last decade. He has been working as the Chief Contributor in finding out deals on various business finance products covered by Thebusinessfunds, a reputed business loan broker firm in the UK. The primary work of Harry is to analyse the loan requirements of various businesses according to their circumstances and affordability. He directly communicates with the loan aspirants and guides them to get the right loan matching their needs. He has a vast experience in finance writing, working with many major business firms in the UK. At Thebusinessfunds, Harry also used to write well-researched blogs covering the financial problems of business loan aspirants and providing relevant solutions. He is a postgraduate with MSc. in Banking and Finance.
