Inventory Financing

Written by Patricia Skinner
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The most essential element of any enterprise is inventory. Without goods to sell the business is simply not operational. The problem often is being able to purchase sufficient inventory to meet customers' needs. Ideally, new business should be generated by not turning away anyone because what they want isn't in stock.

Sometimes the cost of inventory will leave a business completely devoid of cash for day-to-day running expenses. Raising this cash will be critical to allow a business to continue. Under some circumstances, lending institutions may make loans with a business's inventory as collateral.

Circumstances of Inventory Loans

Taking out a loan under an inventory financing deal is only a good idea if your business is basically healthy. If your inventory is valuable, which means that it is desirable, then you can go ahead. If, on the other hand, your inventory is not moving because no one wants it for any reason, then taking out a loan with it as collateral is not a good idea. Bear in mind that if your inventory is not tangible, such as in the case with a services based business, then you won't be able to take out a loan using such inventory as collateral.

You will need to keep records of sales and purchase of inventory to be able to take out an inventory loan. Lenders will look at the intrinsic value of your goods before they consider accepting your proposal. This is to your advantage because taking out an inventory loan when your business is not in a healthy state will probably only serve to make your eventual level of debt and losses worse.


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