Keeping the shelves stocked with what customers want to buy is sometimes a challenge for a small business owner trying to manage his or her other cash flow needs too. Fortunately there are options for funding inventory that can help you keep inventory on the shelves and your cash flow under control.
What Type of Inventory Financing is the Best Solution for My Business?
There are several options for funding inventory outside of paying for it with cash. Here are three popular ones:
- Vendor Financing: Many vendors offer payment terms to their customers and often allow them to purchase inventory today and pay for it in 30 or 60 days. This is not only a great way to finance inventory, it’s often one of the first sources of credit available to new businesses and gives those business owners the opportunity to build a strong foundation to their business credit profile.
- Short-Term Inventory Loans: Depending upon the nature of your business and the products you sell, inventory needs to be turning over on a regular basis; and paying for that inventory for four or five years through a traditional loan might not make sense. And, paying for this year’s inventory into next year can also eat away at next year’s profit margins. Short-term financing for six months or a year that matches the expected inventory turn-over could be a better choice.
- A Business Line of Credit: A line of credit offers the flexibility to purchase inventory on credit when you need to, pay it off quickly, and use the credit line again. What’s more, you don’t pay any interest on credit you don’t use. A line of credit can also help you take advantage of unexpected opportunities to purchase inventory at a discount—particularly if you need to act fast.
Financing larger, bulk inventory purchases can also help a business owner push down inventory costs, provided the cost of financing doesn’t erode profit margins. That’s one reason why it’s important to know the total cost of financing. It’s not uncommon for a short-term loan, for example, to carry a higher interest rate than a longer-term loan while at the same time a lower overall cost of funds. Like any small business loan, make sure you understand all the terms and fees before you sign on the dotted line.
If you’d like to learn about funding inventory at OnDeck, click HERE.