WHAT is Inventory Financing?
Inventory financing refers to a line of credit or short-term loan made to a company for purchasing products for sale. These products, or inventory, serve as collateral for the loan if the business is unable to sell and repay its loan. Inventory financing is useful, especially, for the businesses that must pay their suppliers in a shorter time period than what is taken in selling the inventory to customers. Moreover, it also provides a solution to seasonal fluctuations in cash flows in addition to helping a business reach a higher sales volume.
Lenders might view inventory financing as a type of unsecured loan for if the business is unable to sell its inventory, the bank might not be able to either.
Inventory financing is beneficial for companies with the following features:
The inventory financing is featured with certain drawbacks. Some of these include: